Bio Essence (BIOE) swings to Q1 profit but faces lawsuit and going-concern risk
Rhea-AI Filing Summary
Bio Essence Corp. reported a sharp turnaround for the quarter ended March 31, 2026, driven by OEM services. Revenue rose to $500,537 from $22,189 a year earlier, all from OEM services, producing gross profit of $319,353.
The company moved from a net loss of $205,752 to net income of $205,373, helped by lower general and administrative expenses. Despite this, the balance sheet remains weak, with total assets of $789,032, current liabilities of $2,160,871, and a stockholders’ deficit of $1,427,520, and management discloses substantial doubt about continuing as a going concern.
During the quarter, Bio Essence raised $440,000 via issuance of 8,800,000 common shares at $0.05 per share and ended with cash of $36,177. It has accrued about $1.5M of lease-related liabilities tied to a disputed Irvine facility lease and faces an additional, unaccrued Statement of Work claim. Internal controls over financial reporting and disclosure controls are assessed as not effective.
Positive
- Return to profitability and strong revenue growth: Quarterly revenue increased to $500,537 from $22,189, and net income reached $205,373 versus a prior-year loss, driven by higher OEM service volume and lower general and administrative expenses.
- Improved, though still negative, working capital: The working capital deficit narrowed from $2,016,834 to $1,371,877, aided by a $440,000 equity raise and positive operating results, providing some incremental liquidity compared with the prior year-end.
Negative
- Going-concern uncertainty and balance-sheet weakness: Management states substantial doubt about the company’s ability to continue as a going concern, with total liabilities of $2,216,552, a stockholders’ deficit of $1,427,520 and cash of only $36,177 as of March 31, 2026.
- Material legal exposure from lease dispute: The company has recorded approximately $1.5 million in lease-related liabilities tied to the Irvine facility and is facing a breach-of-contract lawsuit seeking similar damages, plus an additional unaccrued Statement of Work claim.
- Ineffective internal controls: Disclosure controls and internal control over financial reporting are assessed as not effective, increasing the risk of errors or misstatements in future financial reporting.
Insights
Big revenue jump and first profit, but balance sheet, lawsuit and going-concern risk dominate.
Bio Essence delivered a dramatic quarterly improvement, with revenue climbing to $500,537 and net income of $205,373 after a prior-year loss. The model is now concentrated in OEM services, with one customer providing 49.9% of sales, which increases customer concentration risk.
The capital structure remains fragile: total assets of $789,032 are well below total liabilities of $2,216,552, leaving a stockholders’ deficit of $1,427,520 and a working capital deficit of $1,371,877. Management explicitly notes substantial doubt about the ability to continue as a going concern and depends on raising additional financing.
Legal overhang is material. The company has recorded about $1.5M of operating lease liabilities associated with a disputed Irvine facility and now faces a formal breach-of-contract complaint seeking similar damages, plus a separate Statement of Work claim that is not yet accrued. Internal control over financial reporting and disclosure controls are deemed ineffective, so future results will need careful review as the legal case and funding plans evolve.
Key Figures
Key Terms
going concern financial
OEM services financial
Economic Injury Disaster Loan financial
current expected credit loss financial
working capital deficit financial
internal control over financial reporting financial
U.S.
