BIOE 10-K & 10-Q changes, risk factors and insider trading

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 IncInc. to sell the 100% 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 equity ownership of BEH for $400,000. On April 15, 2024, the Company dissolved McBE.

The Company is mainly mainly engaged in selling the health supplements and providing OEM services. However, the Company currently outsources manufacture / OEM service after disposal of BEP in December 2023.

Loans from OfficerShareholders

OnAs of December 31, 2024 and 2023,2024, the Company had loans from one major shareholder (also the Company’s senior officer) of $577,546$1,186,177, andincluding $1,180,046,$608,631 respectively.for Onsettling a litigation, which the Company also repaid the outstanding balance in full during the year ended December 31, 2024 and 2023, the Company had loan from another major shareholder for $608,631 for settling the litigation. There are no written loan agreements for these loans.2025. These loans are unsecured, non-interest bearing and have no fixed terms of repayment, and therefore, deemed payable on demand.

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”). regarding interim financial reporting. 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.

The Company incurred a net lossesincome of $1,565,721$896,197 and $404,604a net loss $1,565,721 from the company’s continuing operations for the years ended December 31, 2024 2025 and 2023,2024, respectively. The Company also had an accumulated deficit of $10,449,270$9,553,073 from the company’s continuing operations as of December 31, 2024. 2025. 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.

Significant estimates, required by management, include the recoverability of long-lived assets, allowanceassumptions used in the accounting for doubtful accounts,leases, and the reserveevaluation of for obsolete and slow-moving inventories.contingencies. Actual results could differ from those estimates.

On January1, 2023, the 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 adoption of the credit loss accounting standard has no material impact on the Company’s consolidated financial statements as of January 1, 2023.

The Company’s policy policy is to maintain an allowance for potential credit losses on accounts receivable. Management reviews the composition of accounts receivable 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 December 31, 20242025 and 2023,2024, there was no bad debt allowance. As of December 31, 2023, the bad debt allowance from discontinued operation (BEH) was $2,252.

The following table sets sets forth the results of our operations for the periods indicated as a percentage of net sales. Certain columns may not be added add due to rounding.

Revenues from the the company’s continuing operations for the years ended December 31, 20242025 and 20232024 were $323,940$1,897,566 and $nil,$323,940, respectively. We had nil product sales, $1,896,350 OEM service revenue, and $1,216 shipping and delivery income for the year ended December 31, 2025. We had $37,415 product sales, $282,752 OEM service revenue, and $3,773 shipping and delivery income for the year ended December 31, 2024. RevenuesRevenue from the company’s discontinued operations for the yearsyear ended December 31, 2024 andwas 2023$153,865. wereThe $153,865significant increase in revenue during the year ended December 31, 2025, compared to the same period in 2024, was primarily attributable to a higher volume of OEM service orders, including large orders from three new major customers. The Company’s strategic emphasis on OEM service revenue rather than product sales contributed to the overall growth in revenue and $1,048,597, respectively.an improvement in the revenues.

Costs of revenues from the company’s continuing operations for the years ended December 31, 20242025 and 20232024 were $106,863$469,153 and $nil,$106,863, respectively. We We had $20,513nil cost of sales for products and$86,350and $469,153 cost for OEM service revenue for the year ended December 31, 2025. We had $20,513 cost of sales for products and $86,350 cost for OEM service revenue for the year ended December 31, 2024. The increase in cost of revenues was mainly due to increase in revenues. Costs of revenues from the company’s discontinued operations for the yearsyear ended December 31, 2024 andwas 2023 were $76,592 and $632,120, respectively.$76,592.

For the factors mentioned above, the gross profits from the company’s continuing operations for the years ended December 31, 20242025 and 20232024 were $217,077$1,428,413 and $nil,$217,077, respectively. The increase in gross profit was mainly due to increase in revenues. The gross profits from the company’s discontinued operations for the yearsyear ended December 31, 2024 and 2023was were $77,273 and $416,477, respectively.$77,273.

Selling expenses consisted consisted mainly of advertising, show expenses, products marketing, shipping expenses, and promotion expenses. ThereSelling were no selling expenses from the company’s continuing operations for the years ended December 31, 20242025 and 2023.2024 were $30,593 and nil, respectively. Selling expense from the company’s discontinued operations was $13,716 for the year ended December 31, 2024,2024 comparedwas to $111,696 for the year ended December 31, 2023.$13,716.

General and administrative expenses consisted mainly of employee salaries and welfare, business meeting, utilities, accounting, consulting, and legal expenses. General General and administrative expenses from the company’s continuing operations were $497,809 for the year ended December 31, 2025, compared to $676,515 for the year ended December 31, 2024, compared toa $345,590decrease forof $178,706 or 26.42%, the year ended December 31, 2023, an increase of $330,925 or 95.76%, the increasedecrease was mainly due to decreased increased office rent byand $272,504,office increased consultingCAM fee by $67,620,$400,034, decreased property tax expense by $4,699, which was partly offset by increased decreasedsalary accountingexpense by $115,332, increased professional fee ofby $8,690.$34,607, and increased consulting fee by $75,033. General and administrative administrative expenses from the company’s discontinued operations was $178,936 for the year ended December 31, 2024, compared to $1,004,784 for the year ended December 31, 2023.2024.

