Annual Statements Open main menu
  1. Annual Statements
  2. » Companies
  3. » EOS INC.
  4. » Quarter Report: 2022 September (Form 10-Q)

EOS INC. - Quarter Report: 2022 September (Form 10-Q)

 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
Form 10-Q
 
(Mark One)
 
x
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
FOR THE QUARTERLY PERIOD ENDED: September 30, 2022
 
¨
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
 
FOR THE TRANSITION PERIOD FROM __________ TO __________
 
COMMISSION FILE NUMBER 000-55661
 
EOS Inc.
(Exact name of registrant as specified in its charter)
 
Nevada
 
30-0873246
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
7F-1, No.162, Section2 Zhong Shan N. Rd, Zhong Shan District,
Taipei City 104, Taiwan (Republic of China)
(Address of principal executive offices, Zip Code)
 
+886-2-2586-8300
(Registrant’s telephone number, including area code)
 
N/A

(Former name or former address, if changed since last report)
 
 
Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:
 
Title of each class
 
Trading Symbol(s)
 
Name of each exchange on which registered
None
 
None
 
None
 
Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes
☒
     No
☐
 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes
☒
     No
☐
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer
¨
Accelerated filer
¨
Non-accelerated filer
x
Smaller reporting company
x
 
Emerging growth company
x
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
¨
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
¨
     No
x
 
As of November
10
, 2022, the number of shares of registrant’s common stock outstanding is 183,781,560.
 
 
 
 
 
EOS, Inc. 
 
Table of Contents
 
 
 
 
 
   
 
 
   
 
 
   
 
 
   
 

 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
2
 
 
PART I — FINANCIAL INFORMATION
 
Item 1. Financial Statements.
 
The following unaudited interim condensed consolidated financial statements of EOS Inc. are included in this Quarterly Report
on
Form 10-Q:
 
INDEX TO FINANCIAL STATEMENT
 
 
 
 
 
 
 
 
 
 
 
F-1
 
 
EOS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS AS OF SEPTEMBER 30, 2022 AND DECEMBER 31, 2021 (UNAUDITED)
(In U.S. Dollars, except share data or otherwise stated)
  
 
  
September 30,
 
 
December 31,
 
 
2022
 
 
2021
 
Assets
 
 
            
Current Assets
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
 
17,575
 
 
 
24,141
 
Accounts receivable
 
 
397,476
 
 
 
548,201
 
Inventory, net
 
 
57,902
 
 
 
29,573
 
Advance to suppliers
 
 
161,092
 
 
 
280,224
 
Security deposits
 
 
983,035
 
 
 
1,127,989
 
Prepaid expenses and other current assets
 
 
20,686
 
 
 
27,773
 
Total Current Assets
 
 
1,637,766
 
 
 
2,037,901
 
Non-Current Assets
 
 
 
 
 
 
 
 
Property and equipment, net
 
 
23,023
 
 
 
6,739
 
Operating lease right of use asset, net
 
 
49,841
 
 
 
85,419
 
Total Non-Current Assets
 
 
72,864
 
 
 
92,158
 
Total Assets
 
$
1,710,630
 
 
$
2,130,059
 
Liabilities and Stockholders’ Equity
 
 
            
 
 
 
 
 
 
 
 
 
Current Liabilities
 
 
 
 
 
 
 
 
Accounts payable
 
 
1,636
 
 
 
-
 
Other payable and accrued expenses
 
 
51,580
 
 
 
88,040
 
Due to shareholders
 
 
198,745
 
 
 
30,858
 
Income tax payable
 
 
46,046
 
 
 
55,394
 
Other current liabilities
 
 
699,918
 
 
 
500,000
 
Operating lease liabilities - current
 
 
33,154
 
 
 
37,779
 
Short-term loan
 
 
70,983
 
 
 
80,047
 
Total Current Liabilities
 
 
1,102,062
 
 
 
792,118
 
Non-Current Liabilities
 
 
 
 
 
 
 
 
Long-term loan
 
 
124,225
 
 
 
204,133
 
Operating lease liabilities - non-current
 
 
16,687
 
 
 
47,640
 
Total Non-Current Liabilities
 
 
140,912
 
 
 
251,773
 
Total liabilities
 
 
1,242,974
 
 
 
1,043,891
 
 
 
 
            
Commitments and Contingencies
 
 
-
 
 
 
-
 
 
 
 
            
Stockholders’ Equity
 
 
 
 
 
 
 
 
Preferred stock ($0.001 par value, 5,000,000 shares authorized, 1,500,000 shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively)
 
 
1,500
 
 
 
1,500
 
Common stock ($0.001 par value; 575,000,000 shares authorized, 183,781,560 and 180,065,254 shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively)
 
 
183,781
 
 
 
180,065
 
Additional paid-in capital
 
 
67,249
 
 
 
29,060
 
Deferred Stock
Compensation
 
 
(40,674
)
 
 
-
 
Retained earnings
 
 
266,641
 
 
 
722,925
 
Accumulated other comprehensive income
 
 
(21,899
)
 
 
133,056
 
Total stockholders’ equity
 
 
456,598
 
 
 
1,066,606
 
Non-controlling interest
 
 
11,058
 
 
 
19,562
 
Total Equity
 
 
467,656
 
 
 
1,086,168
 
Total Liabilities and Stockholders’ Equity
 
$
1,710,630
 
 
$
2,130,059
 
 
The accompanying notes are an integral part of these consolidated financial statements.
 
 
F-2
 
 
EOS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022
AND
2021 (UNAUDITED)
(In U.S. Dollars, except share data or otherwise stated)
 
 
 
For the Nine Months
 
 
For the Three Months
 
 
 
Ended September 30,
 
 
Ended September 30,
 
 
 
2022
 
 
2021
 
 
2022
 
 
2021
 
Net sales
 
$
432,190
 
 
 
886,020
 
 
$
300,005
 
 
 
549,242
 
Cost of sales
 
 
264,425
 
 
 
392,891
 
 
 
215,526
 
 
 
373,100
 
Gross profit
 
 
167,765
 
 
 
493,129
 
 
 
84,479
 
 
 
176,142
 
Selling, general and administrative expenses
 
 
643,642
 
 
 
782,242
 
 
 
202,988
 
 
 
276,996
 
Loss from operations
 
 
(475,877
)
 
 
(289,113
)
 
 
(118,509
)
 
 
(100,854
)
Other expense
 
 
                            
Interest expense
 
 
(3,122
)
 
 
(1,043
)
 
 
(1,453
)
 
 
(826
)
Other
income
(
expense
)
 
 
4,704
 
 
 
(48,676
)
 
 
(161
)
 
 
(40,198
)
Gain on investment in equity securities
 
 
-
 
 
 
33,411
 
 
 
-
 
 
 
-
 
Total other income (expense)
 
 
1,582
 
 
 
(16,308
)
 
 
(1,614
)
 
 
(41,024
)
 
 
 
                            
Loss before income tax provision
 
 
(474,295
)
 
 
(305,421
)
 
 
(120,123
)
 
 
(141,878
)
 
 
 
                            
Income tax provision
 (benefits)
 
 
(10,274
)
 
 
(51,058
)
 
 
201
 
 
 
(99
)
 
 
 
                            
Net Loss
 
$
(464,021
)
 
 
(254,363
)
 
$
(120,324
)
 
 
(141,779
)
 
 
 
                            
Other Comprehensive Income (Loss):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net loss attributable to non-controlling interests
 
$
(7,738
)
 
 
(507
)
 
$
(1,575
)
 
 
-
 
Net loss attributable to EOS and subsidiaries
 
 
(456,283
)
 
 
(253,856
)
 
 
(118,749
)
 
 
(141,779
)
Foreign currency translation adjustment, net of tax
 
 
(155,723
)
 
 
13,287
 
 
 
(69,103
)
 
 
4,431
 
Comprehensive loss
 
$
(619,744
)
 
 
(241,076
)
 
$
(189,427
)
 
 
(137,348
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net loss per share:
 
 
                            
Basic and diluted
 
$
(0.00
)
 
 
(0.01
)
 
$
(0.00
)
 
 
(0.00
)
 
 
 
                            
Weighted average number of common shares:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic and diluted
 
 
181,902,988
 
 
 
42,592,727
 
 
 
185,518,529
 
 
 
126,260,906
 
 
The accompanying notes are an integral part of these consolidated financial statements.
 