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For the quarterly period ended
OR
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| 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 | ||
| N/A | N/A | N/A |
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As of the latest practicable date, the Company has
TABLE OF CONTENTS
| PAGE | ||
| PART I | FINANCIAL INFORMATION | 1 |
| Item 1. | Financial Statements | 1 |
| Balance Sheets as of March 31, 2026 (Unaudited) and December 31, 2025 | 1 | |
| Statements of Operations for three months ended March 31, 2026 and 2025 (Unaudited) | 2 | |
| Statements of Changes in Stockholders’ Equity for three months ended March 31, 2026 and 2025 (Unaudited) | 3 | |
| Statements of Cash Flows for three months ended March 31, 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 | 15 |
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 20 |
| Item 4. | Controls and Procedures | 20 |
| PART II | OTHER INFORMATION | 22 |
| Item 1. | Legal Proceedings | 22 |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 22 |
| Item 3. | Defaults Upon Senior Securities | 22 |
| Item 4. | Mine Safety Disclosures | 22 |
| Item 5. | Other Information | 22 |
| Item 6. | Exhibits | 22 |
| Signatures | 23 |
i
PART I - FINANCIAL INFORMATION
Item 1. Financial Statement
BIO ESSENCE CORPORATION
BALANCE SHEETS
| As
of March 31, 2026 (Unaudited) | As
of December 31, 2025 | |||||||
| ASSETS | ||||||||
| Current Assets | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivable | ||||||||
| Advance to vendors | ||||||||
| Prepaid expenses and other receivables | ||||||||
| Loan to shareholder | ||||||||
| Total Current Assets | ||||||||
| Non-current Assets | ||||||||
| Intangible assets, net | ||||||||
| Total Non-current Assets | ||||||||
| Total Assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ 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’ Deficit | ||||||||
| Preferred stock $ | ||||||||
| Common stock $ | ||||||||
| Paid in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total Stockholders’ Deficit | ( | ) | ( | ) | ||||
| Total Liabilities and Stockholders’ Deficit | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements
1
BIO ESSENCE CORPORATION
STATEMENTS OF OPERATIONS
(UNAUDITED)
| Three Months
ended March 31, | ||||||||
| 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 expense | ( | ) | ( | ) | ||||
| Other expenses | ( | ) | ( | ) | ||||
| Other expenses, net | ( | ) | ( | ) | ||||
| Income (loss) before income tax | ( | ) | ||||||
| Income tax expense | ||||||||
| Net income (loss) | $ | $ | ( | ) | ||||
| Basic weighted average shares outstanding | ||||||||
| Basic and diluted net loss per share | $ | $ | ( | ) | ||||
The accompanying notes are an integral part of these unaudited consolidated financial statements
2
BIO ESSENCE CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 2026 AND 2025
(UNAUDITED)
| Common Stock | Paid-in | Accumulated | Total Stockholders’ Equity | |||||||||||||||||
| Shares | Amount | Capital | Deficit | (Deficit) | ||||||||||||||||
| Balance at January 1, 2026 | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||
| Issue of common stocks | ||||||||||||||||||||
| Net loss for the period | - | |||||||||||||||||||
| Balance at March 31, 2026 | ( | ) | ( | ) | ||||||||||||||||
| Common Stock | 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 | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements
3
BIO ESSENCE CORPORATION
STATEMENTS OF CASH FLOWS
(UNAUDITED)
| Three
Months Ended March 31, | ||||||||
| 2026 | 2025 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
| Net income (loss) | $ | ( | ) | |||||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation and amortization expense | ||||||||
| Operating lease expense | ||||||||
| Changes in assets/liabilities: | ||||||||
| Accounts receivable | ( | ) | ||||||
| Prepaid expenses and other receivables | ( | ) | ||||||
| Prepayment and deposits | ( | ) | ( | ) | ||||
| Accounts payable | ( | ) | ||||||
| Customer deposit | ( | ) | ||||||
| Tax payable | ||||||||
| Accrued interest | ( | ) | ||||||
| Accrued liability and other payables | ( | ) | ( | ) | ||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Change in bank overdraft | ( | ) | ||||||
| Loan from shareholder | ||||||||
| Repayment to shareholder | ( | ) | ||||||
| Loan to shareholder | ( | ) | ||||||
| Repayment from shareholder | ||||||||
| Repayment of SBA loan | ( | ) | ( | ) | ||||
| Issue of common stocks | ||||||||
| Net cash provided by financing activities | ||||||||
| NET INCREASE (DECREASE) IN CASH | ( | ) | ||||||
| CASH AT THE BEGINNING OF PERIOD | ||||||||
| CASH AT THE END OF PERIOD | $ | $ | ||||||
| - | ||||||||
| Supplemental Cash flow data: | ||||||||
| Cash paid for interest | $ | $ | ||||||
| Cash paid for income taxes | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements
4
BIO ESSENCE CORPORATION
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 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 and Consolidation
The accompanying consolidated financial statements (“CFS”) 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 (“$’’). The accompanying financial statements are presented in U.S. dollars (“$”). The consolidated financial statements for the three months ended March 31, 2026 and 2025 and as of March 31, 2026 and December 31, 2025, include the financial statements of the Company and its subsidiaries, BEH (up to disposal date), and McBE (up to dissolution date). All significant inter-company transactions and balances were eliminated in consolidation.
