Bio Essence Corp. (BIOE) swings to profit as OEM revenues and AI asset grow
Rhea-AI Filing Summary
Bio Essence Corp. reported a sharp turnaround for the six months ended June 30, 2026, posting net income of $475,450 versus a loss a year earlier, on a more than tripling of OEM service revenues to $1,295,248. Gross profit rose to $789,614, and operating income reached $495,085.
Total assets increased to $4,002,945, driven largely by the acquisition of the MediFlow AI software, recorded as $3,396,438 of intangible assets after amortization. The company issued 15,800,000 new common shares during the period, including 8,800,000 shares for $440,000 of cash and 7,000,000 shares valued at $3,500,000 for the software.
Despite profitability, Bio Essence had cash of only $675, a working capital deficit of $998,524, and an accumulated deficit of $9,077,623. Management states that these factors, along with dependence on additional financing, raise substantial doubt about the ability to continue as a going concern. The company also carries about $1.5 million in operating lease liabilities tied to a disputed facility lease and acknowledges that disclosure controls and internal control over financial reporting are not effective.
Positive
- Net income of $475,450 for the six months ended June 30, 2026, compared with a prior-year loss, indicates substantially improved profitability.
- Revenues grew to $1,295,248, more than quadrupling year over year, driven by higher OEM service volumes and new major customers.
- Gross profit increased to $789,614, with positive operating income of $495,085, showing the OEM-focused model is currently generating operating profits.
- Working capital deficit narrowed from $2,016,834 at December 31, 2025 to $998,524 at June 30, 2026, reflecting improved current-position metrics.
- The company closed a non-cash $3,500,000 acquisition of MediFlow AI software, potentially expanding capabilities while preserving cash.
- Equity improved from a deficit of $(2,072,893) to positive stockholders’ equity of $2,342,557, materially strengthening the balance sheet.
Negative
- Management discloses that accumulated deficit of $9,077,623 and dependence on additional financing raise substantial doubt about the ability to continue as a going concern.
- Liquidity is very tight, with cash of only $675 and a working capital deficit of $998,524 at June 30, 2026, while management estimates it needs $1.2 million to fund 12 months of operations.
- The company has recorded approximately $1.5 million in operating lease liabilities related to disputed Irvine facility obligations and faces related litigation seeking similar damages.
- Disclosure controls and procedures and internal control over financial reporting are reported as not effective, increasing the risk of errors or misstatements in financial reporting.
- A $470,000 loan to a CEO-controlled entity represents a sizable related party exposure for a business already experiencing liquidity constraints.
- Revenues and manufacturing services are highly concentrated, with two customers accounting for 46.2% and 19.3% of six-month sales and two vendors providing nearly all manufacturing services.
Filing Explained
The completed software payment diluted existing holders, while Bio Essence says it needs 1.2 million dollars of cash over the next 12 months.
The Form 10-Q is an unaudited quarterly report. This filing reports that the MediFlow AI acquisition and related issuance were completed by
Shares outstanding rose from 38,009,000 at
Separately, the company advanced
The acquired software is treated as a finite-lived intangible asset with a five-year useful life, and amortization began when it became available for use on
Key Figures
Key Terms
going concern financial
Economic Injury Disaster Loan financial
current expected credit loss financial
right-of-use (“ROU”) assets financial
working capital deficit financial
valuation allowance financial
FAQ
How did BIOE’s revenue change in the six months ended June 30, 2026?
Was Bio Essence Corp. (BIOE) profitable in the latest quarter and year-to-date?
What is the going concern status disclosed by BIOE in this 10-Q?
What major acquisition did Bio Essence Corp. (BIOE) complete in 2026?
How strong is BIOE’s liquidity position as of June 30, 2026?
What litigation and lease obligations does Bio Essence Corp. (BIOE) face?
AI-generated analysis. How Rhea-AI works. Not financial advice.
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For the quarterly period ended
OR
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Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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.
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| ☐ | Smaller reporting company | ||
| Emerging Growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Securities registered pursuant to Section 12(b) of the Act:
| Title of Each Class | Trading Symbol | Name of Exchange on Which Registered | ||
Indicate by check mark whether the registrant
is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
As of the latest practicable date, the Company
has
TABLE OF CONTENTS
| PAGE | ||
| PART I | FINANCIAL INFORMATION | 1 |
| Item 1. | Condensed Financial Statements | 1 |
| Balance Sheets as of June 30, 2026 (Unaudited) and December 31, 2025 | 1 | |
| Statements of Operations for six and three months ended June 30, 2026 and 2025 (Unaudited) | 2 | |
| Statements of Changes in Stockholders’ Equity for six and three months ended June 30, 2026 and 2025 (Unaudited) | 3 | |
| Statements of Cash Flows for six months ended June 30, 2026 and 2025(Unaudited) | 4 | |
| Notes to Financial Statements (Unaudited) | 5 | |
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 17 |
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 24 |
| Item 4. | Controls and Procedures | 24 |
| PART II | OTHER INFORMATION | 25 |
| Item 1. | Legal Proceedings | 25 |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 25 |
| Item 3. | Defaults Upon Senior Securities | 25 |
| Item 4. | Mine Safety Disclosures | 25 |
| Item 5. | Other Information | 25 |
| Item 6. | Exhibits | 25 |
| Signatures | 26 |
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statement
BIO ESSENCE CORPORATION
BALANCE SHEETS
| As of June 30, 2026 (Unaudited) | As of December 31, 2025 | |||||||
| ASSETS | ||||||||
| Current Assets | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivable | ||||||||
| Advance to vendors | ||||||||
| Prepaid expenses and other receivables | ||||||||
| Loan to shareholder | ||||||||
| Loan to related party | ||||||||
| Interest receivable | ||||||||
| Total Current Assets | ||||||||
| Non-current Assets | ||||||||
| Intangible assets, net | ||||||||
| Total Non-current Assets | ||||||||
| Total Assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) | ||||||||
| Current Liabilities | ||||||||
| Bank overdraft | $ | |||||||
| Accounts payable | - | |||||||
| Customer deposit | ||||||||
| Accrued liabilities and other payables | ||||||||
| Taxes payable | ||||||||
| Operating lease liabilities - current | ||||||||
| Government loans payable - current | ||||||||
| Total Current Liabilities | ||||||||
| Non-current Liabilities | ||||||||
| Government loans payable | ||||||||
| Total Non-current Liabilities | ||||||||
| Total Liabilities | ||||||||
| Commitment and contingencies | ||||||||
| Stockholders’ Equity (Deficit) | ||||||||
| Preferred stock $ | ||||||||
| Common stock $ | ||||||||
| Additional Paid in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total Stockholders’ Equity (Deficit) | ( | ) | ||||||
| Total Liabilities and Stockholders’ Equity (Deficit) | $ | $ | ||||||
The accompanying notes are an integral part of these financial statements
1
BIO ESSENCE CORPORATION
STATEMENTS OF OPERATIONS
(UNAUDITED)
| Six Months ended June 30, | Three Months ended June 30, | |||||||||||||||
| 2026 | 2025 | 2026 | 2025 | |||||||||||||
| Revenues | ||||||||||||||||
| Revenue from OEM services | $ | $ | $ | $ | ||||||||||||
| Shipping and delivery Income | ||||||||||||||||
| Total revenues | ||||||||||||||||
| Cost of revenues | ||||||||||||||||
| Cost of OEM services | ||||||||||||||||
| Total cost of revenues | ||||||||||||||||
| Gross profit | ||||||||||||||||
| Operating expenses | ||||||||||||||||
| Selling | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Income (loss) from operations | ( | ) | ||||||||||||||
| Other income (expenses) | ||||||||||||||||
| Interest income (expense) | ( | ) | ( | ) | ||||||||||||
| Other expenses | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income (expenses), net | ( | ) | ( | ) | ||||||||||||
| Income (loss) before income tax | ( | ) | ||||||||||||||
| Income tax expense | ||||||||||||||||
| Net income (loss) | $ | $ | ( | ) | $ | $ | ||||||||||
| Basic weighted average shares outstanding | ||||||||||||||||
| Basic and diluted net income (loss) per share | $ | $ | ( | ) | $ | $ | ||||||||||
The accompanying notes are an integral part of these financial statements
2
BIO ESSENCE CORPORATION
STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
FOR THE SIX AND THREE MONTHS ENDED JUNE 30, 2026 AND 2025