 
F-3
 
 
EOS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021
(UNAUDITED)
(In U.S. Dollars, except
share
data
or
otherwise stated)
 
 
 
Common stock
 
 
Preferred Stock

 
Deferred Stock
 
Accumulated
Additional

Paid-in
 
Retained
 
Accumulated

Other

Comprehensive
 
Non-
Controlling
 
 
 
 
Shares
 
 
Amount
　 
　 
Shares
 
 
Amount
 
Compensation
 
Capital
 
Earning
 
Income
 
(Loss)
 
Interest
 
Total
Balance at December 31, 2021
 
 
180,065,254
 
 
$
180,065
 
 
 
1,500,000
 
 
$
1,500
 
 
$
-
 
 
$
29,060
 
 
$
722,925
 
 
$
133,056
 
 
$
19,562
 
 
$
1,086,168
 
Foreign currency translation adjustment
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
(44,080
)
 
 
(843
)
 
 
(44,923
)
Net loss
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
(202,988
)
 
 
-
 
 
 
(4,091
)
 
 
(207,079
)
Balance at March 31, 2022
 
 
180,065,254
 
 
$
180,065
 
 
 
1,500,000
 
 
$
1,500
 
 
$
-
 
 
$
29,060
 
 
$
519,937
 
 
$
88,976
 
 
$
14,628
 
 
$
834,166
 
Share issued for compensation
 
 
115,000
 
 
 
115
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
1,116
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
1,231
 
Deferred compensation expense relating to issuance of restricted common stock
 
 
3,601,306
 
 
 
3,601
 
 
 
-
 
 
 
-
 
 
 
(38,534
)
 
 
34,933
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
Deferred comp
e
nsation expense relating to issuance of warrant
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
(2,140
)
 
 
2,140
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
Foreign currency translation adjustment
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
(40,980
)
 
 
(714
)
 
 
(41,694
)
Net loss
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
(134,547
)
 
 
-
 
 
 
(2,071
)
 
 
(136,618
)
Balance at June 30, 2022
 
 
183,781,560
 
 
$
183,781
 
 
 
1,500,000
 
 
$
1,500
 
 
$
(40,674
)
 
$
67,249
 
 
$
385,390
 
 
$
47,996
 
 
$
11,843
 
 
$
657,085
 
Foreign currency translation adjustment
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
(69,895
)
 
 
790
 
 
 
(69,105
)
Net loss
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
(118,749
)
 
 
-
 
 
 
(1,575
)
 
 
(120,324
)
Balance at September 30, 2022
 
 
183,781,560
 
 
$
183,781
 
 
 
1,500,000
 
 
$
1,500
 
 
$
(40,674
)
 
$
67,249
 
 
$
266,641
 
 
$
(21,899
)
 
$
11,058
 
 
$
467,656
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2020
 
 
74,123
 
 
 
74
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
186,474
 
 
 
1,058,090
 
 
 
87,051
 
 
 
24,544
 
 
 
1,356,233
 
Foreign currency translation adjustment
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
(23,514
)
 
 
(514
)
 
 
(24,028
)
Net loss
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
68,936
 
 
 
-
 
 
 
3,990
 
 
 
72,926
 
Balance at March 31, 2021
 
 
74,123
 
 
$
74
 
 
 
-
 
 
$
-
 
 
$
-
 
 
$
186,474
 
 
$
1,127,026
 
 
$
63,537
 
 
$
28,020
 
 
$
1,405,131
 
Cancellation of common stock
 
 
(10,000
)
 
 
(10
)
 
 
-
 
 
 
-
 
 
 
-
 
 
 
(33,401
)
 
 
-
 
 
 
-
 
 
 
-
 
 
 
(33,411
)
Reverse Stock Split Adjustment
 
 
1,131
 
 
 
1
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
(1
)
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
Foreign currency translation adjustment
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
32,370
 
 
 
704
 
 
 
33,074
 
Net loss
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
(181,013
)
 
 
-
 
 
 
(4,497
)
 
 
(185,510
)
Balance at June 30, 2021
 
 
65,254
 
 
$
65
 
 
 
-
 
 
$
-
 
 
$
-
 
 
$
153,072
 
 
$
946,013
 
 
$
95,907
 
 
$
24,227
 
 
$
1,219,284
 
Shares Issued for Liability Converted
 
 
90,000,000
 
 
 
90,000
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
(20,542
)
 
 
-
 
 
 
-
 
 
 
-
 
 
 
69,458
 
Shares Issued for minority controlling interests of its subsidiary
 
 
90,000,000
 
 
 
90,000
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
(90,000
)
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
Issuance of Preferred Stock to related party
 
 
-
 
 
 
-
 
 
 
1,500,000
 
 
 
1,500
 
 
 
-
 
 
 
(1,500
)
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
Foreign currency translation adjustment
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
4,431
 
 
 
-
 
 
 
4,431
 
Net loss
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
(141,779
)
 
 
-
 
 
 
-
 
 
 
(141,779
)
Balance at September 30, 2021
 
 
180,065,254
 
 
$
180,065
 
 
 
1,500,000
 
 
$
1,500
 
 
$
-
 
 
$
41,030
 
 
$
804,234
 
 
$
100,338
 
 
$
24,227
 
 
$
1,151,394
 

The accompanying notes are an integral part of these consolidated financial statements.
 
 
F-4
 
 
EOS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021 (UNAUDITED)
(In U.S. Dollars, except share data
or
otherwise stated)
 
 
 
For the Nine Months
 
 
 
Ended September 30,
 
 
 
 
2022
 
 
 
2021
 
Cash Flows from Operating Activities
 
 
 
 
 
 
 
 
Net loss
 
$
(464,021
)
 
$
(254,363
)
Adjustments to reconcile net income to net cash provided by operating activities
 
 
 
 
 
 
 
 
Bad debt recovery
 
 
(17,557
)
 
 
-
 
Depreciation
 
 
898
 
 
 
1,677
 
Amortization of right-of-use asset
 
 
26,767
 
 
 


Unrealized (gain) loss from investment
 
 
 
 
 
 
(33,411
)
 
Stock based compensation
 
 
1,231
 
 
 
-
 
Changes in assets and liabilities:
 
 
 
 
 
 
 
 
Decrease (increase) in accounts receivable
 
 
136,127
 
 
 
(64,569
)
Decrease (increase) in inventory
 
 
(34,915
)
 
 
289,835
 
Decrease (increase) in advance to suppliers
 
 
90,587
 
 
 
(83,766
)
Decrease (increase) in security deposits and other assets
 
 
21,803
 
 
 
3,636
 
Increase (decrease) in accounts payable
 
 
1,778
 
 
 
(20,575
)
Increase (decrease) in accrued expenses
 
 
160,111
 
 
 
153,419
 
Increase (decrease) in tax payable
 
 
(7,664
)
 
 
(27,728
)
Increase (decrease) in operating lease liabilities
 
 
(26,767
)
 
 
-
 
Net cash used in operating activities
 
 
(111,622
)
 
 
(35,845
)
 
 
 
 
 
 
 
 
 
Cash flows from Investing activities
 
 
 
 
 
 
 
 
Purchase of equipment
 
 
(19,537
)
 
 
(1,528
)
Net cash used in investing activities
 
 
(19,537
)
 
 
(1,528
)
 
 
 
 
 
 
 
 
 
Cash flows from Financing activities
 
 
 
 
 
 
 
 
Proceeds from related party payable
 
 
362,308
 
 
 
(19,698
)
Repayment to related party
 
 
(177,738
)
 
 
-
 
Proceeds from borrowings
 
 
-
 
 
 
133,854
 
Repayment to borrowings
 
 
(57,102
)
 
 
-
 
Net cash provided by financing activities
 
 
127,468
 
 
 
114,156
 
 
 
 
 
 
 
 
 
 
Effect of exchange rate changes on cash and cash equivalents
 
 
(2,876
)
 
 
1,465
 
Net increase (decrease) in cash and cash equivalents
 
 
(6,566
)
 
 
78,248
 
Cash and Cash Equivalents
 
 
 
 
 
 
 
 
Beginning
 
 
24,141
 
 
 
122,482
 
Ending
 
$
17,575
 
 
$
200,730
 
Supplemental Disclosure of Cash Flows
 
 
 
 
 
 
 
 
Cash paid during the periods for:
 
 
 
 
 
 
 
 
Interest
 
$
3,135
 
 
$
2,179
 
Income taxes
 
$
-
 
 
$
(51,058
)
 
 
 
 
 
 
 
 
 
Non-cash investing and financing activities:
 
 
 
 
 
 
 
 
Related party debt converted to Common stock
 
$
-
 
 
$
69,459
 
Issuance of Common Stock for minority controlling interests of its subsidiary
 
$
-
 
 
$
90,000
 
Issuance of Preferred Stock to related party
 
$
-
 
 
$
1,500
 
Deferred compensation expense relating to issuance of restricted common stock
 
$
38,534
 
 
$
-
 
Deferred compensation expense relating to issuance of warrant
 
$
2,140
 
 
$
-
 
 
The accompanying notes are an integral part of these consolidated financial statements.
 
 
F-5
 
 
 
EOS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDAED FINANCIAL STATEMENTS (UNAUDITED)
 
Note 1. NATURE OF OPERATIONS AND SUMMARY OF ACCOUNTING POLICIES
 
Basis of Presentation
 
The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles in
the
United States of America (“U.S. GAAP”) for interim financial reporting and in accordance with instructions for Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, the unaudited consolidated financial statements contained in this report reflect all adjustments that are normal and recurring in nature and considered necessary for a fair presentation of the financial position and the results of operations for the interim periods presented. The year-end balance sheet data were derived from audited consolidated financial statements, but does not include all disclosures required by GAAP. The results of operations for the interim period are not necessarily indicative of the results expected for the full year. These unaudited consolidated financial statements, footnote disclosures, and other information should be read in conjunction with the consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.
 
Organization
 
EOS Inc. was incorporated on April 3, 2015 in the State of Nevada. The Company’s business plan is to market and distribute skin care products, including masks and serums.
 