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.
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.
5
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 consolidated balance sheets. Finance leases are included in property and equipment, and finance lease liabilities (current and non-current) in the Company’s consolidated 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 consolidated 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. The Company
recognized $
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 consolidated 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 March 31, 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 March 31, 2026 and December 31, 2025, there were no significant impairments of its long-lived
assets except $
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 March 31, 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.
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.
7
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. The Company currently outsources manufacture service after disposal of BEP in December 2023.
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 three months ended March 31, 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. However, the Company has been outsourcing manufacture service since disposal of BEP in December 2023.
Cost of goods sold (“COGS”) consists primarily of finished goods purchased from other manufacturers, material costs, labor costs and related overhead that are directly attributable to the production of the products. Write-down of inventory to lower of cost or net realizable value is also recorded in COGS.
Shipping and Handling Costs
Shipping
and handling costs related to delivery of finished goods are included in selling expenses. During the three months ended March 31, 2026
and 2025, shipping and handling costs were $
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 three months ended March 31,
2026 and 2025, there were
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 March 31, 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, prepaid expenses, advances to vendors, 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 three months ended March 31, 2026 and 2025.
Commitments and Contingencies
Certain conditions may exist as of the date the consolidated 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 consolidated 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 March 31, 2026, the Company has potential legal contingencies described in Note 10.
9
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 three months ended March 31, 2026, the Company had only one major customer accounted for
For
the three months ended March 31, 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 consolidated financial statements or related disclosures.
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 No. 2025-01, Clarifying the Effective Date (“ASU 2025-01”). The amendments, as clarified by ASU 2025-01, are effective for annual reporting periods beginning after December 15, 2026, and interim reporting periods within annual reporting periods beginning after December 15, 2027. Early adoption is permitted. The amendments in this ASU should be applied either (1) prospectively to financial statements issued for reporting periods after the effective date of the ASU or (2) retrospectively to any or all prior periods presented in the financial statements. The Company is currently evaluating the impact that the adoption of ASU 2024-03 will have on its consolidated financial statement presentation or disclosures.
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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 consolidated financial statement presentation or disclosures.
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 consolidated financial position, statements of comprehensive income and cash flows.
3. ADVANCE TO VENDORS
Advance to vendors represents prepayments made
to vendors for inventory purchases and related OEM services. As of March 31, 2026 and December 31, 2025, advance to vendors were $
4. PREPAID EXPENSE AND OTHER RECEIVABLES
As
of March 31, 2026 and December 31, 2025, prepaid expense and other receivables were $
5. ACCRUED LIABILITIES AND OTHER PAYABLES
As of March 31, 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 $
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6. GOVERNMENT LOANS PAYABLE
In
May and June 2020, BEH, BEP and FDS received total of $
As of March 31, 2026, the future minimum EIDL loan payments to be paid by year are as follows:
| Year Ending | Amount | |||
| March 31, 2027 | $ | |||
| March 31, 2028 | ||||
| March 31, 2029 | ||||
| March 31, 2030 | ||||
| March 31, 2031 | ||||
| Thereafter | ||||
| Total | $ | |||
7. RELATED PARTY TRANSACTIONS
Loans to Shareholder
As
of March 31, 2026, the Company had loans to one major shareholder (also the Company’s senior officer) of $
As
