UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
(Mark One)
For the fiscal year ended
For the transition period from_________ to __________
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
| (STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION) | (COMMISSION FILE NO.) | (IRS EMPLOYEE IDENTIFICATION NO.) |
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(ISSUER TELEPHONE NUMBER)
Securities registered under Section 12(b) of the
Exchange Act:
None.
Securities registered under Section 12(g) of the Exchange Act:
(Title of Class)
Check whether the registrant is a well-known seasoned
issuer, as defined in Rule 405 of the Securities Act. Yes ☐
Check whether the registrant is not required to
file reports pursuant to Section 13 or 15(d) of the Exchange Act.
Check whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that
the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant
has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that
the registrant was required to submit and post such files).
Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-K (§229.405 of this chapter) contained herein, and no disclosure will be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☒
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “non-accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| 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. ☐
Indicate by check mark whether the registrant
has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial
reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or
issued its audit report.
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indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to
previously issued financial statements.
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
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of the Exchange Act). Yes ☐ No
The aggregate market value of the common stock
held by non-affiliates of the issuer (based on a valuation of $0.50 per share) was $
As of the most recent practicable date, there
were
TABLE OF CONTENTS
i
PART I
Special Note Regarding Forward-Looking Statements
Information included or incorporated by reference in this Annual Report on Form 10-K contains forward-looking statements. All forward-looking statements are inherently uncertain as they are based on current expectations and assumptions concerning future events or future performance of the Company. Readers are cautioned not to place undue reliance on these forward-looking statements, which are only predictions and speak only as of the date hereof. Forward-looking statements may contain the words “believes,” “project,” “expects,” “anticipates,” “estimates,” “forecasts,” “intends,” “strategy,” “plan,” “may,” “will,” “would,” “will be,” “will continue,” “will likely result,” and similar expressions, and are subject to numerous known and unknown risks and uncertainties. Additionally, statements relating to implementation of business strategy, future financial performance, acquisition strategies, capital raising transactions, performance of contractual obligations, and similar statements may contain forward-looking statements. In evaluating such statements, prospective investors and shareholders should carefully review various risks and uncertainties identified in this Report, including the matters set forth under the captions “Risk Factors” and in the Company’s other SEC filings. These risks and uncertainties could cause the Company’s actual results to differ materially from those indicated in the forward-looking statements. The Company disclaims any obligation to update or publicly announce revisions to any forward-looking statements to reflect future events or developments.
Although forward-looking statements in this Annual Report on Form 10-K reflect the good faith judgment of our management, such statements can only be based on facts and factors currently known by us. Consequently, forward-looking statements are inherently subject to risks and uncertainties, and actual results and outcomes may differ materially from the results and outcomes discussed in or anticipated by the forward-looking statements. Factors that could cause or contribute to such differences in results and outcomes include, without limitation, those specifically addressed under the heading “Risk Factors Related to Our Business” below, as well as those discussed elsewhere in this Annual Report on Form 10-K. Readers are urged not to place undue reliance on these forward-looking statements, which speak only as of the date of this Annual Report on Form 10-K. We file reports with the Securities and Exchange Commission (“SEC”). You can read and copy any materials we file with the SEC at the SEC’s Public Reference Room, 100 F. Street, NE, Washington, D.C. 20549. You can obtain additional information about the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains an Internet site (www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC, including us.
We disclaim any obligation to revise or update any forward-looking statements in order to reflect any event or circumstance that may arise after the date of this Annual Report on Form 10-K. Readers are urged to carefully review and consider the various disclosures made throughout the entirety of this Annual Report, which attempt to advise interested parties of the risks and factors that may affect our business, financial condition, results of operations and prospects.
1
Item 1. Business
General Corporate History
Bio Essence Corp. (“we,” “us,” “Bio Essence,” or the “Company”) is an herbal health, diet, and nutrition company. The Company’s mission is to provide herbal health, diet, and vitamin nutritional supplements, as explained below.
The Company was incorporated in the State of California on January 1, 2000. On January 27, 2016, the Company entered into a change of control whereby our controlling shareholder, Jian Yang, purchased a controlling interest in the Company. On that same date, Jian Yang entered into a stock purchase agreement with Fusion Diet Systems, Inc. a Utah corporation dba, Fusion Naturals (“Fusion Naturals”). Fusion Naturals was originally incorporated in Utah on April 20, 2010. On January 9, 2017, the Company created a new corporation in the State of California called Bio Essence Pharmaceutical, Inc. to serve as a health supplements manufacturer (“BEP”). Then, on January 12, 2017, the Company created its third subsidiary, Bio Essence Herbal Essentials Inc. (“BEH”). The Company serves as a holding corporation for these subsidiaries. On November 13, 2021, the Company dissolved Fusion Naturals and formed a new wholly owned subsidiary, McBE Pharma, Inc. (“McBE”).
The primary focus of BEP is producing products for BEH and McBE, along with providing original equipment manufacturing and private label services to other companies. BEH targets and develops traditional Chinese medicines (“TCM”) in the form of single herbs, granules, pills, and tablets. It also offers special formulated dietary supplements and medical food. The Company intends to develop this subsidiary into one that is engaged in integrated health and to provide its customers to interact with dietitians, nutraceutical practitioners, and traditional integrative wellness doctors worldwide. McBE is in the process of implementing a new business plan that focuses on developing pharmaceuticals, supplements, and other similar products.
The Company sells its products through channels such as TCM practitioners, online websites, including its own proprietary website, and brick-and-mortar stores, such as GNC. Material sales have been made through these channels. The Company has conducted sales meetings with prospects through brokers and direct contacts to sell through other channels, including, Vitamin World, TJ Max, Home Goods, Marshalls, and grocery outlets, however as of the filing of this Registration Statement, the Company has not made any material sales through these channels.