On November 18, 2016, the Company set up a wholly-owned subsidiary in Taiwan to assist the Company to promote the business in Taiwan.
 
Emperor Star International Trade Co., Ltd., (“Emperor Star”), was incorporated on November 16, 2015 under the laws of Taiwan. Emperor Star is in the business of marketing and distribution of various products, including nutrition supplements, skin care products, and water purifiers.
 
On May 3, 2017, the Company entered into and closed a Share Purchase and Sale Agreement (the “Purchase Agreement”) with Emperor Star and the shareholder of Emperor Star to acquire all issued and outstanding shares of Emperor Star in consideration of $30,562 in cash. As a result of the Purchase Agreement, Emperor Star became the Company’s wholly owned subsidiary. Upon consummation of the transaction, the Company has assumed the business of Emperor Star and ceased to be a shell company.
 
On September 20, 2018, the Company set up another wholly-owned subsidiary, EOS International Inc. (“EOS(BVI)”), under the laws of British Virgin Islands. EOS(BVI) is in the business of marketing and distribution of various products, including nutrition supplements, skin care products, and water purifiers.
 
 
F-6
 
 
On March 1, 2019, EOS(BVI) set up a wholly-owned subsidiary, Shanghai Maosong Co., Ltd (“Maosong”), under the laws of People’s Republic of China. Maosong is in the business of marketing and distribution of various products, including nutrition supplements, skin care products, and water purifiers in China. As of the date of this report, Maosong has a registered capital of USD $100,000, but no capital has actually been paid into Maosong.
 
On June 2, 2020, EOS(BVI) 83.33% owner, and Shanghai Qifan Qiye Management Co., Ltd. (“Qifan”) 16.67% owner of Maosong resolute to change the registered capital of Maosong to RMB 1,200,000,000 (1.2 billion) and that EOS to contribute certain Intellectual Property as registered capital of Shanghai Maosong. Intellectual Property owned by EOS International Inc was valued at RMB 1,000,000,000 (1 billion) and Intellectual Property owned by Qifan was valued at RMB 200,000,000 (200 million).
 
On July 13, 2021, EOS(BVI), MaoSong, and Qifan entered into a Shareholder Agreement where Qifan (i) delegate its 16.67% equity voting rights, powers, or benefits in Maosong to EOS(BVI); (ii) grant EOS(BVI) an irrevocable, unconditional, exclusive option to purchase Maosong’s equity interest; (iii) the right to receive any proceeds from the Maosong’s Equity Interest; (iv) pledge its existing or any prospective Maosong equity interest to EOS Int’l; as a result EOS(BVI) retains 100% control of MaoSong and the 16.67% noncontrolling interest are consolidated.
 
Principles of Consolidation
 
The accompanying consolidated financial statements, including the accounts of EOS Inc. and its wholly owned subsidiaries in Taiwan, British Virgin Islands, and People’s Republic of China, have been prepared in conformity with accounting principles generally accepted in the United States of America. Since the Company and Emperor Star are entities under common control prior to the acquisition of Emperor Star, the transaction is accounted for as a restructuring transaction. All assets and liabilities of Emperor Star were transferred to the Company at their respective carrying amounts on the date of transaction. The Company has recast prior period financial statements to reflect the conveyance of Emperor Star’s common shares as if the restructuring transaction had occurred as of the earliest date of the consolidated financial statements. All material intercompany accounts, transactions, and profits have been eliminated in consolidation. The nature of and effects on earnings per share (EPS) of non-recurring intra-entity transactions involving long-term assets and liabilities is not required to be eliminated and EPS amounts have been recast to include the earnings (or losses) of the transferred net assets.
 
The functional currency of the subsidiaries in Taiwan is the New Taiwan dollars and the subsidiary in People’s Republic of China is the Chinese Yuan, or Renminbi; however, the accompanying consolidated financial statements have been translated and presented in United States Dollars ($). In the accompanying consolidated financial statements and notes, “$”, “US$” and “U.S. dollars” mean United States dollars, “NT$” and “NT dollars” mean New Taiwan dollars, and “RMB” means Chinese Yuan, or Renminbi.
 
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.
 
Cash and Cash Equivalents
 
Cash and cash equivalents include cash and all highly liquid instruments with original maturities of three months or less.
 
Accounts Receivable
 
Accounts receivable are stated at carrying value less estimates made for doubtful receivables. An allowance for impairment of trade receivables is established if the collection of a receivable becomes doubtful. Such receivable becomes doubtful when there is objective evidence that the Company will not be able to collect all amounts due according to the original terms of the receivables. Significant financial difficulties of the debtor, probability that the debtor will enter into bankruptcy or financial reorganization, and default or delinquency in payments are considered indicators that the receivable is impaired. The amount of the allowance is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate. An impairment loss is recognized in the statement of income, as are subsequent recoveries of previous impairments.
 
F-7

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 are carried at cost net of accumulated depreciation. Expenditures that improve the functionality of the related asset or extend the useful life are capitalized. When property and equipment is retired or otherwise disposed of, the related gain or loss is included in operating income. Leasehold improvements are depreciated on the straight-line method over the shorter of the remaining lease term or estimated useful life of the asset. Depreciation is calculated on the straight-line method, including property and equipment under capital leases, generally over five years. Depreciation expense is $898 and $1,677 for the nine months ended S
eptem
ber 30, 2022 and 2021, respectively.
 
 
F-8
 
 
 

Revenue Recognition
 
Pursuant to ASC 606, the Company recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration that the Company expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that the Company determines is within the scope of ASC 606, the Company performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the Company satisfies a performance obligation. The Company only applies the five-step model to contracts when it is probable that the Company will collect the consideration the Company is entitled to in exchange for the goods or services the Company transfers to the customers. At inception of the contract, once the contract is determined to be within the scope of ASC 606, the Company assesses the goods or services promised within each contract, determines those that are performance obligations, and assesses whether each promised good or service is distinct. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.
 
Merchandise sales: The Company recognizes sales revenues from merchandise sales when customers obtain control of the Company’s products, which typically occurs upon delivery to customer. Merchandise sales revenues are recorded at the sales price, or “transaction price”.
 
Software sales: The Company does not develop the software products on its own. When the Company receives a purchase order from the customer, the Company would engage with the third-party software company to customize and develop the software products. The Company recognizes software revenues upon completion of the installation and testing, and transfer the control of the software products to the customer. Software revenues are recorded at the fixed sales price, or “transaction price”, pursuant to the sales contracts. The Company may also charge the customer maintenance service fees on a straight-line basis over the service period pursuant to the sales contract. The Company concluded that the performance obligation for the maintenance service is distinct. Therefore, such maintenance service revenue can be separated from other elements in the arrangement.
 
Trade discount and allowances: The Company generally does not provide invoice discounts on product sales to its customers for prompt payment.
 
Product returns: The Company generally does not provide customers with the right to return a product for a full or partial refund, a credit, or an exchange for another product.
 
To date, product allowance and returns have been minimal and, based on its experience, the Company believes that returns of its products will continue to be minimal.
 
Since COVID-19 pandemic hit globally in 2020 and throughout first three quarters of financial year ended December 31, 2021, management assessed that the market conditions that it operated in was worsening.  Credit risk on customers was determined to have deteriorated significantly as the majority of its customers were located in the PRC.  Accordingly, management took the position that revenue would only be recognized when the consideration is received as to satisfy revenue recognition criteria related to reasonable certainty of collections.
 
During the fourth quarter of financial year ended December 31, 2021, the Covid pandemic was effectively controlled in the PRC.  Management re-assessed the market conditions and determined that the overall market conditions were improving, and the Company’s collection history in the prior three quarters was positive, and in fourth quarter of 2021 reached sustainable recovery rate comparable to pre-COVID-19 environment. Accordingly, management decided that due to the improved conditions collection is now reasonably certain, and revenue is now recognized when risk and rewards are transferred to its customers.
 
The following tables provide details of revenue by major products and by geography.
 
 
F-9
 
Revenue by Major Products
 
For the nine months ended September 30, 2022:
 
 
 
Water purifier machine
 
$
11,873
 
Automobile carbon reduction machine
 
 
21,665
 
Nutrition supplement
 
 
110,355
 
Software
 
 
285,920
 
Other materials
 
 
2,377
 
Total
 
$
432,190
 
 
For the nine months ended September 30, 2021:
 
 
 
Water purifier machine
 
$
886,020
 
Automobile carbon reduction machine
 
 
-
 
Nutrition supplement
 
 
-
 
Software
 
 
-
 
Total
 
$
886,020
 

F-10
 
Revenue by Geography
 
For the nine months ended September 30, 2022:
 
 
 
Asia Pacific
 
$
432,190
 
Total
 
$
432,190
 
 
For the nine months ended September 30, 2021:
 
 
 
Asia Pacific
 
$
886,020
 
Total
 
$
886,020
 
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 842. 
 