(UNAUDITED)
| Common Stock | Additional Paid-in | Accumulated | Total Stockholders’ Equity | |||||||||||||||||
| Shares | Amount | Capital | Deficit | (Deficit) | ||||||||||||||||
| Balance at January 1, 2026 | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||
| Issue of common stock | ||||||||||||||||||||
| Net income for the period | - | |||||||||||||||||||
| Balance at March 31, 2026 | ( | ) | ( | ) | ||||||||||||||||
| Issuance of common stock for acquisition of MediFlow AI software | ||||||||||||||||||||
| Net income for the period | - | |||||||||||||||||||
| Balance at June 30, 2026 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Common Stock | Additional Paid-in | Accumulated | Total Stockholders’ Equity | |||||||||||||||||
| Shares | Amount | Capital | Deficit | (Deficit) | ||||||||||||||||
| Balance at January 1, 2025 | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||
| Net loss for the period | - | ( | ) | ( | ) | |||||||||||||||
| Balance at March 31, 2025 | ( | ) | ( | ) | ||||||||||||||||
| Net income for the period | - | |||||||||||||||||||
| Balance at June 30, 2025 | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||
The accompanying notes are an integral part of these financial statements
3
BIO ESSENCE CORPORATION
STATEMENTS OF CASH FLOWS
(UNAUDITED)
| Six Months Ended June 30, | ||||||||
| 2026 | 2025 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
| Net income (loss) | $ | $ | ( | ) | ||||
| Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | ||||||||
| Depreciation and amortization expense | ||||||||
| Operating lease expense | ||||||||
| Changes in assets/liabilities: | ||||||||
| Accounts receivable | ||||||||
| Prepaid expenses and other receivables | ( | ) | ||||||
| Interest receivable | ( | ) | ||||||
| Prepayment and deposits | ( | ) | ||||||
| Accounts payable | ( | ) | ( | ) | ||||
| Customer deposit | ( | ) | ||||||
| Tax payable | ||||||||
| Accrued interest | ||||||||
| Accrued liability and other payables | ( | ) | ( | ) | ||||
| Net cash provided by (used in) operating activities | ( | ) | ||||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
| Repayment from shareholder | ||||||||
| Loan to related party | ( | ) | ||||||
| Repayment from related party | ||||||||
| Net cash used in investing activities | ( | ) | ||||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Change in bank overdraft | ( | ) | ||||||
| Loan from shareholder | ||||||||
| Repayment to shareholder | ( | ) | ||||||
| Repayment of SBA loan | ( | ) | ( | ) | ||||
| Issue of common stock | ||||||||
| Net cash provided by (used in) financing activities | ( | ) | ||||||
| NET INCREASE (DECREASE) IN CASH | ( | ) | ||||||
| CASH AT THE BEGINNING OF PERIOD | ||||||||
| CASH AT THE END OF PERIOD | $ | $ | ||||||
| Supplemental Cash flow information: | ||||||||
| Cash paid for interest | $ | $ | ||||||
| Cash paid for income taxes | $ | $ | ||||||
| Non- Cash Investing Activities and Financing Activities | ||||||||
| Issuance of common stock to acquire intangible asset | $ | $ | ||||||
The accompanying notes are an integral part of these financial statements
4
BIO ESSENCE CORPORATION
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2026 (UNAUDITED) AND DECEMBER 31, 2025
1. ORGANIZATION AND DESCRIPTION OF BUSINESS
Bio Essence Corporation (“the Company” or “Bio Essence”) was incorporated in 2000 in the state of California. Bio Essence is mainly engaged in manufacturing and distributing health supplement products.
In January 2017, Bio Essence incorporated two subsidiaries in the
state of California: Bio Essence Pharmaceutical Inc. (“BEP”) and Bio Essence Herbal Essentials, Inc. (“BEH”),
Bio Essence transferred its manufacturing operation to BEP and transferred its distributing operation to BEH. On December 12, 2023, the
Company entered into an agreement with Newways Inc. to sell the
Bio Essence incorporated a wholly owned subsidiary McBE Pharma Inc. (“McBE”) in the state of California, McBE will be engaged in developing, manufacturing and sales of prescription medicine. McBE has not engaged in any operations since its inception. On April 15, 2024, the Company dissolved McBE.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited condensed financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information and the applicable rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, certain information and footnote disclosures normally included in annual financial statements prepared in accordance with U.S. GAAP have been condensed or omitted. These unaudited condensed financial statements should be read in conjunction with the Company’s audited financial statements and related notes included in its Annual Report on Form 10-K for the year ended December 31, 2025.
Going Concern
The Company incurred net income of $
Use of Estimates
In preparing financial statements in conformity with US GAAP, management makes estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the dates of the financial statements, as well as the reported amounts of revenues and expenses during the reporting period.
5
Significant estimates, required by management, include the recoverability of long-lived assets, assumptions used in the accounting for leases, and the evaluation of contingencies. Actual results could differ from those estimates.
Leases
The Company follows ASC 842 and determines if an arrangement is a lease or contains a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”) assets, and operating lease liabilities (current and non-current) in the Company’s balance sheets. Finance leases are included in property and equipment, and finance lease liabilities (current and non-current) in the Company’s balance sheets.
ROU assets represent the right to use an underlying asset for the lease term and lease liabilities represent the obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of the Company’s leases do not provide an implicit rate, the Company generally uses the incremental borrowing rate based on the estimated rate of interest for collateralized borrowing over a similar term of the lease payments at commencement date. The operating lease ROU asset also includes any lease payments made and excludes lease incentives. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term.
The Company elected the package of practical expedients permitted under the transition guidance to combine the lease and non-lease components as a single lease component for operating leases associated with the Company’s office space lease, and to keep leases with an initial term of 12 months or less off the balance sheet and recognize the associated lease payments in the statements of income on a straight-line basis over the lease term.
ROU assets are reviewed for impairment when indicators of impairment are present. ROU assets from operating and finance leases are subject to the impairment guidance in ASC 360, Property, Plant, and Equipment, as ROU assets are long-lived non-financial assets.
Cash and Cash Equivalents
For financial statement purposes, the Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents.
Credit Losses
On January1, 2023, the Company adopted Accounting Standards Update 2016-13 “Financial Instruments — Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments,” which replaces the incurred loss methodology with an expected loss methodology that is referred to as the current expected credit loss (“CECL”) methodology.
The Company’s account receivables and other receivables in the balance sheet are within the scope of ASC Topic 326. As the Company has limited customers and debtors, the Company uses the loss-rate method to evaluate the expected credit losses on an individual basis. When establishing the loss rate, the Company makes an assessment on various factors, including historical experience, credit-worthiness of customers and debtors, current economic conditions, reasonable and supportable forecasts of future economic conditions, and other factors that may affect its ability to collect from the customers and debtors. The Company also provides specific provisions for allowance when facts and circumstances indicate that the receivable is unlikely to be collected.
Expected credit losses are recorded as allowance for credit losses on the statements of operations. After all attempts to collect a receivable have failed, the receivable is written off against the allowance. In the event the Company recovers amount that is previously reserved for, the Company will reduce the specific allowance for credit losses.
6
Accounts Receivable
The Company’s policy is to maintain an allowance for potential credit losses on accounts receivable. Management reviews the composition of accounts receivable and analyzes historical bad debts, customer concentrations, customer credit worthiness, current economic trends and changes in customer payment patterns to evaluate the adequacy of these reserves. As of June 30, 2026 and December 31, 2025, there was bad debt allowance.
Impairment of Long-Lived Assets
Long-lived assets, which include intangible assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.