Other expenses,income (expenses), net

Other expenses from the company’s continuing operations werewas $1,105,483$3,014 and $57,414$1,105,483 for the years ended December 31, 20242025 and 2023,2024, respectively. For the year ended December 31, 2025, other expenses mainly consisted of interest expense of $2,186 and other expenses of $828. For the year ended December 31, 2024, other expenses mainly consisted of interest expense of $2,153, impairment of ROU asset of $1,050,940 due due to early termination of the lease, and other expenses of $53,091, which was partly offset by other income of $701. For the year ended December 31, 2023, other expenses mainly consisted of interest expense of $2,197, other expenses of $73,058, which was partly offset by net other income of $17,841. Other expenses from the company’s discontinued operations werewas $5,448 for the year ended December 31, 2024, compared to other income of $66,877 for the year ended December 31, 2023.2024.

Net income (loss ) from continuing operations

Net lossincome from discontinued discontinued operations

We had a net gain income of $256,925 from the company’s discontinued operations for the year ended December 31, 2024 compared to net loss of $567,275 for the year end ended December 31, 2023.2024.

Net cash provided by (used in) operating activities for continuing operations

Net cash provided by by operating activities for continuing operations was $1,569,753 for the year ended December 31, 2025, compared to net cash provided by operating activities for continuing operations of $639,817 for the year ended December 31, 2024, compared to net cash used in operating activities of $981,459 in 2023.2024. The increase of cash inflow of $1,621,276$929,936 from operating activities of continuing operations for the year ended December 31, 20242025 was principally attributable toincreased net $700,000 payment receivedincome from salecontinuing ofoperations BEPby $2,204,993, increased cash inflow from prepaid expenses and BEH,other decreasedreceivables by $390,838, increased cash inflow from customer deposits by $474,370, increased cash outflow ofinflow from prepayment and deposits to vendors by $28,187,$91,261, decreasedincreased paymentcash oninflow from accountsaccount payable by $15,363,$24,855, and increased paymentcash frominflow customer deposit by $187,115, decreasedon payment of lease liability by $141,301,$47,100, partly offset by decreased cash inflow from receivable from sale of BEP by $700,00 as the payment onwas received in 2025, and decreased cash inflow from accrued labilities liability and other payables by $213,062, and change of adjustments to reconcile net loss to net cash provided by (used in) operating activities by $879,262; which was partly offset by increased net loss by $336,917 and decreased payment collected on other receivables by $200,969.$502,474.

Net cash used in investing activities for continuing operations was $114nil for the year ended December 31, 2024,2025, compared to net cash used in investing activities for continuing operations of $91,484$114 in 2023.2024. The net cash used in investing activities for the year ended December 31, 2024 mainly consisted of $114 cash loss due to disposal of subsidiaries. The net cash used in investing activities for the year ended December 31, 2023 was mainly for $3,614 leasehold improvements.

Net cash provided by (used in) financing activities for continuing operations

Net cash used in financing activities for continuing operations was $1,571,124 for the year ended December 31, 2025, compared to net cash used in financing activities for continuing operations of $613,171 for the year ended December 31, 2024, compared to net cash provided by financing activities for continuing operations of $1,179,137 in 2023.2024. The net cash used in financing activities for the year ended December 31, 2025 mainly consisted of $1,853,800 loan repayment to major shareholders, loan to the shareholder of $ 485,173, and payment of government loan of $1,305, partly offset by proceeds of $667,623 from loan from the major shareholder (also the senior officer), repayment from the shareholder of $100,000, and increased bank overdraft by $1,531. The net cash used in financing activities for year ended December 31, 2024 mainly consisted of $602,500 loan repayment to one major shareholder (also the senior officer), decreased bank overdraft of $9,436, and payment repayment of government loan of $1,235. The net cash provided by financing activities for the year ended December 31, 2023 consisted of proceeds of $1,170,891 from loan from one major shareholder (also the senior officer), and increased bank overdraft of $9,436, partly offset by repayment of SBA loan of $1,190.

Our current liabilities liabilities exceed current assets at December 31, 2024,2025, andhowever, we incurred substantiala losses.net income of $896,197 during the year ended December 31, 2025. We may have difficulty meeting upcoming cash requirements. As of December 31, 2024,2025, our principal source of funds was loans from an officer (also is the Company’s major shareholder). As of December 31, 2024,2025, 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 to existing shareholders), loans and cash advances from other third parties or banks, and other similar actions. There can be no assurance 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.

Our management’s discussion and analysis of our financial condition and results of operations are based on our consolidatedfinancial financial statements (“CFSFS”), 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 CFS,FS, we believe the following accounting policies are the most critical to assist you in fully understanding and evaluating this management discussion and analysis.

The accompanying consolidated financial statements (“CFSFS”) 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.