The new leasing standard requires recognition of leases on the consolidated balance sheets as right-of-use (“ROU”) assets and lease liabilities. ROU assets represent the Company’s right to use underlying assets for the lease terms and lease liabilities represent the Company’s obligation to make lease payments arising from the leases. Operating lease ROU assets and operating lease liabilities are recognized based on the present value and future minimum lease payments over the lease term at commencement date. The Company’s future minimum based payments used to determine the Company’s lease liabilities mainly include minimum based rent payments. As most of Company’s leases do not provide an implicit rate, the Company uses its estimated incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments.
 
In addition, the adoption of the standard did not have a material impact on the Company’s results of operations or cash flows. Operating lease cost is recognized as a single lease cost on a straight-line basis over the lease term and is recorded in Selling, general and administrative expenses. Variable lease payments for common area maintenance, property taxes and other operating expenses are recognized as expense in the period when the changes in facts and circumstances on which the variable lease payments are based occur. 
 
 
F-11
 
Advertising Costs
 
Advertising costs are expensed at the time such advertising commences. Advertising expenses were $2,002 and $399 for the nine months ended September 30, 2022 and 2021, respectively.
 
Stock-Based Compensation
 
The Company accounts for stock-based compensation in accordance with ASC 718, Compensation-Stock Compensation (“ASC 718”). Under the fair value recognition provisions, stock-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as compensation expense on a straight-line basis over the requisite service period, based on the terms of the awards. The Company calculates the fair value of option grants utilizing the Black-Scholes pricing model and estimates the fair value of the stock based upon the estimated fair value of the common stock.
 
In June 2018, the Financial Accounting Standards Board (“FASB”) issued ASU 2018-07, Compensation - Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting (“ASU 2018-07”). ASU 2018-07 expands the guidance in ASC 718 to include share-based payments for goods and services to non-employees and generally aligns it with the guidance for share-based payments to employees. In accordance with ASU 2018-07, these stock options and warrants issued as compensation for services provided to the Company are accounted for based upon the fair value of the underlying equity instrument. The fair value of the equity instrument is charged directly to compensation expense and additional-paid-in capital over the period during which services are rendered.
 
Post-retirement and Post-employment Benefits
 
The Company’s subsidiaries in Taiwan adopted the government mandated defined contribution plan pursuant to the Taiwan Labor Pension Act (the “Act”). Such labor regulations require that the rate of contribution made by an employer to the Labor Pension Fund per month shall not be less than 6% of the worker’s monthly salaries. Pursuant to the Act, the Company makes monthly contribution equal to 6% of employees’ salaries to the employees’ pension fund. The Company has no legal obligation for the benefits beyond the contributions made. The total amounts for such employee benefits, which were expensed as incurred, were $
4,105
and $4,541 for the nine months ended September 30, 2022 and 2021, 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 non-financial assets and liabilities that are recorded at fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. It requires that an entity measure its financial instruments to base fair value on exit price, maximize the use of observable units and minimize the use of unobservable inputs to determine the exit price. It establishes a hierarchy which prioritizes the inputs to valuation techniques used to measure fair value. This hierarchy increases the consistency and comparability of fair value measurements and related disclosures by maximizing the use of observable inputs and minimizing the use of unobservable inputs by requiring that observable inputs be used when available. Observable inputs are inputs that reflect the assumptions market participants would use in pricing the assets or liabilities based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. The hierarchy prioritizes the inputs into three broad levels based on the reliability of the inputs as follows:
 
Level 1 – Inputs are quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date. Valuation of these instruments does not require a high degree of judgment as the valuations are based on quoted prices in active markets that are readily and regularly available.
 
Level 2 – Inputs other than quoted prices in active markets that are either directly or indirectly observable as of the measurement date, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
 
Level 3 – Valuations based on inputs that are unobservable and not corroborated by market data. The fair value for such assets and liabilities is generally determined using pricing models, discounted cash flow methodologies, or similar techniques that incorporate the assumptions a market participant would use in pricing the asset or liability.
 
 
F-12

The carrying values of certain assets and liabilities of the Company, such as cash and cash equivalents, accounts receivable, inventory, advance to suppliers, prepaid expenses, accounts payable, accrued expenses, and due to shareholders, approximate fair value because of to their relatively short maturities.
 
Earnings (Loss) Per Share
 
Basic income per share is computed by dividing net income by weighted average number of shares of common stock outstanding during each period. Diluted income (loss) per share is computed by dividing net income (loss) by the weighted average number of shares of common stock, common stock equivalents, and potentially dilutive securities outstanding during each period. Dilutive shares are excluded the exercise price is greater than the average market price and when the Company incurred a net loss as the inclusion of such shares would have an anti-dilutive effect.
 
For the nine months ended September 30, 2022 and 2021, warrants were excluded as dilutive shares as the Company incurred a net loss.
 
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 September 30, 2022, the Company had approximately $nil 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 nine months ended September 30, 2022, three customers accounted for more than 10% of the Company’s total revenues, representing approximately 95% of its total revenues, and 97% of accounts receivable in aggregate at September 30, 2022.
 
Customer
 
Net sales for
the nine
months ended

September 30,
2022
 

 
 

 
Accounts
receivable
balance as of
September 30,
2022
 
A
 
$
69,268
 
 
$
295,699
 
B
 
$
271,332
 
 
$
36,373
 
C
 
$
71,867
 
 
$
54,403
 
 
For the nine months ended September 30, 2021, one customer accounted for more than 10% of the Company’s total revenues, representing approximately 100% of its total revenues, and 100% of accounts receivable in aggregate at September 30, 2021.
 
Customer
 
Net sales for
the nine
months ended

September 30,
2021
 
 
 
 
Accounts
receivable
balance as of
September 30,
2021
 
A
 
$
886,020
 
 
$
243,933
 
 
F-13
 
Suppliers
: The Company’s inventory is purchased from various suppliers.
 
For the nine months ended September 30, 2022, two suppliers
accounted for more than 10% of the Company’s total net purchase, representing approximately 98% of total net purchase, and 100% of accounts payable in aggregate at September 30, 2022, respectively:
 
Supplier
 
Net purchase
for the nine
months ended

September 30,
2022
 

 
 

 
Accounts
payable
balance

as of September 30,
2022
 

 
A
 
$
-
 
 
$
-
 
B
 
$
106,185
 
 
$
-
 
C
 
$
-
 
 
$
-
 
D
 
$
162,845
 
 
$
1,636
 
 
For the nine months ended September 30, 2021, three suppliers accounted for more than 10% of the Company’s total net purchase, representing approximately 12.49%, 69.30% and 12.74% of total net purchase, and 0% of accounts payable in aggregate at September 30, 2021, respectively:
 
Supplier
 
Net purchase

for the nine
months ended
September 30,
2021
 



 
 



 
Accounts
payable
balance

as of September 30,
2021
 

 
A
 
$
-
 
 
$
-
 
B
 
$
-
 
 
$
-
 
C
 
$
-
 
 
$
-
 
D
 
$
12,930
 
 
$
-
 
E
 
$
71,712
 
 
$
-
 
F
 
$
13,189
 
 
$
-
 
 
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.
 
 
F-14
  
Translation Adjustment
 
The accounts of the Company’s subsidiaries were maintained, and their financial statements were expressed in New Taiwan Dollar (“NTD”) and Chinese Yuan, or Renminbi (“RMB”). Such financial statements were translated into U.S. Dollars (“$” or “USD”) in accordance ASC 830, “Foreign Currency Matters”, with the NTD and RMB as the functional currency. According to the Statement, all assets and liabilities are translated at the current exchange rate, common stock and additional paid-in capital are translated at the historical rates, and income statement items are translated at an average exchange rate for the period. The resulting translation adjustments are reported under accumulated other comprehensive income (loss) as a component of stockholders’ equity.
 
Comprehensive Income (loss)
 
Comprehensive income (loss) includes accumulated foreign currency translation gains and losses. The Company has reported the components of comprehensive income (loss) on its consolidated statements of operations and other comprehensive income (loss).
 
Recent Accounting Pronouncements
 
In June 2016, the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326) - Measurement of Credit Losses on Financial Instruments.” This pronouncement, along with subsequent ASUs issued to clarify provisions of ASU 2016-13, changes the impairment model for most financial assets and will require the use of an “expected loss” model for instruments measured at amortized cost. Under this model, entities will be required to estimate the lifetime expected credit loss on such instruments and record an allowance to offset the amortized cost basis of the financial asset, resulting in a net presentation of the amount expected to be collected on the financial asset. In developing the estimate for lifetime expected credit loss, entities must incorporate historical experience, current conditions, and reasonable and supportable forecasts. This pronouncement is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2019. On November 19, 2019, the FASB issued ASU No. 2019-10, Financial Instruments—Credit Losses (Topic 326), finalized various effective date delays for private companies, not-for-profit organizations, and certain smaller reporting companies applying the credit losses (CECL), the revised effective date is January 2023.
 
Management does not believe that any other recently issued, but not yet effective, accounting standards, if currently adopted, would have a material effect on our condensed financial statements.
 
Note 2. LEASE
 
As of September 30, 2022, the Company has two operating lease agreement for its car with remaining lease terms of 18 months and photocopier with remaining lease terms of 6 months, respectively. The Company does not have any other leases. Leases with an initial term of 12 months or less are not recorded on the balance sheet. The Company accounts for the lease and non-lease components of its leases as a single lease component. Lease expense is recognized on a straight-line basis over the lease term.
 