Recoverability of long-lived assets to be held and used is measured by comparing of the carrying amount of an asset to the estimated undiscounted future cash flows expected to be generated by it. If the carrying amount of an asset exceeds its estimated undiscounted future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds its fair value (“FV”). FV is generally determined using the asset’s expected future discounted cash flows or market value, if readily determinable. Based on its review, the Company believes that, as of June 30, 2026 and December 31, 2025, there were significant impairments of its long-lived assets.
Income Taxes
Income taxes are accounted for using an asset and liability method of accounting for income taxes in accordance with ASC Topic 740, “Income Taxes.” Under this method, income tax expense is recognized for the amount of: (i) taxes payable or refundable for the current period and (ii) deferred tax consequences of temporary differences resulting from matters that have been recognized in an entity’s financial statements or tax returns. Deferred tax assets also include the prior years’ net operating losses carried forward. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the results of operations in the period that includes the enactment date. A valuation allowance is provided to reduce the deferred tax assets reported if based on the weight of the available positive and negative evidence, it is more likely than not some portion or all of the deferred tax assets will not be realized.
The Company follows ASC Topic 740, which prescribes a more-likely-than-not threshold for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC Topic 740 also provides guidance on recognition of income tax assets and liabilities, classification of current and deferred income tax assets and liabilities, accounting for interest and penalties associated with tax positions, accounting for income taxes in interim periods, and income tax disclosures.
Under the provisions of ASC Topic 740, when tax returns are filed,
it is likely that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty
about the merits of the position taken or the amount of the position that would be ultimately sustained. The benefit of a tax position
is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more
likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if
any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition
threshold are measured as the largest amount of tax benefit that is more than
At June 30, 2026 and December 31, 2025, the Company did not take any uncertain positions that would necessitate recording a tax related liability. The Company files a U.S. income tax return. With few exceptions, the Company’s U.S. income tax return filed for the years ending on December 31, 2022 and thereafter are subject to examination by the relevant taxing authorities.
7
The Company accounts for income taxes in interim periods in accordance with FASB ASC 740-270, “Interim Reporting.” The Company has determined an estimated annual effective tax rate. The rate will be revised, if necessary, as of the end of each successive interim period during the Company’s fiscal year to its best current estimate. The estimated annual effective tax rate is applied to the year-to-date ordinary income (or loss) at the end of the interim period.
Revenue Recognition
The Company recognizes revenues following the five-step model prescribed under ASC 606: (i) identify 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 revenues when (or as) we satisfy the performance obligation.
Revenue is measured at the amount of consideration we expect to receive in exchange for the sale of our product, which occurs at a point in time, typically upon delivery to customers. The Company expenses incremental costs of obtaining a contract as and when incurred if the expected amortization period of the asset that it would have recognized is one year or less or the amount is immaterial.
Revenues from manufacture or OEM services are recognized when the manufacture process is completed pursuant to the customers’ requirements and the manufactured goods are delivered to the customers.
Revenues from sales of goods are measured at net of reserves established for applicable discounts and allowances that are offered within contracts with the Company’s customers, and are recognized when the goods are delivered to customers.
Product revenue reserves, which are classified as a reduction in product revenues, are generally characterized in the following categories: discounts, returns and rebates. These reserves are based on estimates of the amounts earned or to be claimed on the related sales and are classified as reductions of accounts receivable as the amount is payable to the Company’s customers.
The Company’s return policy allows for the return of damaged or defective products and shipment errors. A notice of damage or wrong items should be made within five days from receiving the goods, and actual return of the products must be completed within 30 days from the date of receiving the goods. Delayed notification for damaged or wrong products will not be accepted for return or exchange. Custom formulas and capsules are not returnable. The amounts for return of products were immaterial for the six and three months ended June 30, 2026 and 2025.
Cost of Revenue
Cost of manufacture service/OEM consists primarily of direct labor costs and related overhead that are directly attributable to the manufacture process.
Shipping and Handling Costs
Shipping and handling costs related to delivery of finished goods are included in selling expenses. During the six months ended June 30, 2026 and 2025, shipping and handling costs were and . During the three months ended June 30, 2026 and 2025, shipping and handling costs were and , respectively.
Advertising
Advertising expenses consist primarily of costs of promotion and marketing for the Company’s image and products, and costs of direct advertising, and are included in selling expenses. The Company expenses all advertising costs as incurred. During the six and three months ended June 30, 2026 and 2025, there were advertising expenses incurred.
8
Fair Value (“FV”) of Financial Instruments
Certain of the Company’s financial instruments, including cash and equivalents, accrued liabilities and accounts payable, carrying amounts approximate their FV due to their short maturities. FASB ASC Topic 825, “Financial Instruments,” requires disclosure of the FV of financial instruments held by the Company. The carrying amounts reported in the balance sheets for current liabilities each qualify as financial instruments and are a reasonable estimate of their FV because of the short period of time between the origination of such instruments and their expected realization and the current market rate of interest.
Fair Value Measurements and Disclosures
ASC Topic 820, “Fair Value Measurements and Disclosures,” defines FV, and establishes a three-level valuation hierarchy for disclosures of FV measurement that enhances disclosure requirements for FV measures. The three levels are defined as follow:
| ● | Level 1 inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets. |
| ● | Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument. |
| ● | Level 3 inputs to the valuation methodology are unobservable and significant to the FV measurement. |
As of June 30, 2026 and December 31, 2025, the Company did not identify any assets and liabilities that are required to be presented on the balance sheet at FV. The carrying value of cash, accounts receivable, loan to related party, loan to shareholders, accounts payable, taxes payable, other payables and accrued liabilities approximate estimated fair values because of their short maturities.
Earnings (Loss) per Share (EPS)
Basic EPS is computed by dividing net income by the weighted average number of common shares outstanding for the period. Diluted EPS is computed similar to basic net income per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if all the potential common shares pertaining to warrants, stock options, and similar instruments had been issued and if the additional common shares were dilutive. Diluted EPS are based on the assumption that all dilutive convertible shares and stock options and warrants were converted or exercised. Dilution is computed by applying the treasury stock method for the outstanding unvested restricted stock, options and warrants, and the if-converted method for the outstanding convertible instruments. Under the treasury stock method, options and warrants are assumed to be exercised at the beginning of the period (or at the time of issuance, if later) and as if funds obtained thereby were used to purchase common stock at the average market price during the period. Under the if-converted method, outstanding convertible instruments are assumed to be converted into common stock at the beginning of the period (or at the time of issuance, if later). There were no potentially dilutive securities outstanding (options and warrants) for the six and three months ended June 30, 2026 and 2025.
Commitments and Contingencies
Certain conditions may exist as of the date the financial statements are issued, which may result in a loss to the Company, but which will only be resolved when one or more future events occur or fail to occur. The Company’s management and legal counsel assess such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or unasserted claims that may result in such proceedings, the Company’s legal counsel evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought. If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, the estimated liability would be accrued in the Company’s financial statements. If the assessment indicates that a potential material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, the nature of the contingent liability, together with an estimate of the range of possible loss if determinable and material, would be disclosed. As of June 30, 2026, the Company has potential legal contingencies described in Note 12.
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Concentration of Credit Risk
Financial instruments that potentially subject the Company to credit risk consist primarily of accounts and other receivables. The Company does not require collateral or other security to support these receivables. The Company conducts periodic reviews of the financial condition and payment practices of its customers to minimize collection risk on accounts receivable.
For the six months ended June 30, 2026, the Company had two major
customers accounted for
For the six months ended June 30, 2026, the Company had two major
vendors accounted for
Segment Reporting
ASC Topic 280, “Segment Reporting,” requires use of the
“management approach” model for segment reporting.