On December 12, 2023, the Company entered into a Stock Purchase Agreement (“SPA”) with Newway, Inc., a California corporation (“Newway”) whereby the Company agreed to sell to Newway its wholly owned subsidiary, BEP, in exchange for cash consideration in the amount of Three Hundred Thousand Dollars ($300,000). The transaction closed prior to December 31, 2023. The effective date of the SPA identifies December 5, 2023 as the effective date, but a fully executed copy of the SPA was not available until December 12, 2023. The Board of Directors approved the sale pursuant to a Consent Resolution dated December 5, 2023. There was no material relationship between the Company and Newway. As a result of the transaction, the Company no longer holds any interest in BEP or the products and/or services it currently provides.
The Company is headquartered at 12 Chrysler, Unit B, Irvine, CA 92618 and the Company’s website is http://www.bioessencecorp.com. Our telephone number is (949) 706-9966. An organizational chart appearing on the next page provides an illustration of the relationship between the entities identified above.
Employees
The Company currently has 12 full-time employees.
2
Item 1A. Risk Factors.
As a “smaller reporting company” as defined by Item 10 of Regulation S-K, the Company is not required to provide this information.
Item 1B. Unresolved Staff Comments.
Not applicable.
Item 2. Description of Property.
The Company maintains an office at 12 Chrysler, Unit B, Irvine, CA 92618. This location serves as the Company’s main headquarters. We do not own any properties. We currently have no policy with respect to investments or interests in real estate, real estate mortgages or securities of, or interests in, persons primarily engaged in real estate activities.
Item 3. Legal Proceedings.
None.
Item 4. Mine Safety Disclosures.
Not applicable.
3
PART II
Item 5. Market for Common Equity, Related Stockholder Matters and Small Business Issuer Purchases of Equity Securities.
Common Stock
The Company has 100,000,000 shares of authorized common stock (CUSIP# 09090C105), of which, as of the end of our 2023 fiscal year, had 38,009,000 issued and outstanding. The Company’s stock trades on the OTC Markets, under the symbol BIOE.
As of the most recent practicable date, there are 48 record holders of our common stock. The Company has not paid any cash dividends to date and may consider but no final decision has been made in paying dividends in the foreseeable future. We have no securities authorized for issuance under any Equity Compensation Plans.
Preferred Stock
We do not have a class of preferred stock.
Dividends
We have not paid any dividends on our common stock to date. The payment of dividends in the future will be contingent upon our revenues and earnings, if any, capital requirements and general financial condition subsequent to completion of a business combination. The payment of any will be within the discretion of our then Board of Directors. It is the present intention of our Board of Directors to retain earnings, if any, for use in our business operations.
Securities Authorized for Issuance under Equity Compensation Plans
The Company does not have any current equity compensation plans or any individual compensation arrangements with respect to its common stock or preferred stock. The issuance of any of our common or preferred stock is within the discretion of our Board of Directors, which has the power to issue any or all of our authorized but unissued shares without stockholder approval.
Recent Sales of Unregistered Securities
None.
Issuer Purchases of Equity Securities
None.
4
Item 6. [Reserved]
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation.
Business Overview
Bio Essence Corporation (“the Company” or “Bio Essence”) 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.
The primary focus of BEP is producing products for BEH, along with providing OEM services to other companies. BEH targets healthcare practitioners with herbal products in the form of granules, capsules, pills and tablets. It also offers special formulation service to practitioners. The Company intends to develop the subsidiary into an integrated healthcare platform that provides customers direct connections with integrative healthcare practitioners such as dietitians, nutraceutical practitioners, and other practitioners in this discipline worldwide.
However, the pandemic could result in significant disruption of global financial markets, reducing the Company’s ability to access capital, which could negatively affect the Company’s liquidity.
Related Party Transactions
Loans from Officer
At December 31, 2023 and 2022, the Company had loans from one major shareholder (also the Company’s senior officer) of $1,214,046 and $2,543,155, respectively. At December 31, 2023 and 2022, the Company had loan from another major shareholder for $608,631 for settling the litigation. There are no written loan agreements for these loans. These loans are unsecured, non-interest bearing and have no fixed terms of repayment, and therefore, deemed payable on demand.
On May 31, 2023, the Board of Directors of the Company, approved a debt-to-equity conversion. The Company and Ms. Yan (the Company’s Chief Executive Officer also the major shareholder) agreed to a debt conversion whereby Ms. Yan receives 5,000,000 shares of the Company’s common stock in exchange for retirement of the $2,500,000 debt. The Board of Directors of the Company executed the Consent Resolution on June 2, 2023. On June 2, 2023, the closing price of the Company’s common stocks trading on OTC Market was $0.51 per share. The Company incurred a $50,000 loss on this conversion.
Critical Accounting Policies and Estimates
Our management’s discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements (“CFS”), which were prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”). The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements as well as the reported net sales and expenses during the reporting periods. On an ongoing basis, we evaluate our estimates and assumptions. We base our estimates on historical experience and various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
While our significant accounting policies are more fully described in Note 2 to our CFS, we believe the following accounting policies are the most critical to assist you in fully understanding and evaluating this management discussion and analysis.
5
Basis of Presentation
The accompanying consolidated financial statements (“CFS”) are prepared in conformity with U.S. Generally Accepted Accounting Principles (“US GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting. The functional currency of Bio Essence is U.S. dollars (“$’’). The accompanying financial statements are presented in U.S. dollars (“$”). The consolidated financial statements include the financial statements of the Company and its subsidiaries, BEP, BEH and McBE. All significant inter-company transactions and balances were eliminated in consolidation.