The Company incurred a net income of $205,373$475,450 and a net loss $205,752of $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 MarchJune 31,30, 2026 and2025, respectively. The Company also had an accumulated deficit of $9,347,700as$9,077,623 as of March 31,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.

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.

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.

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 MarchJune 31,30, 2026 and December 31, 2025, there was no bad debt allowance.

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 MarchJune 31,30, 2026 and 2025.

Comparison for the threesix months ended MarchJune 31,30, 2026 and 2025

Revenues for the threesix months ended MarchJune 31,30, 2026 and 2025 were $500,537 $1,295,248 and $22,189,$281,312, respectively. We had $500,537$1,295,248 OEM service revenue, and nil shipping and delivery income for the threesix months ended March 31,June 30, 2026. We had $20,973$280,096 OEM service revenue, and $1,216 shipping and delivery income for the threesix months ended MarchJune 31,30, 2025. The significant increase in revenue during the threesix months ended MarchJune 31, 30, 2026, compared to the same period in 2025, was primarily attributable to a higher volume of OEM service orders, including large orders from onetwo new major customer.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.

For the factors mentioned above, the gross profits for the three six months ended MarchJune 31,30, 2026 and 2025 were $319,353$789,614 and $20,588,$189,232, respectively. The increase in gross profit was mainly due to increase in revenues.

Selling expenses consisted mainly of advertising, show expenses, products marketing, shipping expenses, and promotion expenses. Selling expenses for the threesix months ended MarchJune 31,30, 2026 and 2025 were $680 and $543,$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 $102,878 $293,849 for the threesix months ended MarchJune 31,30, 2026, compared to $225,137 $303,158 for the threesix months ended MarchJune 31,30, 2025, aan decrease of $122,259$9,309 or 54.30%,3.07%, the decrease was mainly due to decreasedincreased office rent and office CAMprofessional fee by $5,970,$22,659, decreasedincreased consultinglegal services fee by $129,175, decreased accountant fee by $10,900, decreased dues$8,540 and subscriptionsincreased amortization expense by $4,944,$103,542, which was partly offset by increaseddecreased 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 $2,150, and increased professional fee by $28,248.$4,848.

Other expensesincome was $583 $615 and $660other expense was $1,219 for the three six months ended MarchJune 31,30, 2026 and 2025, respectively. For the threesix months ended MarchJune 31,30, 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 $542$1,090 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.$129.

We had a net income of $205,373$475,450 for the threesix months ended MarchJune 31,30, 2026, compared to a net loss $205,752$145,888 for the threesix months ended March 31,June 30, 2025, an increase of $411,125$621,338 or 199.82%.425.90%. The increase in revenue was mainly due to increased gross profit and decreased general and administrative expenses as described above.

As of MarchJune 31,30, 2026, we had cash and equivalents of $36,177,$675, other current assets of $752,817,$605,832, other current liabilities of $2,160,871, $1,605,031, working capital deficit of $1,371,877,$998,524, a current ratio of 0.370.38:1. 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.

The following is a summary of cash provided by or used in each of the indicated types of activities during the threesix months ended MarchJune 31, 30, 2026, and 2025, respectively.

Net cash used in operating activities was $411,970$352,320 for the threesix months ended MarchJune 31,30, 2026, compared to net cash usedprovided inby operating activities of $26,069$141,728 for the threesix months ended MarchJune 31,30, 2025. The increase of cash outflow of $385,901$494,048 from operating activities for the threesix months ended MarchJune 31,30, 2026 was principally attributable increasedto decreased non-cash activities adjustment from operating lease expense by $18,158, decreased cash outflowinflow by $306,994 from prepaid expenses and other receivables by $121,075,receivables, decreased cash inflow from customer deposits by $476,863,$883,169, increased cash outflow from prepaymentinterest and depositsreceivable by $154,444,$2,882, increased decreased cash inflowoutflow from accountaccounts payable by $51,125,$40,834, and increased cash outflow onfrom accrued liability and other payables by $7,807,$19,874, partly partly offset by increased net income by $411,125$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 accountsprepayments receivableand deposit by $21,202.$21,104, and increased cash inflow from tax payable by $8,581.

Net cash provided by financing activities was $448,147$437,822 for the three six months ended MarchJune 31,30, 2026, compared to net cash providedused byin financing activities of $24,698$143,099 for the threesix months ended MarchJune 31,30, 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 threesix months ended MarchJune 31,30, 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 $343,600$419,400 loan from one major shareholder (also the senior officer) and increased bank overdraft of $2,414,$6,966, partly offset by $321,000$568,800 loan repayment to one major shareholder (also the senior officer) and payment of government loan of $316.$665.

Our current liabilities exceed current assets at MarchJune 31,30, 2026, however, we incurred a net income of $205,373$475,450 during the threesix months ended March 31,June 30, 2026. We may have difficulty meeting upcoming cash requirements. As of MarchJune 31,30, 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.

As of MarchJune 31,30, 2026, the future minimum EIDL loan payments from the company’s continuing operations to be paid by year are as follows:

As of MarchJune 31,30, 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 MarchJune 31,30, 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 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 MarchJune 31,30, 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.

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.