Management determined the Company’s operations constitute a
single reportable segment in accordance with ASC 280. The Company operates exclusively in
New Accounting Pronouncements
In October 2023, the FASB issued ASU No. 2023-06, “Disclosure Improvements — Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative.” The ASU amends the disclosure or presentation requirements related to various subtopics in the FASB ASC. The ASU was issued in response to the SEC’s August 2018 final amendments in Release No. 33-10532, Disclosure Update and Simplification that updated and simplified disclosure requirements that the SEC believed were duplicative, overlapping, or outdated. The guidance in ASU 2023-06 is intended to align GAAP requirements with those of the SEC and to facilitate the application of GAAP for all entities. The amendments introduced by ASU 2023-06 are effective if the SEC removes the related disclosure or presentation requirement from its existing regulations by June 30, 2027. If, by June 30, 2027, the SEC has not removed the applicable requirements from its existing regulations, the pending content of the associated amendment will be removed from the ASC and will not become effective for any entities. Early adoption is permitted. The adoption of ASU 2023-06 is not expected to have a material impact on the Company’s financial statements or related disclosures.
10
On November 4, 2024, the FASB issued an ASU No. 2024-03, Disaggregation of Income Statement Expenses (“ASU 2024 03”) to improve the disclosures about a public business entity’s expenses and address requests from investors for more detailed information about the types of expenses in commonly presented expense captions (such as cost of sales; selling, general, and administrative expenses; and research and development). The amendments in the ASU require disclosure in the notes to financial statements of specified information about certain costs and expenses. The amendments require that at each interim and annual reporting period an entity: 1.Disclose the amounts of (a) purchases of inventory, (b) employee compensation, (c) depreciation, (d) intangible asset amortization, and (e) depreciation, depletion, and amortization recognized as part of oil- and gas-producing activities (or other amounts of depletion expense) included in each relevant expense caption. A relevant expense caption is an expense caption presented on the face of the income statement within continuing operations that contains any of the expense categories listed in (a)–(e). 2. Include certain amounts that are already required to be disclosed under current generally accepted accounting principles in the same tabular disclosure as the other disaggregation requirements. 3. Disclose a qualitative description of the amounts remaining in relevant expense captions that are not separately disaggregated quantitatively. 4) Disclose the total amount of selling expenses and, in annual reporting periods, an entity’s definition of selling expenses.
In January 2025, the FASB issued ASU 2025-01 Income Statement-Reporting Comprehensive Income – Expense Disaggregation Disclosures (Subtopic 220-40). The FASB issued ASU 2024-03 on November 4, 2024-03 states that the amendments are effective for public business entities for annual reporting periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027. Following the issuance of ASU 2024-03, the FASB was asked to clarify the initial effective date for entities that do not have an annual reporting period that ends on December 31 (referred to as non-calendar year-end entities). Because of how the effective date guidance was written, a non-calendar year-end entity may have concluded that it would be required to initially adopt the disclosure requirements in ASU 2024-03 in an interim reporting period, rather than in annual reporting period. The FASB’s intent in the basis for conclusions of ASU 2024-03 is clear that all public business entities should initially adopt the disclosure requirements in the first annual reporting period beginning after December 15, 2026, and interim reporting periods within annual reporting periods beginning after December 15, 2027. The Company is currently evaluating the impact that the adoption of ASU 2025-01 will have on its financial statement presentation or disclosures.
In May 2025, the FASB issued ASU 2025-04, Compensation - Stock Compensation (Topic 18) and Revenue from contracts with Customers (Topic 606): Clarifications to Share-Based Consideration Payable to a Customer. The amendments provide guidance on identifying the accounting acquirer in transactions involving a variable interest entity. The amendments clarify the accounting for share-based consideration payable to a customer under Topic 718 and Topic 606. The amendments are effective for annual reporting periods, including interim reporting period within those annual periods, beginning after December 15, 2026. Early adoption is permitted. The Company is currently evaluating the impact of this amendment and does not expect that the adoption of this guidance will have a material impact on its financial position, results of operations, or cash flows.
In July 2025, the FASB issued ASU 2025-05, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses for Accounts Receivable and Contract Assets. The amendments provide a practical expedient and, if applicable, an accounting policy election to simplify the measurement of credit losses for certain receivables and contract assets. The amendments are effective for annual reporting periods beginning after December 15, 2025, and interim reporting periods within those annual reporting periods. Early adoption is permitted in any interim or annual period in which financial statements have not been issued or made available for issuance. Adoption did not affect the Company’s financial position or results of operations.
The Company does not believe other recently issued but not yet effective accounting standards, if currently adopted, would have a material effect on the Company’s financial position, statements of comprehensive income and cash flows.
11
3. ADVANCE TO VENDORS
Advance to vendors represents prepayments made to vendors for inventory
purchases and related OEM services. As of June 30, 2026 and December 31, 2025, advance to vendors were $
4. PREPAID EXPENSES AND OTHER RECEIVABLES
As of June 30, 2026 and December 31, 2025, prepaid expenses and other
receivables were $
5. INTANGIBLE ASSETS, NET
Intangible assets consisted of the following as of June 30, 2026 and December 31, 2025:
| June 30, 2026 | December 31, 2025 | |||||||
| Computer Software | $ | $ | ||||||
| Trademark | ||||||||
| Total | ||||||||
| Less: accumulated amortization | ( | ) | ( | ) | ||||
| Net | $ | $ | ||||||
On April 20, 2026, the Company entered into
an Asset Purchase Agreement (“APA”) with Zhituo Software Co., Limited, a company incorporated under the laws of Hong
Kong (“Zhituo”). Under the APA, the Company acquired ownership of certain software known as MediFlow AI, along with all
of its software source code, system architecture, data, APOs, frameworks, and other technical information and data, etc.
(collectively the “Software”). On May 7, 2026, the Board of Directors approved to issue
Amortization of intangible assets were $
Amortization of intangible assets were $
Estimated amortization for the existing intangible assets with
finite lives for each of the next five years at June 30, 2026 is as follows: $
6. ACCRUED LIABILITIES AND OTHER PAYABLES
As of June 30, 2026, accrued liabilities and other payables consisted
of payroll tax payable of $
As of December 31, 2025, accrued liabilities and other payables consisted
of payroll tax payable of $
12
7. GOVERNMENT LOANS PAYABLE
In May and June 2020, BEH, BEP and FDS received total of $
As of June 30, 2026, the future minimum EIDL loan payments to be paid by year are as follows:
| Year Ending | Amount | |||
| June 30, 2027 | $ | |||
| June 30, 2028 | ||||
| June 30, 2029 | ||||
| June 30, 2030 | ||||
| June 30, 2031 | ||||
| Thereafter | ||||
| Total | $ | |||
8. RELATED PARTY TRANSACTIONS
Loans to Shareholder
As of June 30, 2026, the Company had no loans to its major shareholders or officers.