of December 31, 2025, the Company had loans to one major shareholder (also the Company’s senior officer) of $
8. INCOME TAXES
The
Company and its subsidiaries are subject to
At
March 31, 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
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The
Company has NOL carry-forwards for Federal and California income tax purposes of $
Components of the Company’s deferred tax assets from the company’s continuing operations as of March 31, 2026 and December 31, 2025are as follows:
| March
31, 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 consolidated federal statutory income tax rate and the effective income tax rate as a percentage of income before income taxes from the company’s continuing operations for three months ended March 31, 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 continuing operations for the three months ended March 31, 2026 and 2025 consisted of the following:
| 2026 | 2025 | |||||||
| Income tax expense – current | $ | $ | ||||||
| Income tax benefit – current | ||||||||
| Total income tax expense | $ | $ | ||||||
9. LEASES
Operating Leases
On
May 18, 2023, the Company entered a
On
March 3, 2025, the Company entered a
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The components of lease costs for continuing operations, lease term and discount rate with respect of warehouse and office lease with an initial term of more than 12 months are as follows:
| Three
Months Ended March 31, 2026 | Three
Months Ended March 31, 2025 | |||||||
| Operating lease cost | $ | $ | ||||||
| Weighted Average Remaining Lease Term - Operating leases including options to renew | ||||||||
| Weighted Average Discount Rate - Operating leases | % | % | ||||||
10. STOCKHOLDERS’ EQUITY
Common Stock
The
Company is authorized to issue
During
the three months ended March 31, 2026, the Company issued an aggregate of
11. 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 March 31, 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 March 31, 2026 and the reporting date and filed its response to the complaint, and the litigation is in the discovery stage,
12. 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.
On May 7, 2026, the Board of Directors approved the issuance of
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Management’s Discussion and Analysis of Financial Condition and Results of Operation.
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 March 31, 2026, the Company had loans to one major shareholder (also the Company’s senior officer) of $375,173. There are no written loan agreements for these loans, which are unsecured, non-interest bearing without fixed terms of repayment, and therefore, deemed receivable on demand. Subsequently, the entire outstanding balance of $375,173 was fully repaid as of date of this report.
Critical Accounting Policies and Estimates
Our management’s discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements (“CFS”), which were prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”). The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements as well as the reported net sales and expenses during the reporting periods. On an ongoing basis, we evaluate our estimates and assumptions. We base our estimates on historical experience and various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
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While our significant accounting policies are more fully described in Note 2 to our CFS, we believe the following accounting policies are the most critical to assist you in fully understanding and evaluating this management discussion and analysis.
Basis of Presentation
The accompanying consolidated financial statements (“CFS”) are prepared in conformity with U.S. Generally Accepted Accounting Principles (“US GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (“SEC”). The functional currency of Bio Essence is U.S. dollars (“$’’). The accompanying financial statements are presented in U.S. dollars (“$”). The consolidated financial statements include the financial statements of the Company and its subsidiaries, BEH (up to disposal date), and McBE (up to dissolution date). All significant inter-company transactions and balances were eliminated in consolidation.
Going Concern
The Company incurred a net income of $205,373 and a net loss $205,752 for the three months ended March 31, 2026 and2025, respectively. The Company also had an accumulated deficit of $9,347,700as of March 31, 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, 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 consolidated 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.
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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 March 31, 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.
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 three months ended March 31, 2026 and 2025.