Going Concern
The Company incurred net losses of $802,547 and $527,884 from the company’s continuing operations for the years ended December 31, 2023 and 2022, respectively. The Company also had an accumulated deficit of $9,140,474 from the company’s continuing operations as of December 31, 2023. 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, allowance for doubtful accounts, and the reserve for obsolete and slow-moving inventories. Actual results could differ from those estimates.
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 December 31, 2023 and 2022, the bad debt allowance was $2,252 and $2,252, respectively.
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.
6
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 years ended December 31, 2023 and 2022.
Results of operations
Comparison of Continuing operations for the years ended December 31, 2023 and 2022
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.
| 2023 | % of Sales | 2022 | % of Sales | Dollar Increase (Decrease) | Percent Increase (Decrease) | |||||||||||||||||||
| Sales of goods | $ | 551,506 | 100.00 | % | $ | 621,590 | 100.00 | % | $ | (70,084 | ) | (11.27 | )% | |||||||||||
| Manufacture service revenue | - | - | - | - | - | - | ||||||||||||||||||
| Total revenues | 551,506 | 100.00 | % | 621,590 | 100.00 | % | (70,084 | ) | (11.27 | )% | ||||||||||||||
| Cost of goods sold | 274,060 | 49.69 | % | 293,264 | 47.18 | % | (19,204 | ) | (6.55 | )% | ||||||||||||||
| Cost of manufacture service | - | - | % | - | - | % | - | - | % | |||||||||||||||
| Total cost of revenues | 274,060 | 49.69 | % | 293,264 | 47.18 | % | (19,204 | ) | (6.55 | )% | ||||||||||||||
| Gross profit | 277,446 | 50.31 | % | 328,326 | 52.82 | % | (50,880 | ) | (15.50 | )% | ||||||||||||||
| Selling expenses | 92,187 | 16.72 | % | 76,318 | 12.28 | % | 15,869 | 20.79 | % | |||||||||||||||
| General and administrative expenses | 974,309 | 176.66 | % | 763,146 | 122.77 | % | 211,163 | 27,67 | % | |||||||||||||||
| Operating expenses | 1,066,496 | 193.98 | % | 839,464 | 135.05 | % | 227,032 | 27.04 | % | |||||||||||||||
| Loss from operations | (789,050 | ) | (143.07 | )% | (511,138 | ) | (82.23 | )% | (277,912 | ) | 54.37 | % | ||||||||||||
| Other income (expense), net | (11,097 | ) | (2.01 | )% | (14,246 | ) | (2.29 | )% | 3,149 | (22.10 | )% | |||||||||||||
| Loss before income taxes | (800,147 | ) | (145.08 | )% | (525,384 | ) | (84.52 | )% | (274,763 | ) | 52.30 | % | ||||||||||||
| Income tax expense | 2,400 | 0.44 | % | 2,500 | 0.40 | % | (100 | ) | (4.00 | )% | ||||||||||||||
| Net loss from continuing operations | (802,547 | ) | (145.22 | )% | (527,884 | ) | (84.92 | )% | (274,663 | ) | 52.03 | % | ||||||||||||
| Loss from discontinued operations | (236,783 | ) | (42.93 | )% | (281,795 | ) | (45.33 | )% | 45,012 | (15.97 | )% | |||||||||||||
| Gain from disposal of discontinued operations | 67,451 | 12.23 | % | - | - | 67,451 | - | % | ||||||||||||||||
| Net loss | $ | (971,879 | ) | (176.22 | )% | $ | (809,679 | ) | (130.26 | )% | $ | (162,200 | ) | 20.03 | % | |||||||||
7
Sales
Sales from the company’s continuing operations for the years ended December 31, 2023 and 2022 were $551,506 and $621,590, respectively, a decrease of $70,084 or 11.27%. The decrease was primarily attributable to (i) decrease in sales of goods due to lack of stock, and (ii) decreased shipping income resulting from us offering free shipping to attract more customers.
Costs of revenue
Costs of revenue from the company’s continuing operations for the years ended December 31, 2023 and 2022 was $274,060 and $293,264, respectively, a decrease of $19,204 or 6.55%. The decrease of COGS in 2023 was mainly due to decreased sales. The percentage of cost of goods sold to total sales of goods was 49.69% and 47.18% for the years ended December 31, 2023 and 2022, respectively, an increase of 2.51%.
Gross profit
For the factors mentioned above, the gross profit from the company’s continuing operations for the years ended December 31, 2023 and 2022 was $277,446 and $328,326, respectively, a decrease of $50,880 or 15.50%. The blended profit margin was 50.31% and 52.82% for the years ended December 31, 2023 and 2022, respectively. The decrease in gross profit margin was mainly due to decreased gross profit of $50,880 from sales of goods.
Operating expenses
Selling expenses consist mainly of advertising, show expense, products marketing, shipping expenses, and promotion expenses. Selling expense from the company’s continuing operations was $92,187 for the year ended December 31, 2023, compared to $76,318 for the year ended December 31, 2022, an increase of $15,869 or 20.79%, mainly resulting from increased show expense by $2,765, increased shipping expense by $7,342, and increased marketing expense by $16,574, which was partly offset by decreased advertising fee by $10,811.
General and administrative expenses consist mainly of employee salaries and welfare, business meeting, utilities, accounting, consulting, and legal expenses. General and administrative expenses from the company’s continuing operations were $974,309 for the year ended December 31, 2023, compared to $763,146 for the year ended December 31, 2022, an increase of $211,163 or 27.67%, the increase was mainly due to increased salaries expense by $66,746 as our average salaries increased, increased office rental expense by $85,487, increased manufacturing overhead by $65,997, offset by decreased commission fee by $11,729.