 
F-15
  
Operating lease right-of-use assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. The discount rate used to calculate present value is incremental borrowing rate or, if available, the rate implicit in the lease. The Company determines the incremental borrowing rate for each lease based primarily on its lease term in Taiwan which is approximately 2.44%.
 
Operating lease expenses were $20,126 and $38,100 for the nine months ended September 30,2022 and 2021, respectively.
 
The components of lease expense and supplemental cash flow information related to leases for the year ended are as follows:
 
Lease Cost
 
Nine Months Ended

September 30,
2022
 

 
 

 
Nine Months Ended

September 30,
2021
 

 
Operating lease cost (included in general and administrative expenses in the Company’s statement of operations)  
 
$
28,242
 
 
 
 
 
-
 
 
 
 
 
 
 
 
 
 
 
 
Other Information
 
 
 
 
 
 
 
 
 
 
Right-of-use assets obtained in exchange for new operating leases liabilities  
 
 
82,678
 
 
 
 
 
-
 
Cash paid for amounts included in the measurement of lease liabilities for the year ended 
 
 
-
 
 
 
 
 
-
 
Weighted average remaining lease term – operating leases (in years)  
 
 
1.5
 
 
 
 
 
-
 
Average discount rate – operating lease  
 
 
2.44
%
 
 
-
 
 
The supplemental balance sheet information related to leases for the period is as follows:
 
 
 
September 30, 2022
 
 
December 31, 2021
 
Operating leases
 
 
 
 
 
 
 
 
Right-of-use assets
 
$
49,841
 
 
$
85,419
 
 
 
 
 
 
 
 
 
 
Operating lease liabilities
 
$
49,841
 
 
$
85,419
 
 
The future minimum lease payment schedule as follows:
 
For the nine months ending September 30,
 
 
 
2022
 
 
8,596
 
2023
 
 
33,806
 
2024
 
 
8,403
 
Total lease payments
 
 
50,805
 
Less: Interest
 
 
(964
)
Total
 
 
49,841
 
 
Note 3. SECURITY DEPOSITS
 
On November 21, 2019, the Company and Shuang Hua International Culture Media Co, Ltd. (“Shuang Hua”), a corporation formed under laws of Taiwan, entered into an exclusive copyright and distribution agreement (the “Agreement”), pursuant to which, subject to the terms and condition therein, Shuang Hua granted the Company an exclusive right to produce, market, distribute and sell the bilingual films and electronic books of which the copyrights are owned by Shuang Hua. In accordance to the agreement, the Company shall pay Shuang Hua a refundable deposit of in the aggregate amount of $2,894,000, before December 31, 2021.
 
F-16
  
As of September 30, 2022 and December 31, 2021, the Company has paid $1,030,000 and $1,030,000 to Shuang Hua, respectively, and are recorded as other long-term assets. Due to Covid-19 in 2020, the Company has not started its business plan with the exclusive copyright and distribution agreement. The Company will extend it for another two years.
 
Note 4. RELATED PARTY TRANSACTIONS
 
Related parties of the Company during the
nine months ended September 30, 2022
and December 31, 2021 consist of the following:
 
Name of Related Party
 
Nature of Relationship
Yu Cheng Yang
 
Majority Shareholder, Director and Officer of the Company
Co-Innovation Group Limited
 
Company under control of Yu Cheng Yang
World Capital Holding Limited
 
Company under control by Shanghai Qifan Qiye Management Co., Ltd.’s shareholders, former non-controlling interest of the Company
 
Due to shareholders
 
The Company has advanced funds from its directors and shareholders Yu Cheng Yang for working capital purposes. As of September 30, 2022 and December 31, 2021, there were $198,745 and $30,858 advance outstanding, respectively. The Company has agreed that the outstanding balances bear 0% interest rate and are due upon demand after thirty days of written notice by the director and shareholder.
 
On July 8, 2021, the Company issued the 90,000,000 shares of common stock to convert $59,219 owed to Mr. Yang.
 
Mr. Yang advanced $
344,897
 and $200,267 to the Company as working capital, and the Company repaid $160,327 and $219,965 to Mr. Yang for the nine months ended September 30, 2022 and 2021, respectively.
 
Note 5. TERM LOAN
 
Loan from First Commercial Bank
 
On September 30, 2020, TWD 3,000,000 (approximately $107,750) term loan was granted to the Company for working capital with repayment period of 60 months. The term loan is subject to an interest charge at 1% per annum for the first 9 months of the term loan; interest charges on the term loan from 10
th
to 60
th
is 3.5% per annum.
 
On September 30, 2020, TWD 2,000,000 (approximately $71,833) term loan was granted to the Company for employee salary with repayment period of 30 months. The term loan is subject to an interest charge at 1.5% per annum for the first 9 months of the term loan; interest charges on the term loan from 10
th
to 60
th
is 1.845% per annum.
 
 
F-17
 
 
Loan from Bank of Taiwan
 
On May 7, 2021, TWD 4,000,000 (approximately $143,666) term loan was granted to the Company for employee salary with repayment period of 60 months. The term loan is subject to an interest charge at 1% per annum for the first 8 months of the term loan; interest charges on the term loan from 9
th
to 60
th
is 1.9% per annum.
 
On May 7, 2021, TWD 1,000,000 (approximately $35,917) term loan was granted to the Company for employee salary with repayment period of 60 months. The term loan is subject to an interest charge at 1.5% per annum for the first 8 months of the term loan; interest charges on the term loan from 9
th
to 60
th
is 2% per annum.
 
As of September 30, 2022 and December 31, 2021, the outstanding balance of the term loan is $195,208 and $284,180, of which $
70,983
and $80,047 is due within one year and classified as short term, and $124,225 and $204,133 is due after one year, and has classified as long term, respectively.
 
Interest expenses were $3,134 and $2,179 for the nine months ended September 30, 2022 and 2021, respectively.
 
Note 6. STOCKHOLDERS’ EQUITY
 
Preferred Stock
 
On July 8, 2021, the board of directors of the Company amended its stock designation and the Company is authorized to issue 5,000,000 shares of Series A Preferred Stock with par value $0.001. Each stock is entitled to 1,000 votes of common stock without dividend rights.
 
On July 8, 2021, the Company issued 1,500,000 shares of Series A Preferred Stock to Co-Innovation Group Limited for proceeds of $1,500, the amount is recorded as a reduction to additional paid-in capital of $1,500.
 
Common Stock
 
On May 19, 2022, the Company issued 3,601,306 shares of restricted common stock to non-employees, the amount is recorded as deferred (unearned) compensation of $38,534, due to the service has not been started.
 
On May 19, 2022, the Company issued 115,000 shares of restricted common stock to non-employees as compensation in the amount of $1,231.
 
On August 18, 2021, the Company completed and closed a series of transactions to reorganize the Company’s structure and to develop its business by acquiring certain minority control interest of its subsidiary and intellectual properties. Pursuant to the Intellectual Property Transfer Agreement, the Company to issue 75,000,000 shares of Common Stock to the transferors for the intellectual properties in consideration of the transfer. Pursuant to the Shareholders’ Agreement of Shanghai Maosong Trading Co., Ltd and Equity Pledge Agreements, the Company to issue 15,000,000 shares of Common Stock to the transferors for the minority controlling interests of its subsidiary. Upon completion of the transactions above, EOS International Inc became a wholly controlled subsidiary of the Company.
 
On July 8, 2021, the Company issued 75,000,000 shares of Common Stock at $0.001 per share to convert outstanding debt owed to Co-Innovation Group Limited in the amount of $75,000.
 
On July 8, 2021, the Company issued 15,000,000 shares of Common Stock at $0.001 per share to convert outstanding debt owed to World Capital Holding Ltd in the amount of $15,000.
 
On April 12, 2021, A-Best, and Mr. Ing-Ming Lai entered into a termination agreement (the “Termination Agreement”) to terminate the agreement of Strategic Alliance Agreement dated March 2, 2020. In the agreement, Ing-Ming Lai has proceeded to return a total of 10,000 shares in EOS Inc, back to the Company.
 
On March 31, 2021, the Company’s board of directors and stockholders authorized a reverse stock split of its outstanding common stock at a ratio of 1-for-1000 without any change in the par value per share which became effective on April 7, 2021 upon approval by FINRA. The number of shares and price per share in the financial statements have been retrospectively adjusted accordingly to reflect this reverse stock split.
 
On March 16, 2021, the authorized shares of common stock were increased from 75,000,000 to 575,000,000 shares and the par value remains at $0.001.
 
Warrants
 
On February 3, 2022, the Company granted the issuance of warrants to purchase 200,000 shares of the Company’s common stock at an exercise price of $2 per share with an expiration date of December 22, 2027 to a consultant or its designees as compensation. The warrants were fully vested upon issuance.
 