Results of operations
Comparison for the three months ended March 31, 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) | |||||||||||||||||||
| Sales of goods | $ | - | - | % | $ | - | - | % | $ | - | - | % | ||||||||||||
| Revenue from OEM services | 500,537 | 100.00 | % | 20,973 | 94.52 | % | 479,564 | 2,286.58 | % | |||||||||||||||
| Shipping and delivery income | - | - | % | 1,216 | 5.48 | % | (1,216 | ) | (100.00 | )% | ||||||||||||||
| Total revenues | 500,537 | 100.00 | % | 22,189 | 100.00 | % | 478,348 | 2,155.79 | % | |||||||||||||||
| Cost of goods sold | - | - | % | - | - | % | - | - | % | |||||||||||||||
| Cost of OEM services | 181,184 | 36.20 | % | 1,601 | 7.22 | % | 179,583 | 11,216.93 | % | |||||||||||||||
| Total cost of revenues | 181,184 | 36.20 | % | 1,601 | 7.22 | % | 179,583 | 11,216.93 | % | |||||||||||||||
| Gross profit | 319,353 | 63.80 | % | 20,588 | 92.78 | % | 298,765 | 1,451.16 | % | |||||||||||||||
| Selling expenses | 680 | 0.14 | % | 543 | 2.45 | % | 137 | 25.23 | % | |||||||||||||||
| General and administrative expenses | 102,878 | 20.55 | % | 225,137 | 1,014.63 | % | (122,259 | ) | (54.30 | )% | ||||||||||||||
| Operating expenses | 103,558 | 20.69 | % | 225,680 | 1,017.08 | % | (122,122 | ) | (54.11 | )% | ||||||||||||||
| Income (loss) from operations | 215,795 | 43.11 | % | (205,092 | ) | (924.30 | )% | 420,887 | (205.22 | )% | ||||||||||||||
| Other income (expenses), net | (583 | ) | (0.12 | )% | (660 | ) | (2.97 | )% | 77 | (11.67 | )% | |||||||||||||
| Income (loss) before income taxes | 215,212 | 43.00 | % | (205,752 | ) | (927.27 | )% | 420,964 | (204.60 | )% | ||||||||||||||
| Income tax expense | 9,839 | 1.97 | % | - | - | % | 9,839 | 100.00 | % | |||||||||||||||
| Net income (loss) | 205,373 | 41.03 | % | (205,752 | ) | (927.27 | )% | 411,125 | (199.82 | )% | ||||||||||||||
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Revenues
Revenues for the three months ended March 31, 2026 and 2025 were $500,537 and $22,189, respectively. We had $500,537 OEM service revenue, and nil shipping and delivery income for the three months ended March 31, 2026. We had $20,973 OEM service revenue, and $1,216 shipping and delivery income for the three months ended March 31, 2025. The significant increase in revenue during the three months ended March 31, 2026, compared to the same period in 2025, was primarily attributable to a higher volume of OEM service orders, including large orders from one new major customer. 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 March 31, 2026 and 2025 were $181,184 and $1,601, respectively. We had $181,184 and $1,601cost for OEM service revenue for the three months ended March 31, 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 March 31, 2026 and 2025 were $319,353 and $20,588, 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 March 31, 2026 and 2025 were $680 and $543, 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 $102,878 for the three months ended March 31, 2026, compared to $225,137 for the three months ended March 31, 2025, a decrease of $122,259 or 54.30%, the decrease was mainly due to decreased office rent and office CAM fee by $5,970, decreased consulting fee by $129,175, decreased accountant fee by $10,900, decreased dues and subscriptions by $4,944, which was partly offset by increased salary expense by $2,150, and increased professional fee by $28,248.
Other income (expenses), net
Other expenses was $583 and $660 for the three months ended March 31, 2026 and 2025, respectively. For the three months ended March 31, 2026, other expenses mainly consisted of interest expense of $542 and other expenses of $41. For the three months ended March 31, 2025, other expenses mainly consisted of interest expense of $543 and other expenses of $117.
Net income (loss)
We had a net income of $205,373 for the three months ended March 31, 2026, compared to a net loss $205,752 for the three months ended March 31, 2025, an increase of $411,125 or 199.82%. The increase in revenue was mainly due to increased gross profit and decreased general and administrative expenses as described above.
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Liquidity and Capital Resources
As of March 31, 2026, we had cash and equivalents of $36,177, other current assets of $752,817, other current liabilities of $2,160,871, working capital deficit of $1,371,877, a current ratio of 0.37:1. 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.
The following is a summary of cash provided by or used in each of the indicated types of activities during the three months ended March 31, 2026, and 2025, respectively.
| 2026 | 2025 | |||||||
| Net cash used in operating activities | $ | (411,970 | ) | $ | (26,069 | ) | ||
| Net cash used in investing activities | $ | - | $ | - | ||||
| Net cash provided by financing activities | $ | 448,147 | $ | 24,698 | ||||
Net cash used in operating activities
Net cash used in operating activities was $411,970 for the three months ended March 31, 2026, compared to net cash used in operating activities of $26,069 for the three months ended March 31, 2025. The increase of cash outflow of $385,901 from operating activities for the three months ended March 31, 2026 was principally attributable increased cash outflow from prepaid expenses and other receivables by $121,075, decreased cash inflow from customer deposits by $476,863, increased cash outflow from prepayment and deposits by $154,444, decreased cash inflow from account payable by $51,125, and increased cash outflow on accrued liability and other payables by $7,807, partly offset by increased net income by $411,125 and decreased cash outflow from accounts receivable by $21,202.