As of December 31, 2025, the Company had loans to one major shareholder
(also the Company’s senior officer) of $
Loan to Related Party
The Company provided a $
9. INCOME TAXES
The Company and its subsidiaries are subject to
At June 30, 2026 and December 31, 2025, the Company had net operating
loss (“NOL”) for income tax purposes; for federal income tax purposes, the NOL arising in tax years beginning after
2017 may only offset
The Company has NOL carry-forwards for Federal and California income
tax purposes of $
13
Components of the Company’s deferred tax assets as of June 30, 2026 and December 31, 2025 are as follows:
| June 30, 2026 | December 31, 2025 | |||||||
| Net deferred tax assets (liability): | ||||||||
| Depreciation and amortization expense | $ | $ | ||||||
| Expected income tax benefit from NOL carry-forwards | ||||||||
| Less: valuation allowance | ( | ) | ( | ) | ||||
| Deferred tax assets, net of valuation allowance | $ | $ | ||||||
Income Tax Provision in the Statements of Operations
A reconciliation of the federal statutory income tax rate and the effective income tax rate as a percentage of income before income taxes for the six months ended June 30, 2026 and 2025 is as follows:
| 2026 | 2025 | |||||||
| Federal statutory income tax expense (benefit) rate | % | ( | )% | |||||
| State statutory income tax (benefit) rate, net of effect of state income tax deductible to federal income tax | % | ( | )% | |||||
| Permanent difference | % | % | ||||||
| Change in valuation allowance | ( | )% | % | |||||
| Effective income tax rate | % | % | ||||||
A reconciliation of the federal statutory income tax rate and the effective income tax rate as a percentage of income before income taxes for three months ended June 30, 2026 and 2025 is as follows:
| 2026 | 2025 | |||||||
| Federal statutory income tax expense (benefit) rate | % | % | ||||||
| State statutory income tax (benefit) rate, net of effect of state income tax deductible to federal income tax | % | % | ||||||
| Permanent difference | % | % | ||||||
| Change in valuation allowance | ( | )% | ( | )% | ||||
| Effective income tax rate | % | % | ||||||
The provision for income tax expense for the six months ended June 30, 2026 and 2025 consisted of the following:
| 2026 | 2025 | |||||||
| Current: | ||||||||
| Federal income tax expense | $ | $ | ||||||
| State income tax expense | ||||||||
| Deferred: | ||||||||
| Federal income tax expense | ||||||||
| State income tax expense | ||||||||
| Total income tax expense | $ | $ | ||||||
14
The provision for income tax expense for the three months ended June 30, 2026 and 2025 consisted of the following:
| 2026 | 2025 | |||||||
| Current: | ||||||||
| Federal income tax expense | $ | $ | ||||||
| State income tax expense | ||||||||
| Deferred: | ||||||||
| Federal income tax expense | ||||||||
| State income tax expense | ||||||||
| Total income tax expense | $ | $ | ( | ) | ||||
10. LEASES
Operating Leases
On May 18, 2023, the Company entered a
On March 3, 2025, the Company entered a
The components of lease costs, lease term and discount rate with respect of warehouse and office lease with an initial term of more than 12 months are as follows:
| Six Months Ended June 30, 2026 | Six Months Ended June 30, 2025 | |||||||
| Operating lease cost | $ | $ | ||||||
| Weighted Average Remaining Lease Term - Operating leases including options to renew | ||||||||
| Weighted Average Discount Rate - Operating leases | % | % | ||||||
| Three Months Ended June 30, 2026 | Three Months Ended June 30, 2025 | |||||||
| Operating lease cost | $ | $ | ||||||
| Weighted Average Remaining Lease Term - Operating leases including options to renew | ||||||||
| Weighted Average Discount Rate - Operating leases | % | % | ||||||
15
11. STOCKHOLDERS’ EQUITY
Common Stock
The Company is authorized to issue
During the six months ended June 30, 2026, the Company issued an aggregate
of
12. COMMITMENT AND CONTINGENCIES
From time to time, the Company may be a party to various legal actions arising in the ordinary course of business. The Company accrues costs associated with these matters when they become probable and the amount can be reasonably estimated. Legal costs incurred in connection with loss contingencies are expensed as incurred.
Contingencies
On March 9, 2026, the Company was served with a summons and complaint
filed by Stason Industrial Corporation (the “Plaintiff”). The complaint alleges breach of contract in connection with the
Company’s early vacation of the Irvine facility and seeks damages of approximately $
As of December 31, 2025, the Company had accrued approximately $
The complaint also asserts an additional cause of action alleging breach of a Statement of Work (“SOW”). The Plaintiff alleges that the Company failed to perform certain laboratory and pharmaceutical processing services and seeks recovery of alleged unreturned service payments as well as alleged lost revenues associated with a third-party agreement.
The Company is currently evaluating these allegations. The ultimate outcome of this claim is inherently uncertain, and management is presently unable to predict whether the Company will prevail. The Company intends to defend its position and may also engage in settlement discussions; however, the litigation remains in its early stages. As of June 30, 2026 and the reporting date, management concluded that a loss related to the SOW claim was neither probable nor reasonably estimable; accordingly, no accrual has been recorded for this matter. The Company has engaged legal counsel as of June 30, 2026 and the reporting date and filed its response to the complaint, and the litigation is in the discovery stage.
13. SUBSEQUENT EVENTS
The Company follows the guidance in FASB ASC 855-10 for the disclosure of subsequent events. The Company evaluated subsequent events through the date the financial statements were issued and determined the Company has the following subsequent event need to be disclosed.
Subsequent to June 30, 2026, Golden Capital and Wealth Management,
LLC repaid $
16
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Business Overview
The Company was incorporated in 2000 in the state of California. Fusion Diet Systems (“FDS”) was incorporated in 2010 in the state of Utah. Bio Essence and FDS have been owned under common control since 2016. Bio Essence and FDS are mainly engaged in manufacturing and distributing health supplement products. In January 2017, Bio Essence incorporated two subsidiaries in the state of California: BEP and BEH, Bio Essence transferred its manufacturing operation into BEP and transferred its distributing operation into BEH. On March 1, 2017, the 100% shareholder of FDS transferred all her ownership in FDS into Bio Essence. On December 7, 2021, the Company dissolved FDS. On November 12, 2021, Bio Essence incorporated a wholly owned subsidiary McBE Pharma Inc. (“McBE”) in the state of California, McBE will be engaged in research and development and manufacture of prescription medicine. As a result of the ownership restructure, BEP, BEH, and MCBE became wholly owned subsidiaries of Bio Essence, and Bio Essence serves as a holding corporation for these subsidiaries. McBE has not engaged in any operations since its inception. On December 12, 2023, the Company entered into an agreement with Newway Inc. to sell the 100% equity ownership of BEP for $300,000. On March 28, 2024, the Company entered into an agreement with Health Up Inc to sell the 100% equity ownership of BEH for $400,000. On April 15, 2024, the Company dissolved McBE.
The Company is mainly engaged in selling health supplements and providing OEM services. However, the Company currently outsources manufacture / OEM service after disposal of BEP in December 2023.
Related Party Transactions
Loan to Shareholder
As of June 30, 2026, the Company had no loans to its major shareholder or officers
The Company provided a $500,000 loan to Golden Capital and Wealth Management, LLC, a Nevada limited liability company controlled by Yin Yan, the CEO of the Company, on May 18, 2026. The loan bears a fixed annual interest rate of 5% and is due on June 30, 2027. The Company received a $30,000 partial principal repayment in June 2026. As of June 30, 2026, the outstanding principal balance was $470,000, with approximately $2,882 of accrued interest receivable related to the loan.
Critical Accounting Policies and Estimates
Our management’s discussion and analysis of our financial condition and results of operations are based on our financial statements (“FS”), which were prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”). The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements as well as the reported net sales and expenses during the reporting periods. On an ongoing basis, we evaluate our estimates and assumptions. We base our estimates on historical experience and various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
While our significant accounting policies are more fully described in Note 2 to our FS, we believe the following accounting policies are the most critical to assist you in fully understanding and evaluating this management discussion and analysis.
Basis of Presentation
The accompanying financial statements (“FS”) are prepared in conformity with U.S. Generally Accepted Accounting Principles (“US GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (“SEC”). The functional currency of Bio Essence is U.S. dollars (“$’’). The accompanying financial statements are presented in U.S. dollars (“$”).
17
Going Concern
The Company incurred a net income of $475,450 and a net loss of $145,888 for the six months ended June 30, 2026 and 2025, respectively. The Company incurred a net income of $270,077 and a net income $59,864 for the three months ended June 30, 2026 and2025, respectively. The Company also had an accumulated deficit of $9,077,623 as of June 30, 2026. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. The Company plans to increase its income by strengthening its sales force, providing attractive sales incentive programs, and increasing marketing and promotion activities. Management also intends to raise additional funds by way of a private or public offering, or by obtaining loans from banks or others. While the Company believes in the viability of its strategy to generate sufficient revenue and in its ability to raise additional funds on reasonable terms and conditions, there can be no assurances to that effect. The ability of the Company to continue as a going concern is dependent upon the Company’s ability to further implement its business plan and generate sufficient revenue and its ability to raise additional funds by way of a public or private offering. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Use of Estimates
In preparing financial statements in conformity with US GAAP, management makes estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the dates of the financial statements, as well as the reported amounts of revenues and expenses during the reporting period.
Significant estimates, required by management, include the recoverability of long-lived assets, assumptions used in the accounting for leases, valuation of assets acquired in asset acquisition and the evaluation of contingencies. Actual results could differ from those estimates.
Credit Losses
On January1, 2023, the Company adopted Accounting Standards Update 2016-13 “Financial Instruments — Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments,” which replaces the incurred loss methodology with an expected loss methodology that is referred to as the current expected credit loss (“CECL”) methodology.