Other expenses, net
Other expenses from the company’s continuing operations was $11,097 and $14,246 for the years ended December 31, 2023 and 2022, respectively. For the year ended December 31, 2023, other expenses mainly consisted of interest expense of $17,344, loss of $50,000 in debt to stock conversion, loss of $23,058 in disposal of fixed assets, offset by other income of $79,825. For the year ended December 31, 2022, other expenses mainly consisted of interest expense of $14,131, finance expenses of $5,095, and net other income of $4,980.
Net loss
We had a net loss of $802,547 from the company’s continuing operations for the year ended December 31, 2023, compared to $527,884 for the year ended December 31, 2022, a decrease of $274,663 or 52.03%, reflected the above-mentioned factors combined.
8
Liquidity and Capital Resources
As of December 31, 2023, from the company’s continuing operations, we had cash and equivalents of $114, bank overdraft of $14,866, other current assets of $1,103,462, other current liabilities (excluding bank overdraft) of $3,167,808, working capital deficit of $2,079,098, a current ratio of 0.35:1. As of December 31, 2022, we had cash and equivalents of $6,262, bank overdraft of 53,651, other current assets of $197,569, other current liabilities (excluding bank overdraft) of $3,504,179, working capital deficit of $3,353,999, a current ratio of 0.06:1.The following is a summary of cash provided by or used in each of the indicated types of activities during the years ended December 31, 2023, and 2022, respectively.
| 2023 | 2022 | |||||||
| Net cash used in operating activities for continuing operations | $ | (848,443 | ) | $ | (496,595 | ) | ||
| Net cash used in operating activities for discontinued operations | (177,228 | ) | (206,646 | ) | ||||
| Net cash used in operating activities | (1,025,671 | ) | (703,241 | ) | ||||
| Net cash used in investing activities for continuing operations | (3,614 | ) | (3,742 | ) | ||||
| Net cash used in investing activities for discontinued operations | (87,870 | ) | (55,378 | ) | ||||
| Net cash used in investing activities | (91,484 | ) | (59,120 | ) | ||||
| Net cash provided by financing activities for continuing operations | 1,147,384 | 835,406 | ||||||
| Net cash provided by financing activities for discontinued operations | (36,377 | ) | (67,086 | ) | ||||
| Net cash provided by financing activities | $ | 1,111,007 | $ | 768,320 | ||||
Net cash used in operating activities for continuing operations
Net cash used in operating activities for continuing operations was $848,443 for the year ended December 31, 2023, compared to $496,595 in 2022. The increase of cash outflow of $351,848 from operating activities for the year ended December 31, 2023 was principally attributable to increased net loss by $207,212, increased cash outflow on security deposit by $52,545, and increased cash outflow on inventory by $44,658.
Net cash used in investing activities for continuing operations
Net cash used in investing activities for continuing operations was $3,614 and $3,742 for the years ended December 31, 2023 and 2022, respectively. For the year ended December 31, 2023 and 2022, net cash used in investing activities was mainly for the payment of fixed assets.
Net cash provided by financing activities for continuing operations
Net cash provided by financing activities for continuing operations was $1,147,384 for the year ended December 31, 2023, compared to $835,406 in 2022. The net cash provided by financing activities for year ended December 31, 2023 mainly consisted of proceeds of $1,170,891 loan from one major shareholder (also the senior officer), partly offset by bank overdraft of $16,971, and repayment of government loan of $4,211,and repayment of finance lease liability of $2,325. The net cash provided by financing activities for the year ended December 31, 2022 consisted of proceeds of $758,000 from loan from one major shareholder (also the senior officer) and increase in bank overdraft of $21,016, proceeds from government SBA loan of $58,413, partly offset by repayment of finance lease liability of $2,023.
Our current liabilities exceed current assets at December 31, 2023, and we incurred substantial losses and cash outflows from operating activities in the periods presented. We may have difficulty meeting upcoming cash requirements. As of December 31, 2023, our principal source of funds was loans from an officer (also is the Company’s major shareholder). As of December 31, 2023, 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.
9
Contractual Obligations
Lease Commitment
Operating Lease
On May 18, 2023, the Company entered a 36 months lease for a facility including warehouse and office in the City of Irvine, California, with a security deposit of $50,000, effective on September 1, 2023. The monthly rent is approximately $47,100 with a 3% increase each year.
The following is a schedule, by years, of maturities of warehouse and office lease liabilities from the company’s continuing operations as of December 31, 2023:
| For the 12 months ending | Operating Leases | |||
| (unaudited) | ||||
| December 31, 2024 | $ | 570,852 | ||
| December 31, 2025 | 587,978 | |||
| December 31, 2026 | 399,747 | |||
| Thereafter | - | |||
| Total undiscounted cash flows | 1,558,577 | |||
| Less: imputed interest | (124,951 | ) | ||
| Present value of lease liabilities | $ | 1,433,626 | ||
Finance Lease
Effective March 15, 2022, the company entered two 39-months lease for two copiers with same vendor for a monthly payment of $234 and $214, respectively. Effective June 24, 2022, the company entered two leases for two forklifts with a term of 60 months for each, and the monthly payment was $383 and $451, respectively. At the lease expiration date, the Company has the option to purchase the copier for $1 each.