Net cash provided by financing activities
Net cash provided by financing activities was $448,147 for the three months ended March 31, 2026, compared to net cash provided by financing activities of $24,698 for the three months ended March 31, 2025. The net cash provided by financing activities for the three months ended March 31, 2026 mainly consisted of repayment from the shareholder of $429,000 and cash received from issue of common stock of $440,000, partly offset by loan to the shareholder of $419,000, and payment of government loan of $322, and decreased bank overdraft of $1,531.The net cash provided by financing activities for the three months ended March 31, 2025 mainly consisted of proceeds of $343,600 loan from one major shareholder (also the senior officer) and increased bank overdraft of $2,414, partly offset by $321,000 loan repayment to one major shareholder (also the senior officer) and payment of government loan of $316.
Our current liabilities exceed current assets at March 31, 2026, however, we incurred a net income of $205,373 during the three months ended March 31, 2026. We may have difficulty meeting upcoming cash requirements. As of March 31, 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.
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.
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As of March 31, 2026, the future minimum EIDL loan payments from the company’s continuing operations to be paid by year are as follows:
| Year Ending | Amount | |||
| March 31, 2027 | $ | 1,479 | ||
| March 31, 2028 | 1,476 | |||
| March 31, 2029 | 1,532 | |||
| March 31, 2030 | 1,591 | |||
| March 31, 2031 | 1,651 | |||
| Thereafter | 49,431 | |||
| Total | $ | 57,160 | ||
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 March 31, 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 March 31, 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 March 31, 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 consolidated 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.
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.
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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 March 31, 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 March 31, 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 March 31, 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 March 31, 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 denies the allegations and is in the process of retaining legal counsel. The Company intends on bringing counterclaims and affirmative defenses relating to first material breaches committed by Stason.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
On January 6, 2026, the Company entered into a Subscription Agreement with Feng Yang, an individual, whereby the Company would sell to Yang 2,300,000 shares of the Company’s common stock in exchange for payment of $115,000. The sale was made in reliance on the exemption from registration contained in Section 4(a)(2) of the Securities Act of 1933 (the “Securities Act”). The Company directly issued the shares to Yang, no commissions or underwriters were utilized to facilitate the transaction.
On January 13, 2026, the Company entered into a Subscription Agreement with Fenglian Zhu, an individual, whereby the Company would sell to Zhu 2,500,000 shares of the Company’s common stock in exchange for payment of $125,000. The sale was made in reliance on the exemption from registration contained in Section 4(a)(2) of the Securities Act of 1933 (the “Securities Act”). The Company directly issued the shares to Zhu, no commissions or underwriters were utilized to facilitate the transaction.
On January 15, 2026, the Company entered into a Subscription Agreement with Laifeng Wang, an individual, whereby the Company would sell to Wang 4,000,000 shares of the Company’s common stock in exchange for payment of $200,000. The sale was made in reliance on the exemption from registration contained in Section 4(a)(2) of the Securities Act of 1933 (the “Securities Act”). The Company directly issued the shares to Wang, no commissions or underwriters were utilized to facilitate the transaction.
Proceeds from the three unregistered sales disclosed herein were placed into the Company’s general operation fund to be used in the ordinary course of business.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not applicable.
Item
5. Other
As of May 15, 2026, the Company’s Chief Executive Officer, Yin Yan, repaid in full the outstanding loan issued by the Company to Ms. Yan in the amount of $375,173.
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: | May 15, 2026 | |
| /s/ William E. Sluss | ||
| By: | William E. Sluss | |
| Its: | Chief Financial Officer | |
| Dated: | May 15, 2026 | |
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