The Company’s account receivables and other receivables in the balance sheet are within the scope of ASC Topic 326. As the Company has limited customers and debtors, the Company uses the loss-rate method to evaluates the expected credit losses on an individual basis. When establishing the loss rate, the Company makes the assessment on various factors, including historical experience, credit-worthiness of customers and debtors, current economic conditions, reasonable and supportable forecasts of future economic conditions, and other factors that may affect its ability to collect from the customers and debtors. The Company also provides specific provisions for allowance when facts and circumstances indicate that the receivable is unlikely to be collected.
Expected credit losses are recorded as allowance for credit losses on the statements of operations. After all attempts to collect a receivable have failed, the receivable is written off against the allowance. In the event the Company recovers amount that is previously reserved for, the Company will reduce the specific allowance for credit losses.
Accounts Receivable, Net
The Company’s policy is to maintain an allowance for potential credit losses on accounts receivable. Management reviews the composition of accounts receivable and analyzes historical bad debts, customer concentrations, customer credit worthiness, current economic trends and changes in customer payment patterns to evaluate the adequacy of these reserves. As of June 30, 2026 and December 31, 2025, there was no bad debt allowance.
Revenue Recognition
The Company recognizes revenues following the five-step model prescribed under ASC 606: (i) identify 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 revenues when (or as) we satisfy the performance obligation.
18
Revenue is measured at the amount of consideration we expect to receive in exchange for the sale of our product, which occurs at a point in time, typically upon delivery to the customer. The Company expenses incremental costs of obtaining a contract as and when incurred if the expected amortization period of the asset that it would have recognized is one year or less or the amount is immaterial.
Revenues from sales of goods are measured at net of reserves established for applicable discounts and allowances that are offered within contracts with the Company’s customers, and are recognized when the goods are delivered to the customers.
Product revenue reserves, which are classified as a reduction in product revenues, are generally characterized in the following categories: discounts, returns and rebates. These reserves are based on estimates of the amounts earned or to be claimed on the related sales and are classified as reductions of accounts receivable as the amount is payable to the Company’s customers.
Revenues from manufacture services are recognized when the manufacture process is completed pursuant to the customers’ requirement and the finished goods were delivered to the customers.
The Company’s return policy allows for the return of damaged or defective products and shipment errors. A notice of damage or wrong items should make within five days from receiving the goods, and actual return of the products must be completed within 30 days from the date of receiving the goods. Delayed notification for damaged or wrong products will not be accepted for return or exchange. Custom formulas and capsules are not returnable. The amount for return of products was immaterial for the six and three months ended June 30, 2026 and 2025.
Results of operations
Comparison for the six months ended June 30, 2026 and 2025
The following table sets forth the results of our operations for the periods indicated as a percentage of net sales. Certain columns may not add due to rounding.
| 2026 | % of sales | 2025 | % of sales | Dollar Increase (Decrease) | Percent Increase (Decrease) | |||||||||||||||||||
| Manufacture service revenue | $ | 1,295,248 | 100.00 | % | $ | 280,096 | 99.57 | % | $ | 1,015,152 | 362.43 | % | ||||||||||||
| Shipping and delivery income | 1,216 | 0.43 | % | (1,216 | ) | (100.00 | )% | |||||||||||||||||
| Total revenues | 1,295,248 | 100.00 | % | 281,312 | 100.00 | % | 1,013,936 | 360.43 | % | |||||||||||||||
| Cost of manufacture service | 505,634 | 39.04 | % | 92,080 | 32.73 | % | 413,554 | 449.12 | % | |||||||||||||||
| Total cost of revenues | 505,634 | 39.04 | % | 92,080 | 32.73 | % | 413,554 | 449.12 | % | |||||||||||||||
| Gross profit | 789,614 | 60.96 | % | 189,232 | 67.27 | % | 600,382 | 317.27 | % | |||||||||||||||
| Selling expenses | 680 | 0.05 | % | 29,943 | 10.64 | % | (29,263 | ) | (97.73 | )% | ||||||||||||||
| General and administrative expenses | 293,849 | 22.69 | % | 303,158 | 107.77 | % | (9,309 | ) | (3.07 | )% | ||||||||||||||
| Operating expenses | 294,529 | 22.74 | % | 333,101 | 118.41 | % | (38,572 | ) | (11.58 | )% | ||||||||||||||
| Loss from operations | 495,085 | 38.22 | % | (143,869 | ) | (51.14 | )% | 638,954 | (444.65 | )% | ||||||||||||||
| Other income (expenses), net | 615 | 0.05 | % | (1,219 | ) | (0.43 | )% | 1,834 | (150.45 | )% | ||||||||||||||
| Loss before income taxes | 495,700 | 38.27 | % | (145,088 | ) | (51.58 | )% | 640,788 | (441.65 | )% | ||||||||||||||
| Income tax expense | 20,250 | 1.56 | % | 800 | 0.28 | % | 19,450 | 2,431.27 | % | |||||||||||||||
| Net income (loss) | 475,450 | 36.71 | % | (145,888 | ) | (51.86 | )% | 621,338 | (425.90 | )% | ||||||||||||||
Revenues
Revenues for the six months ended June 30, 2026 and 2025 were $1,295,248 and $281,312, respectively. We had $1,295,248 OEM service revenue, and nil shipping and delivery income for the six months ended June 30, 2026. We had $280,096 OEM service revenue, and $1,216 shipping and delivery income for the six months ended June 30, 2025. The significant increase in revenue during the six months ended June 30, 2026, compared to the same period in 2025, was primarily attributable to a higher volume of OEM service orders, including large orders from two new major customers. The Company’s strategic emphasis on OEM service revenue rather than product sales contributed to the overall growth in revenue and an improvement in the revenues.
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Costs of revenues
Costs of revenues were $505,634 and $92,080 for the six months ended June 30, 2026 and 2025, respectively. The increase was primarily due to the higher volume of OEM service orders during the period.
Gross profit
For the factors mentioned above, the gross profits for the six months ended June 30, 2026 and 2025 were $789,614 and $189,232, respectively. The increase in gross profit was mainly due to increase in revenues.
Operating expenses
Selling expenses consisted mainly of advertising, show expenses, products marketing, shipping expenses, and promotion expenses. Selling expenses for the six months ended June 30, 2026 and 2025 were $680 and $29,943, respectively.
General and administrative expenses consisted mainly of employee salaries and welfare, business meeting, utilities, accounting, consulting, and legal expenses. General and administrative expenses were $293,849 for the six months ended June 30, 2026, compared to $303,158 for the six months ended June 30, 2025, an decrease of $9,309 or 3.07%, the decrease was mainly due to increased professional fee by $22,659, increased legal services fee by $8,540 and increased amortization expense by $103,542, which was partly offset by decreased office rent by $13,158, decreased salary by $13,934, decreased consulting fee by $97,102, decreased accountant fee by $15,020 and decreased dues and subscriptions expense by $4,848.
Other income (expenses), net
Other income was $615 and other expense was $1,219 for the six months ended June 30, 2026 and 2025, respectively. For the six months ended June 30, 2026, other income mainly consisted of interest income of $2,882, which was partly offset by interest expense of $1,082 and other expenses of $1,185. For the six months ended June 30, 2025, other expenses mainly consisted of interest expense of $1,090 and other expenses of $129.
Net income (loss)
We had a net income of $475,450 for the six months ended June 30, 2026, compared to a net loss $145,888 for the six months ended June 30, 2025, an increase of $621,338 or 425.90%. The increase in revenue was mainly due to increased gross profit as described above.