A summary of warrant activities as follows:
 
 
 
Number of
Shares
 
 
Weighted
Average
Exercise

Price
 
 
 
Weighted Average
Remaining
Contractual Term

(Years)
 
 
 
 
 
 
 
 
 
 
 
Warrants outstanding at December 31, 2021
 
 
-
 
 
$
-
 
 
 
-
 
Granted
 
 
200,000
 
 
 
2.00
 
 
 
5.23
 
Exercised
 
 
-
 
 
 
-
 
 
 
-
 
Expired
 
 
-
 
 
 
-
 
 
 
-
 
Warrants outstanding at September 30, 2022
 
 
200,000
 
 
$
2.00
 
 
 
5.23
 
Warrants exercisable at September 30, 2022
 
 
200,000
 
 
$
2.00
 
 
 
5.23
 
 
 
 
F-18
 
 
 
Note 7. STOCK BASED COMPENSATION
 
Restricted Stock
 
On May 19, 2022, the Company issued 3,601,306 shares of restricted common stock to non-employees, the amount is recorded as deferred (unearned) compensation of $38,534, due to the service has not been started. The fair value of the shares was determined based on
a contemporaneous valuation report
.
 
On May 19, 2022, the Company issued 115,000 shares of restricted common stock to non-employees as compensation in the amount of $1,231.
The shares were fully vested upon issuance as there were no other conditions required for the shares to vest.
The fair value of the shares was determined based on
a contemporaneous valuation report
 
 
Warrants
 
On February 3, 2022, the Company granted the issuance of warrants to purchase 200,000 shares of the Company’s common stock at an exercise price of $2 per share with an expiration date of December 22, 2027 to a consultant or its designees as compensation. The warrants were fully vested upon issuance as there were no other conditions required for the warrants to vest.
 
The fair value of the warrants was determined using the Black-Scholes option pricing model which requires the input of subjective assumptions, the expected life of the warrants, and the expected stock price volatility. The assumptions used in calculating the fair value of stock-based awards represent management’s best estimates and involve inherent uncertainties and the application of management’s judgment. As a result, if factors change and management uses different assumptions, stock-based compensation expense could be materially different for future awards.
 
The assumptions used to determine the fair value of the Warrants as follows:
 
 
 
Nine Months Ended
September 30,
 
 
 
 
2022
 
 
2021
 
Expected life (years)
 
 
5.89
 
 
 
 
 
N/A
 
Risk-free interest rate
 
 
0.76
%
 
 
N/A
 
Expected volatility
 
 
329.86
%
 
 
N/A
 
Dividend yield
 
 
0
%
 
 
N/A
 
 
The expected life of the warrants was estimated using the “simplified method,” as the Company has no historical information to develop reasonable expectations about future exercise patterns for its warrant grants. The simplified method is based on the average of the vesting tranches and the contractual life of each grant. The expected life of awards that vest immediately use the contractual maturity since they are vested when issued.
 
For stock price volatility, the Company calculated its expected volatility based on historical closing price of its common stock, par value $0.001 per share. The risk-free interest rate is based on U.S. Treasury notes with a term approximating the expected life of the warrant at the grant-date.
 
Stock based compensation were $1,231 and $nil for the nine months ended September 30, 2022 and 2021, respectively.
 
Note 8. 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 September 30, 2022, the Company had net operating loss carry forwards of $1,251,634 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 is 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, statutory income tax rate increased from 17% to 20% and undistributed earning tax decreased from 10% to 5%, effective from January 1, 2018.
 
When the net profit is less than or equal to 30 million Taiwan dollars, income tax accrual amount is based on the gross profit rate of the industry according to the tax law in Taiwan. The company calculated the income tax accrual amount based on gross profit rate of 16%.
 
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 nine months ended September 30, 2022.
 
Provision for income tax consists of the following:
 
 
 
Nine Months Ended

September 30,
 
 
 
2022
 
 
2021
 
Current income tax
 
 
 
 
 
 
 
 
U.S.
 
$
-
 
 
$
-
 
Taiwan
 
 
（10,274
） 
 
 
（51,058
） 
PRC
 
 
-
 
 
 
-
 
Sub total
 
 
(10,274
)
 
 
(51,058
)
 
 
 
 
 
 
 
 
 
Deferred income tax
 
 
 
 
 
 
 
 
Deferred tax assets for NOL carry-forwards
 
 
(96,994
)
 
 
(44,945
)
Valuation allowance
 
 
96,994
 
 
 
44,945
 
Net changes in deferred income tax (benefit)
 
 
-
 
 
 
-
 
Total income tax provision
 
$
-
 
 
$
-
 
 
 
F-19
 
 
The net loss before income taxes and its provision for income taxes as follows:
` 
 
Nine months Ended
September 30,
 
 
 
2022
 
 
2021
 
Net loss before income tax
 
 
(474,295
)
 
 
(305,421
)
Statutory tax rate
 
 
20
%
 
 
20
%
Income tax provision
 
 
(94,859
)
 
 
(61,084
)
Computed expected benefit
 
 
10,274
 
 
 
51,058
 
Valuation allowance
 
 
96,994
 
 
 
52,172
 
Other, primarily the difference in tax rates
 
 
(2,135
)
 
 
8,912
 
Income tax expenses
 
 
10,274
 
 
 
51,058
 
 
 
Significant components of the Company’s deferred taxes assets as follows:
 
 
 
Nine months Ended
September 30,
 
Deferred tax assets:
 
 
2022
 
 
 
2021
 
Net operating loss carry
-
forwards
 
 
332,482
 
 
 
235,488
 
Less: Valuation allowance
 
 
(332,482
)
 
 
(235,488
)
Deferred tax assets, net
 
 
-
 
 
 
-
 
 
 
Note 9. COMMITMENTS AND CONTINGENCIES
 
Sales Collaboration Agreement
 
On June 1, 2020, the Company and Fortune King entered into a sales collaboration agreement (the “Sales Collaboration Agreement”), pursuant to which, subject to the terms and condition therein, Fortune King agreed to provide promotional and marketing service of the Company’s products within six years from January 2020
 
to December 2025. Fortune King is obligated to perform such service regardless of whether the Company sells products to Fortune King during the designated period. In accordance with the Sales Collaboration Agreement and in consideration for the service provided by Fortune King, the Company shall issue 3,000,000 shares of common stock to Fortune King for the promotional and marketing service of $1,500,000. The 3,000,000 shares were issued on December 29, 2020.
 
The Company recognized the stock-based compensation of marketing expenses based on quarterly basis, with a quarterly marketing expense of $62,500. There are 24 quarters in total.
 
Copyright and Distribution Agreement
 
On November 21, 2019, the Company and Shuang Hua International Culture Media Co, Ltd. (“Shuang Hua”), a corporation formed under laws of Taiwan, entered into an exclusive copyright and distribution agreement (the “Agreement”), pursuant to which, subject to the terms and condition therein, Shuang Hua granted the Company an exclusive right to produce, market, distribute and sell the bilingual films and electronic books of which the copyrights owned by Shuang Hua. In accordance to the agreement, the Company shall pay Shuang Hua a refundable deposit of in the aggregate amount of $2,894,000, before December 31, 2021. As of September 30, 2022, the Company has paid $1,030,000 to Shuang Hua and remaining outstanding payable of $1,864,000 to Shuang Hua.
 
 
F-20
 
 
Note 10. SUBSEQUENT EVENTS
 
Management has evaluated subsequent events through the date which the financial statements are available to be issued. All subsequent events requiring recognition as of September 30, 2022 have been incorporated into these consolidated financial statements and there are no other subsequent events that require disclosure in accordance with FASB ASC Topic 855, “Subsequent Events.”
 
 
F-21
 
 
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operation.
 
The following discussion and analysis of the results of operations and financial condition of EOS Inc. and its subsidiary(“EOS” or the “Company”) as of September 30, 2022 for the
nine
months ended September 30, 2022 and 2021 should be read in conjunction with our unaudited financial statements and the notes to those unaudited financial statements that are included elsewhere in this Quarterly Report on Form 10-Q. References in this Management’s Discussion and Analysis of Financial Condition and Results of Operations to “us”, “we”, “our” and similar terms refer to EOS. This Quarterly Report contains forward-looking statements as that term is defined in the federal securities laws. The events described in forward-looking statements contained in this Quarterly Report may not occur. Generally, these statements relate to business plans or strategies, projected or anticipated benefits or other consequences of our plans or strategies, projected or anticipated benefits from acquisitions to be made by us, or projections involving anticipated revenues, earnings or other aspects of our operating results. The words “may,” “will,” “expect,” “believe,” “anticipate,” “project,” “plan,” “intend,” “estimate,” and “continue,” and their opposites and similar expressions, are intended to identify forward-looking statements. We caution you that these statements are not guarantees of future performance or events and are subject to a number of uncertainties, risks and other influences, many of which are beyond our control, which may influence the accuracy of the statements and the projections upon which the statements are based.
 
Our actual results, performance and achievements could differ materially from those expressed or implied in these forward-looking statements. Except as required by federal securities laws, we undertake no obligation to publicly update or revise any forward-looking statements, whether from new information, future events or otherwise.
 
U.S. Dollars are denoted herein by “USD,” “$” and “dollars”.
 