The following is a schedule, by years, of maturities of finance lease liabilities from the company’s continuing operations as of December 31, 2023:
| For the 12 months ending | Finance Leases | |||
| (unaudited) | ||||
| December 31, 2024 | $ | 2,802 | ||
| December 31, 2025 | 1,401 | |||
| December 31, 2026 | ||||
| December 31, 2027 | ||||
| Total undiscounted cash flows | 4,203 | |||
| Less: imputed interest | (162 | ) | ||
| Present value of finance lease liabilities | $ | 4,041 | ||
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 $515 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.
10
As of December 31, 2023, the future minimum EIDL loan payments from the company’s continuing operations to be paid by year are as follows:
| Year Ending | Amount | |||
| (unaudited) | ||||
| December 31, 2024 | $ | 4,624 | ||
| December 31, 2025 | 4,800 | |||
| December 31, 2026 | 4,983 | |||
| December 31, 2027 | 5,173 | |||
| December 31, 2028 | 5,371 | |||
| Thereafter | 179,252 | |||
| Total | $ | 204,203 | ||
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 7A. Quantitative and Qualitative Disclosures about Market Risk.
As a “smaller reporting company” as defined by Item 10 of Regulation S-K, the Company is not required to provide this information.
Item 8. Financial Statements and Supplementary Data.
Please see the financial statements beginning on page F-1 located in this annual report on Form 10-K and incorporated herein by reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
There are not and have not been any changes in or disagreements between the Company and its accountants on any matter of accounting principles, practices, or financial statement disclosure.
Item 9A. Controls and Procedures.
The Company’s Chief Executive, Yin Yan, is responsible for establishing and maintaining disclosure controls and procedures for the Company.
Evaluation of Disclosure Controls and Procedures
For purposes of this Item 9A, 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.
11
On December 31, 2023, Ms. Yan 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 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.
Report of Management on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Exchange Act Rule 13a-15. Our internal control over financial reporting is designed to provide reasonable assurance to our management and BOD regarding the preparation and fair presentation of published financial statements. Management conducted an assessment of our internal control over financial reporting 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 December 31, 2023, our internal controls over financial reporting were effective at the reasonable assurance level based on those criteria.
Our independent public accountant has not conducted an audit of our controls and procedures regarding internal control over financial reporting and therefore expresses no opinion with regards to the effectiveness or implementation of our controls and procedures with regards to internal control over financial reporting.
Changes in Internal Controls over Financial Reporting
There were no changes in our internal control over financial reporting identified in connection with our evaluation of these controls as of the end of the fiscal year, December 31, 2023, as covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Inherent Limitations on Effectiveness of Controls
The Company’s management does not expect that its disclosure controls or its internal control over financial reporting 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.
Item 9B. Other Information.
Item 9C. Disclosure Regarding Foreign that Jurisdiction that Prevent Inspections
Not applicable.
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PART III
Item 10. Directors, Executive Officers and Corporate Governance
Pursuant to Item 401 of Regulation S-K, the names and ages of the directors and executive officers and directors of the Company, and their positions with the Company, are detailed in the table below.
| Name | Age | Position | Familial Relationships | |||||
| Yin Yan | 48 | Chief Executive Officer, Chief Financial Officer, and Chairman of the Board of Directors | None | |||||
| Dr. Siyavqwh Fooladian | 43 | Director | None | |||||
| Simon Shavanson | 53 | Director | None | |||||
| Yangyang Huang | 41 | Director | None | |||||
| Tuan Tran | 50 | Vice President of Operations | None | |||||
Yin Yan, Chief Executive Officer, Chief Financial Officer, and Chairman of the Board of Directors
Ms. Yan serves as the Company’s Chief Executive Officer, Chief Financial Officer, and Chairman of the Board of Directors. She began her career in 2002 at Intel Corp., a semiconductor designer and manufacturing company as automation project manager. From 2002 to 2004, Ms. Yan managed manufacturing automation and software as well as database development in computer infrastructure applications. From 2004 to present, she has been president of H&Y International, LLC, a real estate investment and brokerage company. Ms. Yan spends 20 hours per week on the affairs of H&Y International, LLC.
Dr. Siyavash Fooladian, Director
Siyavash Fooladian, MD, MPH is a board-certified Cardiac Anesthesiologist, Ironman triathlete, and a passionate advocate for a holistic, integrative approach to health and wellness. With over ten years of clinical experience caring for patients with an array of medical ailments, Dr. Fooladian understands the need for an integrative approach to health. He believes that optimal health can be achieved and maintained by holistic understanding of a patient’s mind, body, and spirit and thereby, merging the best of Eastern and Western modalities to treat the root cause of disease.
Dr. Fooladian has seen firsthand how opioid addiction and the opioid crisis have affected the well-being of his patients. He has also witnessed complications, in both young and elderly patients, such as reversible and irreversible kidney failure, gastrointestinal bleeding, and liver dysfunction from pharmaceutical alternatives to opioids—NSAIDS (ibuprofen, Motrin, Alleve, etc.) and Tylenol. An expert in alleviating his patients’ pain during and after surgery, Dr. Sia leveraged his medical knowledge and passion for creating impact to support integrative wellness. Dr. Fooladian maintains a daily practice of meditation and mindfulness, alongside nutraceutical supplementation and cold therapy in order to promote peak performance in his active lifestyle.
Dr. Fooladian holds a BA in history and education from UCLA. He received his MD and MPH in health management from The George Washington University School of Medicine and Health Sciences. He completed his residency and fellowship training at UCLA Medical Center, where he served as Chief Resident. He currently resides and practices in Orange County, California, and has done so for the past 10 years. The Company believes Dr. Fooladian’s experience in the medical field will greatly benefit the Company as it expands is business model.