Comparison for the three months ended June 30, 2026 and 2025
The following table sets forth the results of our operations for the periods indicated as a percentage of net sales. Certain columns may not add due to rounding.
| 2026 | % of sales | 2025 | % of sales | Dollar Increase (Decrease) | Percent Increase (Decrease) | |||||||||||||||||||
| Manufacture service revenue | $ | 794,711 | 100.00 | % | $ | 259,123 | 100.00 | % | $ | 535,588 | 206.69 | % | ||||||||||||
| Shipping and delivery income | - | - | % | - | - | % | - | - | % | |||||||||||||||
| Total revenues | 794,711 | 100.00 | % | 259,123 | 100.00 | % | 535,588 | 206.69 | % | |||||||||||||||
| Cost of manufacture service | 324,450 | 40.83 | % | 90,479 | 34.92 | % | 233,971 | 258.59 | % | |||||||||||||||
| Total cost of revenues | 324,450 | 40.83 | % | 90,479 | 34.92 | % | 233,971 | 258.59 | % | |||||||||||||||
| Gross profit | 470,261 | 59.17 | % | 168,644 | 65.08 | % | 301,617 | 178.85 | % | |||||||||||||||
| Selling expenses | - | - | % | - | - | % | - | - | % | |||||||||||||||
| General and administrative expenses | 190,971 | 24.03 | % | 107,421 | 41.46 | % | 83,550 | 77.78 | % | |||||||||||||||
| Operating expenses | 190,971 | 24.03 | % | 107,421 | 41.46 | % | 83,550 | 77.78 | % | |||||||||||||||
| Income from operations | 279,290 | 35.14 | % | 61,223 | 23.63 | % | 218,067 | 356.18 | % | |||||||||||||||
| Other income (expenses), net | 1,198 | 0.15 | % | (559 | ) | (0.22 | )% | 1,757 | (314.31 | )% | ||||||||||||||
| Loss before income taxes | 280,488 | 35.29 | % | 60,664 | 23.41 | % | 219,824 | 362.36 | % | |||||||||||||||
| Income tax expense | 10,411 | 1.31 | % | 800 | 0.31 | % | 9,611 | 1,201.38 | % | |||||||||||||||
| Net income (loss) | 270,077 | 33.98 | % | 59,864 | 23.10 | % | 210,213 | 351.15 | % | |||||||||||||||
20
Revenues
Revenues for the three months ended June 30, 2026 and 2025 were $794,711 and $259,123, respectively. We had $794,711 OEM service revenue, and nil shipping and delivery income for the three months ended June 30, 2026. We had $259,123 OEM service revenue, and nil shipping and delivery income for the three months ended June 30, 2025. The significant increase in revenue during the three months ended June 30, 2026, compared to the same period in 2025, was primarily attributable to a higher volume of OEM service orders, including large orders from two new major customers. The Company’s strategic emphasis on OEM service revenue rather than product sales contributed to the overall growth in revenue and an improvement in the revenues.
Costs of revenues
Costs of revenues for the three months ended June 30, 2026 and 2025 were $324,450 and $90,479, respectively. We had $324,450 and $90,479 cost for OEM service revenue for the three months ended June 30, 2026 and 2025. The increase in cost of revenues was mainly due to increase in revenues.
Gross profit
For the factors mentioned above, the gross profits for the three months ended June 30, 2026 and 2025 were $470,261 and $168,644, respectively. The increase in gross profit was mainly due to increase in revenues.
Operating expenses
Selling expenses consisted mainly of advertising, show expenses, products marketing, shipping expenses, and promotion expenses. Selling expenses for the three months ended June 30, 2026 and 2025 were nil and nil, respectively.
General and administrative expenses consisted mainly of employee salaries and welfare, business meeting, utilities, accounting, consulting, and legal expenses. General and administrative expenses were $190,971 for the three months ended June 30, 2026, compared to $107,421 for the three months ended June 30, 2025, an increase of $83,550 or 77.78%, the increase was mainly due to increased amortization expense by $103,542, increased legal services by $10,999, and increased consulting fee by 2,673, which was partly offset by decreased salary expense by $16,084, decreased accountant fee by $4,120 and decreased professional fee by $5,625.
Other income (expenses), net
Other income was $1,198 and other expense was $559 for the three months ended June 30, 2026 and 2025, respectively. For the three months ended June 30, 2026, other income mainly consisted of interest income of $2,882, which was partly offset by interest expense of $540 and other expenses of $1,144. For the three months ended June 30, 2025, other expenses mainly consisted of interest expense of $547 and other expenses of $12.
Net income (loss)
We had a net income of $270,077 for the three months ended June 30, 2026, compared to $59,864 for the three months ended June 30, 2025, an increase of $210,213 or 351.15%. The increase in revenue was mainly due to increased gross profit as described above.
Liquidity and Capital Resources
As of June 30, 2026, we had cash and equivalents of $675, other current assets of $605,832, other current liabilities of $1,605,031, working capital deficit of $998,524, a current ratio of 0.38:1. As of December 31, 2025, we had no cash and equivalents, other current assets of $422,377, other current liabilities of $2,439,211, working capital deficit of $2,016,834, a current ratio of 0.17:1.
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The following is a summary of cash provided by or used in each of the indicated types of activities during the six months ended June 30, 2026, and 2025, respectively.
| 2026 | 2025 | |||||||
| Net cash used in operating activities | $ | (352,320 | ) | $ | 141,728 | |||
| Net cash used in investing activities | $ | (84,827 | ) | $ | - | |||
| Net cash provided by financing activities | $ | 437,822 | $ | (143,099 | ) | |||
Net cash used in operating activities
Net cash used in operating activities was $352,320 for the six months ended June 30, 2026, compared to net cash provided by operating activities of $141,728 for the six months ended June 30, 2025. The increase of cash outflow of $494,048 from operating activities for the six months ended June 30, 2026 was principally attributable to decreased non-cash activities adjustment from operating lease expense by $18,158, decreased cash inflow by $306,994 from prepaid expenses and other receivables, decreased cash inflow from customer deposits by $883,169, increased cash outflow from interest receivable by $2,882, increased cash outflow from accounts payable by $40,834, and increased cash outflow from accrued liability and other payables by $19,874, partly offset by increased net income by $621,338, increased non-cash activities adjustment from depreciation and amortization expense by $103,541, increased cash inflow from accounts receivable by $23,299, decreased cash outflow from prepayments and deposit by $21,104, and increased cash inflow from tax payable by $8,581.
Net cash used in investing activities
Net cash used in investing activities was $84,827 for the six months ended June 30, 2026, compared to net cash used in investing activities of nil for the six months ended June 30, 2025. The increase of cash outflow of $84,827 from investing activities for the six months ended June 30, 2026 mainly consisted of loan to related party of $500,000, partly offset by repayment from shareholder of $385,173, and repayment from related party of $30,000.
Net cash provided by financing activities
Net cash provided by financing activities was $437,822 for the six months ended June 30, 2026, compared to net cash used in financing activities of $143,099 for the six months ended June 30, 2025. The net cash provided by financing activities for the six months ended June 30, 2026 mainly consisted issuance of common stock in exchange for intangible asset of $440,000, partly offset by payment of government loan of $647, and decreased bank overdraft of $1,531.The net cash provided by financing activities for the six months ended June 30, 2025 mainly consisted of proceeds of $419,400 loan from one major shareholder (also the senior officer) and increased bank overdraft of $6,966, partly offset by $568,800 loan repayment to one major shareholder (also the senior officer) and payment of government loan of $665.
Our current liabilities exceed current assets at June 30, 2026, however, we incurred a net income of $475,450 during the six months ended June 30, 2026. We may have difficulty meeting upcoming cash requirements. As of June 30, 2026, we believe we will need $1.2 million cash to continue our current business for the next 12 months. In addition to our continuous effort to improve our sales and net profits, we have explored and continue to explore other options to provide additional financing to fund future operations as well as other possible courses of action. Such actions may include, but are not limited to, securing lines of credit, sales of debt or equity securities (which may result in dilution to existing shareholders), loans and cash advances from other third parties or banks, and other similar actions. There can be no assurance that we will be able to obtain additional funding (if needed), on acceptable terms or at all, through a sale of our common stock, loans from financial institutions, or other third parties, or any of the actions discussed above. If we cannot sustain profitable operations, and additional capital is unavailable, lack of liquidity could have a material adverse effect on our business viability, financial position, results of operations and cash flows.