Note on COVID- 19
 
The COVID-19 pandemic is a highly fluid situation and it is not currently possible for us to reasonably estimate the impact it may have on our financial and operating results. We will continue to evaluate the impact of the COVID-19 pandemic on our business as we learn more and the impact of COVID-19 on our industry becomes clearer. We are complying health guidelines regarding safety procedures, including, but are not limited to, social distancing, remote working, and teleconferencing. The extent of the future impact of the COVID-19 pandemic on our business is uncertain and difficult to predict. Adverse global economic and market conditions as a result of COVID-19 could also adversely affect our business. If the pandemic continues to cause significant negative impacts to economic conditions, our results of operations, financial condition and liquidity could be adversely impacted.
 
Overview
 
EOS Inc. was incorporated in the State of Nevada on April 3, 2015.
 
On or about November 18, 2016, the Company formed EOS INC. TAIWAN BRANCH, a Taiwanese corporation (“EITB”) and the Company owns 100% of EITB. Yu-Cheng Yang, a shareholder and director of the Company, is the sole director of EITB. Yu-Hsiang Chia is the branch manager of EITB.
 
Emperor Star International Trade Co., Ltd., (“Emperor Star”), was incorporated on November 16, 2015 under the laws of Taiwan. Emperor Star is in the business of marketing and distributing various consumer products, including detergents, nutrition supplements, and skin care products.
 
Results of Operation
 
The following presents the consolidated result of the Company for the three months ended September 30, 2022 compared to the three months ended September 30, 2021.
 
Net sales
 
Net sales were $300
,005
for three months ended September 30, 2022, representing a decrease of $249,237 or 45%, as compared to $549,242 for the three months ended September 30, 2021. The decrease was primarily due to the impact of the epidemic, the sales revenue of water purifier machine decreased compared with the prior period.
 
 
3
 
 
Cost of sales
 
Cost of sales was $215,526 for the three months ended September 30, 2022, representing a decrease
of $157,574 or 42%, as compared to $373,100 for the three months ended September 30, 2021.
 
Gross profit
 
Gross profit was $84,479 for the three months ended September 30, 2022, compared to $176,142 for the same period in 2021. Gross profit as a percentage of net sales was 28% for the three months ended September 30, 2022, compared to 32% in the same period in 2021. The decrease was primarily due to the impact of the epidemic, the sales revenue of water purifier machine decreased compared with the prior period.
 
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 $202,988 for the three months ended September 30, 2022, representing a decrease of $74,008 or 27%, as compared to $276,996 for the three months ended September 30, 2021.
 
Income (loss) from operations
 
Loss from operations was $118,509 for the three months ended September 30, 2022 compared to loss from operations of $100,854 for the three months ended September 30, 2021, representing an increase of $17,655 or 18%. Such increase was primarily due to the decrease in sales and cost of sales.
 
Other income (loss)
 
Other loss was $1,614 for the three months ended September 30, 2022, reflecting a decrease of $39,410, or 96%, compared to other
loss
of $41,024 for the three months September 30, 2021. The decrease was mainly attributable to the
 
no investment disposal income in the current period
 
Net income (loss)
 
As a result of the above factors, our net loss was $120,324 for the three months ended September 30, 2022, as compared to net loss of $141,779 for the three months ended September 30, 2021, representing a decrease in loss of $21,455 or 15%.
 
Results of Operation
The following presents the consolidated result of the Company for the nine months ended September 30, 2022 compared to the nine months ended September30, 2021.
 
Net sales
 
Net sales were
$432,190
for nine months ended September 30, 2022, representing a decrease of $453,830, or 51%, as compared to $886,020 for the nine months ended September 30, 2021. The decrease was primarily due to the impact of the epidemic, the sales revenue of water purifier machine decreased compared with the prior period.
 
Cost of sales
 
Cost of sales was $264,425 for the nine months ended September 30, 2022, representing a decrease  of $128,466 or 33%, as compared to $392,891 for the nine months ended September 30, 2021.
 
Gross profit
 
Gross profit was $167,765 for the nine months ended September 30, 2022, compared to $493,129 for the same period in 2021. Gross profit as a percentage of net sales was 39% for the nine months ended September 30, 2022, compared to 56% in the same period in 2021. The decrease was primarily due to the impact of the epidemic, the sales revenue of water purifier machine decreased compared with the prior period.
 
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 $643,642 for the nine months ended September 30, 2022, representing a decrease of $138,600 or 18%, as compared to $782,242 for the nine months ended September 30, 2021.
 
Income (loss) from operations
 
Loss from operations was $475,877 for the nine months ended September 30, 2022 compared to loss from operations of $289,113 for the nine months ended September 30, 2021, representing an increase of $186,764 or 65%. Such increase was primarily due to the decrease in sales
.
 
Other income (loss)
 
Other income was $1,582 for the nine months ended September 30, 2022, reflecting a decrease of $17,890, or 110%, compared to other loss of $16,308 for the nine months September 30, 2021. The decrease was mainly attributable to
 
no investment disposal income in the current period.
 
Net loss
 
As a result of the above factors, our net loss was $464,021 for the nine months ended September 30, 2022, as compared to net loss of $254,363 for the nine months ended September 30, 2021, representing an increase   of $209,658 or 82%. 
 
 
4
 
 
Liquidity and Capital Resources
 
Cash and cash equivalents were $17
,575
at September 30, 2022 and $24,141 at December 31, 2021. Our total current assets were $1,637,766 at September 30, 2022, as compared to $2,037,901 at December 31, 2021. Our total current liabilities were $1,102
,062
at September 30, 2022, as compared to $792,118 at December 31, 2021.
 
We had a working capital of $535,704 on September 30, 2022, compared to the working capital of $1,245,783 on December 31, 2021. The decrease in working capital was primarily attributable to the increase in amount due to shareholders and increased in inventory.
 
Net cash used in operating activities was $111,622 during the nine months ended September 30, 2022, as compared to $35,845 for the nine months ended September 30, 2021. The increase in net cash used in operating activities in the amount of $75,777 was primary attributable to the decrease in account receivable, increase in net loss and inventory.
 
Net cash used in investing activities was $19,537 during the nine months ended September 30, 2022, as compared to $1,528 for the nine months ended September 30, 2021. The increase in net cash used in investing activities was due to the increase in the acquisition of equipment.
 
Net cash provided by financing activities was $127,468 during the nine months ended September 30, 2022, as compared to $114,156 for the nine months ended September 30, 2021. The increase in net cash provided by financing activities was due to the proceeds from related party payable and borrowings.
 
As a result of the above factors, net decrease in cash and cash equivalents were $6,566 for the nine months ended September 30, 2022, as compared to net
increase
of $78,248 for the nine months ended September 30, 2021.
 
Critical Accounting Policies
 
Principles of Consolidation
 
The accompanying unaudited consolidated financial statements, including the accounts of EOS Inc. and its wholly owned subsidiaries in Taiwan, British Virgin Islands, and People’s Republic of China, have been prepared in conformity with accounting principles generally accepted in the United States of America. Since the Company and Emperor Star are entities under common control prior to the acquisition of Emperor Star, the transaction is accounted for as a restructuring transaction. All the assets and liabilities of Emperor Star were transferred to the Company at their respective carrying amounts on the date of transaction. The Company has recast prior period financial statements to reflect the conveyance of Emperor Star’s common shares as if the restructuring transaction had occurred as of the earliest date of the financial statements. All material intercompany accounts, transactions, and profits have been eliminated in consolidation. The nature of and effects on earnings per share (EPS) of nonrecurring intra-entity transactions involving long-term assets and liabilities is not required to be eliminated and EPS amounts have been recast to include the earnings (or losses) of the transferred net assets.
 
The functional currency of the subsidiaries in Taiwan is the New Taiwan dollars and the subsidiary in People’s Republic of China is the Chinese Yuan, or Renminbi; however, the accompanying unaudited consolidated financial statements have been translated and presented in United States Dollars ($). In the accompanying unaudited consolidated financial statements and notes, “$”, “US$” and “U.S. dollars” mean United States dollars, “NT$” and “NT dollars” mean New Taiwan dollars, and “RMB” means Chinese Yuan, or Renminbi.
 
 
5
 
 
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.
 
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 $898 and $1,677 for the nine months ended S
eptem
ber 30, 2022 and 2021, respectively.
 
 
6
 
 
Revenue Recognition
 
Pursuant to ASC 606, the Company recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration that the Company expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that the Company determines is within the scope of ASC 606, the Company performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the Company satisfies a performance obligation. The Company only applies the five-step model to contracts when it is probable that the Company will collect the consideration the Company is entitled to in exchange for the goods or services the Company transfers to the customers. At inception of the contract, once the contract is determined to be within the scope of ASC 606, the Company assesses the goods or services promised within each contract, determines those that are performance obligations, and assesses whether each promised good or service is distinct. The Company then recognizes as revenue
the
amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.
 
Merchandise sales: The Company recognizes sales revenues from merchandise sales when customers obtain control of the Company’s products, which typically occurs upon delivery to customer. Merchandise sales revenues are recorded at the sales price, or “transaction price”.
 
Software sales: The Company does not develop the software products on its own. When the Company receives a purchase order from the customer, the Company would engage with the third-party software company to customize and develop the software products. The Company recognizes software revenues upon completion of the installation and testing, and transfer the control of the software products to the customer. Software revenues are recorded at the fixed sales price, or “transaction price”, pursuant to the sales contracts. The Company may also charge the customer maintenance service fees on a straight-line basis over the service period pursuant to the sales contract. The Company concluded that the performance obligation for the maintenance service is distinct. Therefore, such maintenance service revenue can be separated from other elements in the arrangement.
 