Simon Shavanson, Director
Mr. Shavanson is the founder and CEO at Shavanson Enterprises Corp and its affiliated companies since June 2011. With over 25 years of experience in the CPG and Retail industry, Mr. Shavanson has led the development of a shared services platform that would take brands and products from “Concept to Consumer.” As a visionary and a passionate, relationship driven executive, he has created the platform with affiliated owned and partner companies to support brands as a turnkey solution for various needs including packaging components, R&D and formulation, fill-in & manufacturing, retail placement and staffing support for at-shelf demo and social & digital activation.
13
Mr. Shavanson started his career with his family business, First Quality back in February of 1994 and during his 18 years’
tenure at the company, he held various roles in business development, Sales Management & Marketing where he was an integral part of
the culture and growth of the businesses from under $20 million when he joined First Quality to over $3 billion in annual revenue when
he decided to venture out in 2012. His passion for people and his relationships and integrity are his most important assets. Simon is
a great creative visionary that has always strive to offer solutions to make his industry partners differentiate while offering solutions
to elevate their position in the marketplace.
For the past 9 years, Mr. Shavanson has been working as a managing director and chief relationship officer for NuVu Group, managing and helping brands in retail placement, distribution and marketing. The Company believes Mr. Shavansan’s vast experience will assist the Company in numerous ways, including sales and research and development matters.
Yangyang Huang, Director
Ms. Huang has served as a director of the Company since November 2017. She has served as the Chief Executive Officer and Chairman of Panjin Futian Petrochemical Industry Development Co., Ltd., since 2016. She has been previously employed by the People’s Bank of China from 2007 to 2016 as a principal staff member responsible for approval of international payments made by commercial banks and monitoring of foreign exchange transactions. Prior to her position at People’s Bank of China, Ms. Yang was employed by Industrial and Commercial Bank of China from 2005 to 2007 as a staff member. Ms. Yang holds a Ph.D. in finance from Dongbei University of Finance and Economics, a Masters in Management from the University of Leeds, and a B.A. in English and International Trade from Dalian University. The Company believes Ms. Yang’s experiences will greatly assist the Company as it expands and implements is business plan.
Tuan Tran, VP of Operations
Mr. Tuan Tran has over 20 years of experience in quality and operations working in the Nutrition, Dietary Supplements and OTC industries. Mr. Tran current responsibilities includes but are not limited Production, Warehouse & Distribution, Quality, Customer Service, R&D, Procurement, Human Resources, and Safety.
Mr. Tran has extensive knowledge in FDA regulations, GMPs, food safety, auditing, quality system, HACCP, Process Analytical Technology, CAPA, and Lean Manufacturing. Mr. Tran also specializes in crisis management, regulatory compliance, quality systems implementation, and supplier qualification.
Mr. Tran received his Bachelors of Science Degree in Public Health from Southern Connecticut State University. He holds certifications in Pharmaceutical Engineering, Six Sigma Green Belt, Food Safety, Technical Writing and HACCP. Mr. Tran is a senior member with the American Society for Quality.
B. Significant Employees.
None
C. Family Relationships.
None.
D. Involvement in Certain Legal Proceedings.
Except as otherwise disclosed, no officer, director, or persons nominated for such positions, promoter or significant employee has been involved in the last ten years in any of the following:
| ● | Any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time; | |
| ● | Any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offenses); |
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| ● | Being subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities; and | |
| ● | Being found by a court of competent jurisdiction (in a civil action), the Commission or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated. |
Audit Committee
The Company has no separate audit committees. The Company has no qualified financial expert at this time because it has not been able to hire a qualified candidate. Further, the Company believes that it has inadequate financial resources at this time to hire such an expert. The Company intends to continue to search for a qualified individual for hire.
Code of Ethics
We do not currently have a code of ethics. The company is in the early stages of development and its chief executive officer, Ms. Yan, has not yet developed a code of ethics. The Company intends on developing one as the Company’s business expands.
Nominating Committee
We have not adopted any procedures by which security holders may recommend nominees to our Board of Directors.
Item 11. Executive Compensation.
The Company does not have employment contracts with its officers or directors. All employees of the Company are at-will employees. The Company’s principal executive and financial officer, Yin Yan, does not have a written employment agreement and does not earn a salary. Compensation for Ms. Yan and the Company’s two highest paid employees are detailed in the Summary Compensation table below. Ji Ping Rong the Company’s operation manager, earns $72,000 annually, while Yuling Huang earns $60,000 for his role as the Company’s accounting manager.
Summary Compensation Table
| Name and Principal Position | Year | Salary | Bonus | Stock Awards | Option Awards | Nonequity Incentive Plan Compensation | Change in pension value and nonqualified deferred compensation earnings | All Other Compensation | Total | |||||||||||||||||||||||||||
| Yin Yan (PEO) | 2023 | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | |||||||||||||||||||
| Ji Ping Rong | 2023 | $ | 72,000.00 | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | 72,000.00 | |||||||||||||||||||
| Yuling Huang | 2023 | $ | 60,000.00 | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | 60,000.00 | |||||||||||||||||||
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Outstanding Equity Awards at Fiscal Year-End
| Option awards | Stock awards | |||||||||||||||||||
| Name | Number of securities underlying unexercised options (#) exercisable |
Number of securities underlying unexercised options (#) unexercisable |
Equity incentive plan awards: Number of securities underlying unexercised unearned options (#) |
Option exercise price ($) |
Option expiration date |
Number of shares or units of stock that have not vested (#) |
Market value of shares of units of stock that have not vested ($) |
Equity incentive plan awards: Number of unearned shares, units or other rights that have not vested (#) |
Equity incentive plan awards: Market or payout value of unearned shares, units or other rights that have not vested ($) |
|||||||||||
| - | - | - | - | - | - | - | - | - | - | |||||||||||
The Company does not have any outstanding equity awards for its employees.