On April 20, 2026, the Company entered into an Asset Purchase Agreement (“APA”) with Zhituo Software Co., Limited, a company incorporated under the laws of Hong Kong (“Zhituo”). Under the APA, the Company acquired ownership of certain software known as MediFlow AI, along with all of its software source code, system architecture, data, APOs, frameworks, and other technical information and data, etc. (collectively the “Software”). On May 7, 2026, the Board of Directors approved to issue 7,000,000 shares of the Company’s common stock to Zhituo as the consideration for purchase the software. The fair market value of 7,000,000 shares was $3,500,000
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Contractual Obligations
Long-Term Debts
Government Loans
In May and June 2020, BEH, BEP and FDS received total of $215,600 from the Economic Injury Disaster Loan (“EIDL loan”) from the SBA after deducting $100 Uniform Commercial Code (“UCC”) handling charge and filing fee for each company. This is a low-interest federal disaster loan for working capital to small businesses and non-profit organizations of any size suffering substantial economic injury as a result of the Coronavirus (COVID-19), to help the businesses to meet financial obligations and operating expenses that could have been met had the disaster not occurred. This loan has interest of 3.75% and is not forgivable. The maturity of the loan is 30 years, installment payments including principal and interest of $288 monthly will begin 12 months from the date of the promissory note. On March 4, 2022, The FDS transferred its EIDL loan to BEC due to the dissolution of FDS. The SBA extended the deferment period to allow small businesses and not-for-profits that received EIDL funds do not have to begin payments on the loan until 30 months after the date of the note. Accordingly, the company began to make installment payments in the fourth quarter 2022.
As of June 30, 2026, the future minimum EIDL loan payments from the company’s continuing operations to be paid by year are as follows:
| Year Ending | Amount | |||
| June 30, 2027 | $ | 1,479 | ||
| June 30, 2028 | 1,431 | |||
| June 30, 2029 | 1,484 | |||
| June 30, 2030 | 1,540 | |||
| June 30, 2031 | 1,598 | |||
| Thereafter | 49,304 | |||
| Total | $ | 56,836 | ||
Commitments and Contingencies
From time to time, the Company may be a party to various legal actions arising in the ordinary course of business. The Company accrues costs associated with these matters when they become probable and the amount can be reasonably estimated. Legal costs incurred in connection with loss contingencies are expensed as incurred.
Contingencies
On March 9, 2026, the Company was served with a summons and complaint filed by Stason Industrial Corporation (the “Plaintiff”). The complaint alleges breach of contract in connection with the Company’s early vacation of the Irvine facility and seeks damages of approximately $1.5 million.
As of June 30, 2026, the Company had accrued approximately $1.5 million related to this matter under lease liabilities. Management has evaluated the claim and determined that a loss is probable. While the Company intends to participate in the legal process, management believes the liability recorded as of June 30, 2026 representing the most likely outcome of this matter. Management does not believe it is reasonably possible that a loss materially in excess of the amount accrued will be incurred.
The complaint also asserts an additional cause of action alleging breach of a Statement of Work (“SOW”). The Plaintiff alleges that the Company failed to perform certain laboratory and pharmaceutical processing services and seeks recovery of alleged unreturned service payments as well as alleged lost revenues associated with a third-party agreement.
The Company is currently evaluating these allegations. The ultimate outcome of this claim is inherently uncertain, and management is presently unable to predict whether the Company will prevail. The Company intends to defend its position and may also engage in settlement discussions; however, the litigation remains in its early stages. As of June 30, 2026, management concluded that a loss related to the SOW claim was neither probable nor reasonably estimable; accordingly, no accrual has been recorded for this matter.
Off-Balance Sheet Arrangements
We have not entered into any financial guarantees or other commitments to guarantee the obligations of any third parties. We have not entered into any derivative contracts that are indexed to our shares and classified as shareholder’s equity or that are not reflected in our financial statements. Furthermore, we do not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity. We do not have any variable interest in any unconsolidated entity that provides financing, liquidity, market risk or credit support to us or engages in leasing, hedging or research and development services with us.
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Item 3. Quantitative and Qualitative Disclosures About Market Risk.
As a smaller reporting company, as defined in 17 CFR § 229.10(f)(1), we are not required to provide the information requested by this Item.
Item 4. Controls and Procedures.
The Company’s Chief Executive Officer, Yin Yan, and Chief Financial Officer, William Sluss, are responsible for establishing and maintaining disclosure controls and procedures for the Company.
Evaluation of Disclosure Controls and Procedures
For purposes of this Item 4, the term disclosure controls and procedures means controls and other procedures of the Company (i) that are designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934, as amended (15 U.S.C. 78a et seq. and hereinafter the “Exchange Act”) is recorded, processed, summarized and reported, within the time periods specified in the rules and forms of the SEC, and (ii) include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
On June 30, 2026, Ms. Yan and Mr. Sluss reviewed the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) as of the end of the period covered by this report and has concluded that the Company’s disclosure controls and procedures are not effective to ensure that material information relating to the Company is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the SEC. Ms. Yan and Mr. Sluss will continue to work on implementing controls and procedures to remedy this matter.
Report of Management
Our management is responsible for establishing and maintaining adequate internal control over financial reporting (“ICFR”), as defined in Exchange Act Rule 13a-15. Our ICFR is designed to provide reasonable assurance to our management and board of directors regarding the preparation and fair presentation of published financial statements. Management conducted an assessment of our ICFR based on the framework and criteria established by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control-Integrated Framework (2013). Based on the assessment, management concluded that, as of June 30, 2026, our ICFR were not effective at the reasonable assurance level based on those criteria. Management will continue to work to develop ICFR and controls over our reporting procedures.
Our independent public accountant has not conducted an audit of our controls and procedures regarding ICFR and therefore expresses no opinion with regards to the effectiveness or implementation of our controls and procedures with regards to ICFR.
Changes in Internal Controls over Financial Reporting
There were no changes in our ICFR identified in connection with our evaluation of these controls as of the end of the quarter ending on June 30, 2026, as covered by this report that has materially affected, or is reasonably likely to materially affect, our ICFR.
Inherent Limitations on Effectiveness of Controls
The Company’s management does not expect that its disclosure controls or its ICFR will prevent or detect all error and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision making can be faulty and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or management override of the controls. The design of any system of controls is based in part 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. Projections of any evaluation of controls effectiveness to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting during the quarter ending on June 30, 2026 that have materially affected or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
On or about February 27, 2026, Stason Industrial Corporation (“SIC”) and Stason Pharmaceuticals, Inc. (“SPI,” collectively “Stason”) filed a Complaint in the Superior Court of Orange County, in California (the “Complaint”), alleging that the Company breached its contract and lease obligations relating to a large commercial space previously utilized by the Company. The Company and ten (10) unidentified individuals are defendants of the case. The Complaint alleges that the Company breached rental payment obligations, and accrued late fees and other penalties pursuant to the operative agreements. The Complaint seeks $1,504,823.81 in damages as of January of 2026. The Company has retained legal counsel and is conducting discovery. The Company plans on vigorously defending the claims brought in the Complaint.
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
Not applicable.
Item 6. Exhibits.
| Incorporated by reference | ||||||||||||
| Exhibit | Exhibit Description | Filed herewith |
Form | Period
ending |
Exhibit | Filing date | ||||||
| 31.1 | Certification of the Chief Executive Officer and Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | X | ||||||||||
| 32.1 | Certification of the Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | X | ||||||||||
| 101.INS | Inline XBRL Instance Document | X | ||||||||||
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document. | X | ||||||||||
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document. | X | ||||||||||
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document. | X | ||||||||||
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document. | X | ||||||||||
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document. | X | ||||||||||
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). | X | ||||||||||
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated.
| BIO ESSENCE CORP. | ||
| /s/ Yin Yan | ||
| By: | Yin Yan | |
| Its: | Chairman of the Board, Chief Executive Officer | |
| Date: | August 14, 2026 | |
| /s/ William E. Sluss | ||
| By: | William E. Sluss | |
| Its: | Chief Financial Officer | |
| Dated: | August 14, 2026 | |
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