Trade discount and allowances: The Company generally does not provide invoice discounts on product sales to its customers for prompt payment.
 
Product returns: The Company generally does not provide customers with the right to return a product for a full or partial refund, a credit, or an exchange for another product.
 
To date, product allowance and returns have been minimal and, based on its experience, the Company believes that returns of its products will continue to be minimal.
 
 
7
 
 
The following tables provide details of revenue by major products and by geography.
 
Revenue by Major Products


For the nine months ended September 30, 2022:
 
 
 
Water purifier machine
 
$
11,873
 
Automobile carbon reduction machine
 
 
21,665
 
Nutrition supplement
 
 
110,355
 
Software
 
 
285,920
 
Other materials
 
 
2,377
 
Total
 
$
432,190
 
 
For the nine months ended September 30, 2021:
 
 
 
Water purifier machine
 
$
886,020
 
Automobile carbon reduction machine
 
 
-
 
Nutrition supplement
 
 
-
 
Software
 
 
-
 
Total
 
$
886,020
 
 

Revenue by Geography
 
For the nine months ended September 30, 2022:
 
 
 
Asia Pacific
 
$
432,190
 
Total
 
$
432,190
 
 
For the nine months ended September 30, 2021:
 
 
 
Asia Pacific
 
$
886,020
 
Total
 
$
886,020
 
 
 
8
 
 
 
Advertising Costs
 
Advertising costs are expensed at the time such advertising commences.
Advertising expenses were $2,002 and $399 for the nine months ended September 30, 2022 and 2021, respectively.
 
Post-retirement and Post-employment Benefits
 
The Company’s subsidiaries in Taiwan adopted the government mandated defined contribution plan pursuant to the Taiwan Labor Pension Act (the “Act”). Such labor regulations require that the rate of contribution made by an employer to the Labor Pension Fund per month shall not be less than 6% of the worker’s monthly salaries. Pursuant to the Act, the Company makes monthly contribution equal to 6% of employees’ salaries to the employees’ pension fund. The Company has no legal obligation for the benefits beyond the contributions made. The total amounts for such employee benefits, which were expensed as incurred,
$4,105 and $4,541 for the nine months ended September 30, 2022 and 2021, 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:
 
 
9
 
 
¨
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.
 
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
September 30, 2022
, the Company had approximately $0 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 nine months ended September 30, 2022, three customers accounted for more than 10% of the Company’s total revenues, representing approximately 95% of its total revenues, and 97% of accounts receivable in aggregate at September 30, 2022. 
 
Customer
 
Net sales
for the nine

months ended

September 30,
2022
 
 
Accounts
receivable

balance as of
September 30,

2022
 
A
 
$
69,268
 
 
$
295,699
 
B
 
$
271,332
 
 
$
36,373
 
C
 
$
71,867
 
 
$
54,403
 
 
 
10
 
 
For the nine months ended September 30, 2021, one customer accounted for more than 10% of the Company’s total revenues, representing approximately 100% of its total revenues, and 100% of accounts receivable in aggregate at September 30, 2021. 
 
Customer
 
Net sales
for the nine

months ended

September 30,
2021
 
 
Accounts
receivable
balance
as of
September 30,
2021
 
A
 
$
886,020
 
 
$
243,933
 
 
Suppliers
: The Company’s inventory is purchased from various suppliers.
  
For the nine months ended September 30, 2022, two suppliers
accounted for more than 10% of the Company’s total net purchase, representing approximately 98% of total net purchase, and 100% of accounts payable in aggregate at September 30, 2022, respectively:
 
Supplier
 
Net purchase
for the nine
months ended

September 30,
2022
 
 
Accounts
payable
balance
as of
September 30,
2022
 
A
 
$
-
 
 
$
-
 
B
 
$
106,185
 
 
$
-
 
C
 
$
-
 
 
$
-
 
D
 
$
162,845
 
 
$
1,636
 
 
For the nine months ended September 30, 2021, three suppliers accounted for more than 10% of the Company’s total net purchase, representing approximately 12.49%, 69.30% and 12.74% of total net purchase, and 0% of accounts payable in aggregate at September 30, 2021, respectively:
 
Supplier
 
Net purchase
for the nine
months ended

September 30,
2021
 
 
 
 
Accounts
payable
balance
as of
September 30,
2021
 
A
 
$
-
 
 
$
-
 
B
 
$
-
 
 
$
-
 
C
 
$
-
 
 
$
-
 
D
 
$
12,930
 
 
$
-
 
E
 
$
71,712
 
 
$
-
 
F
 
$
13,189
 
 
$
-
 

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.
 
11

Translation Adjustment
 
The accounts of the Company’s subsidiaries were maintained, and their financial statements were expressed in New Taiwan Dollar (“NTD”) and Renminbi (“RMB”). Such financial statements were translated into U.S. Dollars (“$” or “USD”) in accordance ASC 830, “Foreign Currency Matters”, with the NTD and RMB as the functional currency. According to the Statement, all assets and liabilities are translated at the current exchange rate, common stock and additional paid-in capital are translated at the historical rates, and income statement items are translated at an average exchange rate for the period. The resulting translation adjustments are reported under accumulated other comprehensive income (loss) as a component of stockholders’ equity.
 
Comprehensive Income (loss)
 
Comprehensive income (loss) includes accumulated foreign currency translation gains and losses. The Company has reported the components of comprehensive income (loss) on its consolidated statements of operations and other comprehensive income (loss).
 
Recent Accounting Pronouncements
 
In June 2016, the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326) - Measurement of Credit Losses on Financial Instruments.” This pronouncement, along with subsequent ASUs issued to clarify provisions of ASU 2016-13, changes the impairment model for most financial assets and will require the use of an “expected loss” model for instruments measured at amortized cost. Under this model, entities will be required to estimate the lifetime expected credit loss on such instruments and record an allowance to offset the amortized cost basis of the financial asset, resulting in a net presentation of the amount expected to be collected on the financial asset. In developing the estimate for lifetime expected credit loss, entities must incorporate historical experience, current conditions, and reasonable and supportable forecasts. This pronouncement is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2019. On November 19, 2019, the FASB issued ASU No. 2019-10, Financial Instruments—Credit Losses (Topic 326), finalized various effective date delays for private companies, not-for-profit organizations, and certain smaller reporting companies applying the credit losses (CECL),
the
revised effective date is January 2023.
 
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
 
As a smaller reporting company, we are not required to provide this information.
 
 
12
 
 
Item 4. Controls and Procedures.
 
Evaluation of Disclosure Controls and Procedures
 
We maintain disclosure controls and procedures designed to provide reasonable assurance that material information required to be disclosed by us in the reports we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that the information is accumulated and communicated to our management, including our Chief Executive Officer and interim Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. We performed an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. During our assessment of the effectiveness of internal control over financial reporting as of September 30, 2022, 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 September 30, 2022.
 
We do not expect that our disclosure controls and procedures will prevent all errors and all instances of fraud. Disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Further, the design of disclosure controls and procedures must reflect the fact that there are resource constraints, and the benefits must be considered relative to their costs. Because of the inherent limitations in all disclosure controls and procedures, no evaluation of disclosure controls and procedures can provide absolute assurance that we have detected all our control deficiencies and instances of fraud, if any. The design of disclosure controls and procedures is also based partly on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
 
Material Weaknesses and Corrective Actions
 
Changes in Internal Control Over Financial Reporting
 
There have been no changes in our internal controls over financial reporting that occurred during our last fiscal quarter to which this Quarterly Report on Form 10-Q relates that have materially affected, or are reasonably likely to materially affect our internal controls over financial reporting.
 
 
13
 
 
PART II - OTHER INFORMATION
 
Item 1. Legal Proceedings.
 
We are not currently involved in any litigation that we believe could have a material adverse effect on our financial condition or results of operations. There is no action, suit, or proceeding by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the executive officers of our Company or our subsidiary, threatened against or affecting our Company, our common stock, our subsidiary or of our companies or our subsidiary’s officers or directors in their capacities as such, in which an adverse decision could have a material adverse effect.
 
Item 1A. Risk Factors.
 
As a smaller reporting company, we are not required to provide this information.
 
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
 
None.
 
Item 3. Defaults Upon Senior Securities.
 
None.
 
Item 4. Mine Safety Disclosures.
 
Not applicable.
 
Item 5. Other Information.
 
There is no other information required to be disclosed under this item which has not been previously disclosed.
 
14
 
ITEM 6. EXHIBITS
 
The following exhibits are filed herewith:
 
Exhibit
No.
 
Description
 
 
 
 
 
 
 
 
 
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
 
 
 
104 
 
Cover Page Interactive Data File - the cover page from the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2022, is formatted in Inline XBRL. 
 
 
15
 
 
SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed
on
its behalf by
the
undersigned thereunto
duly
authorized.
 
 
EOS Inc.
 
 
 
Date:
November 14, 2022
By:
/s/ He-Siang Yang
 
 
He-Siang Yang
 
 
Principal Executive Officer,
Principal Financial Officer,
President and Chairman of the Board
 
 
16