Director Compensation
The following table provides information regarding the compensation of our named directors for the fiscal year ending on December 31, 2023.
| Name and Principal Position | Salary | Bonus | Stock Awards | Option Awards | Non-Equity Incentive Plan Compensation | Nonqualified Deferred Compensation Earnings | All Other Compensation | Total | ||||||||||||||||||||||||
| Yin Yan | ||||||||||||||||||||||||||||||||
| (Chief Executive Officer, Chief Financial Officer, and Director) | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||||||
| Yangyang Huang (Director) | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||||||
| Dr. Siyavash Fooladian | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||||||
| Simon Shavanson | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||||||
The Company’s directors serve in unpaid positions and do not receive an annual salary, bonus, or other compensation for their role as board members.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The following table sets forth the ownership of our common stock by each person known by us to be the beneficial owner of more than 5% of our outstanding common stock as a group as of December 31, 2023. There are no pending arrangements that may cause a change in control. The information presented below has been presented in accordance with the rules of the SEC and is not necessarily indicative of ownership for any other purpose.
16
A person is deemed to be a “beneficial owner” of a security if that person has or shares the power to vote or direct the voting of the security or the power to dispose or direct the disposition of the security. A person is deemed to own beneficially any security as to which such person has the right to acquire sole or shared voting or investment power within 60 days through the conversion or exercise of any convertible security, warrant, option or other right. More than one person may be deemed to be a beneficial owner of the same securities. The percentage of beneficial ownership by any person as of a particular date is calculated by dividing the number of shares beneficially owned by such person, which includes the number of shares as to which such person has the right to acquire voting or investment power within 60 days, by the sum of the number of shares outstanding as of such date plus the number of shares as to which such person has the right to acquire voting or investment power within 60 days. Consequently, the denominator used for calculating such percentage may be different for each beneficial owner.
| Title of Class | Name and Address of Beneficial Owner | Amount and Nature of Beneficial Ownership | Percent of Class | |||||
| Common Stock | Yin Yan(1) – 31921 Apuesto Way, Trabuco Canyon CA, 92679 | 14,000,000 shares— directly owned | 36.8 | % | ||||
| Common Stock | Jian Yang(2) – 2012 Paseo Del Mar, Palos Verdes Estates, CA 90274 | 21,000,000 shares— directly owned | 55.3 | % | ||||
| (1) | Yin Yan is the Company’s Chief Executive Officer, Chief Financial Officer, and Chairman of the Board of Directors |
| (2) | Jain Yang is the Company’s controlling shareholder and former director |
This table is based upon information derived from our stock records. We believe that each of the shareholders named in this table has sole or shared voting and investment power with respect to the shares indicated as beneficially owned.
Securities Authorized for Issuance Under Equity Compensation Plans
The following chart is provided pursuant to Item 201(d) of Regulation S-K:
| Plan Category | Number of securities to be issued upon exercise of outstanding options, warrants, and rights |
Weighted- average exercise price of outstanding options, warrants and rights |
Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) |
|||||||||
| Equity compensation plans approved by security holders | N/A | N/A | N/A | |||||||||
| Equity compensation plans not approved by security holders | N/A | N/A | N/A | |||||||||
| TOTAL | 0 | |||||||||||
Item 13. Certain Relationships and Related Transactions.
Except as otherwise indicated herein, there have been no related party transactions, or any other transactions or relationships required to be disclosed pursuant to Item 404 of Regulation S-K.
17
Item 14. Principal Accounting Fees and Services.
Keith K. Zhen, CPA is the Company’s independent registered public accounting firm. Below are aggregate fees billed by Keith K. Zhen, CPA for professional services rendered for the year ended December 31, 2023.
Audit Fees
The fees for the audit services billed and to be billed by Keith K. Zhen, CPA for the year ended December 31, 2023 amounted to $32,000.
Audit-Related Fees
None.
Tax Fees
There were no fees billed by Keith K. Zhen, CPA for professional services for tax compliance, tax advice, and tax planning for 2023.
All Other Fees
There were no fees billed by Keith K. Zhen, CPA for other products and services for 2023.
Audit Committee’s Pre-Approval Process
The Board of Directors acts as the audit committee of the Company, and accordingly, all services are approved by all the members of the Board of Directors.
Item 15. Exhibits, Financial Statement Schedules.
| (a) | Exhibits: |
(b) The following documents are filed as part of the report:
1. Financial Statements: Balance Sheet, Statement of Operations, Statement of Stockholder’s Equity, Statement of Cash Flows, and Notes to Financial Statements.
18
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Bio Essence Corp.
| Dated: April 15, 2024 | ||
| By: | /s/ Yin Yan | |
| Yin Yan, Chief Executive Officer | ||
| (Principal Executive and Financial Officer) |
In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| NAME | POSITION | DATE | ||
| /s/ Yin Yan | Chief Executive Officer | April 15, 2024 | ||
| Yin Yan | (Principal Executive Officer), Chief Financial Officer (Principal Financial Officer) Chief Accounting Officer (Controller or Principal Accounting Officer), and Director |
|||
| /s/ Sia Fooladian | Director | April 15, 2024 | ||
| Dr. Sia Fooladian | ||||
| /s/ Simon Shavanson | Director | April 15, 2024 | ||
| Simon Shavanson | ||||
| /s/ Yang Yang Huang | Director | April 15, 2024 | ||
| Yang Yang Huang |
19
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and
Stockholders of Bio Essence Corp.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Bio Essence Corp. and subsidiaries (the Company) as of December 31, 2023 and 2022, and the related consolidated statements of income, comprehensive income, stockholders’ equity (deficit), and cash flows for each of the years in the two-year period ended December 31, 2023, and the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America.
Going Concern Matter
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has incurred recurring net losses with significant accumulated deficit, and negative cash flows from operations. These conditions raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. We determined that there were no critical audit matters.
| /S/ Keith K Zhen CPA | |
PCAOB ID
We have served as the Company’s auditor since 2021
April 15, 2024
F-1
BIO ESSENCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
| AS OF DECEMBER 31, | AS OF DECEMBER 31, | |||||||
| 2023 | 2022 | |||||||
| ASSETS | ||||||||
| CURRENT ASSETS | ||||||||
| Cash and equivalents | $ | $ | ||||||
| Accounts receivable, net | ||||||||
| Other receivables | ||||||||
| Prepaid expenses | ||||||||
| Advance to suppliers | ||||||||
| Inventory, net | ||||||||
| Total current assets | ||||||||
| NONCURRENT ASSETS | ||||||||
| Security deposit | ||||||||
| Right-of-use assets, net | ||||||||
| Property and equipment, net | ||||||||
| Intangible assets, net | ||||||||
| Total non-current assets | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
| CURRENT LIABILITIES | ||||||||
| Bank overdraft | $ | $ | ||||||
| Accounts payable | ||||||||
| Taxes payable | ||||||||
| Accrued liabilities and other payables | ||||||||
| Accrued interest on government loans | ||||||||
| Operating lease liabilities | ||||||||
| Finance lease liabilities | ||||||||
| Loan payables | ||||||||
| Government loans payable - current portion | ||||||||
| Loan from shareholders | ||||||||
| Total current liabilities | ||||||||
| NONCURRENT LIABILITIES | ||||||||
| Operating lease liabilities | ||||||||
| Finance lease liabilities | ||||||||
| Loan payables | - | |||||||
| Government loans payable | ||||||||
| Total non-current liabilities | ||||||||
| TOTAL LIABILITIES | ||||||||
| COMMITMENTS AND CONTINGENCIES | ||||||||
| STOCKHOLDERS’ DEFICIT | ||||||||
| Preferred stock $ | ||||||||
| Common stock $ | ||||||||
| Additional paid in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| TOTAL STOCKHOLDERS’ DEFICIT | ( | ) | ( | ) | ||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT | $ | $ | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
F-2
BIO ESSENCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
| YEAR ENDED DECEMBER 31, | ||||||||
| 2023 | 2022 | |||||||
| Revenues | ||||||||
| Sales of goods | $ | $ | ||||||
| Total revenues | ||||||||
| Cost of revenues | ||||||||
| Cost of goods sold | ||||||||
| Total cost of revenues | ||||||||
| Gross profit | ||||||||
| Operating expenses | ||||||||
| Selling | ||||||||
| General and administrative | ||||||||
| Total operating expenses | ||||||||
| Loss from operations | ( | ) | ( | ) | ||||
| Other income (expenses) | ||||||||
| Interest expense | ( | ) | ( | ) | ||||
| Financial expense | ( | ) | ||||||
| Other income | ||||||||
| Other expenses | ( | ) | ( | ) | ||||
| Other income (expenses), net | ( | ) | ( | ) | ||||
| Loss before income taxes | ( | ) | ( | ) | ||||
| Income tax expense | ||||||||
| Net loss from continuing operations | ( | ) | ( | ) | ||||
| Loss from discontinued operations | ( | ) | ( | ) | ||||
| Gain from disposal of discontinued operations | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| $ | ( | ) | $ | ( | ) | |||
The accompanying notes are an integral part of these consolidated financial statements.
F-3
BIO ESSENCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT
YEAR ENDED DECEMBER 31, 2023 AND 2022
| COMMON | COMMON | ADDITIONAL | ||||||||||||||||||
| STOCK - SHARES | STOCK - AMOUNT | PAID IN CAPITAL | ACCUMULATED DEFICIT | TOTAL | ||||||||||||||||
| Balance at January 1, 2022 | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||
| Balance at December 31, 2022 | ( | ) | ( | ) | ||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||
| Shares issued for shareholder’s loan settlement | ||||||||||||||||||||
| Balance at December 31, 2023 | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
F-4
BIO ESSENCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
| YEAR ENDED DECEMBER 31, | ||||||||
| 2023 | 2022 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net loss from continuing operations | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Operating lease expense | ||||||||
| Gain on operating lease termination | ( | ) | ||||||
| Loss on shareholder’s note conversion | ||||||||
| Gain on disposal of fixed assets | ||||||||
| Changes in assets / liabilities: | ||||||||
| Accounts receivable | ( | ) | ||||||
| Prepaid expenses | ( | ) | ||||||
| Security deposit | ( | ) | ||||||
| Inventory | ( | ) | ||||||
| Accounts payable | ( | ) | ( | ) | ||||
| Customer deposit | ( | ) | ||||||
| Accrued liabilities and other payables | ||||||||
| Accrued interest | ( | ) | ||||||
| Taxes payable | ( | ) | ||||||
| Payment on lease liabilities | ( | ) | ( | ) | ||||
| Net cash used in continuing operations | ( | ) | ( | ) | ||||
| Net cash used in discontinued operations | ( | ) | ( | ) | ||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Purchase of fixed assets | ( | ) | ( | ) | ||||
| Net cash used in continuing operations | ( | ) | ( | ) | ||||
| Net cash used in discontinued operations | ( | ) | ( | ) | ||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Bank overdraft | ( | ) | ||||||
| Repayment of finance lease liabilities | ( | ) | ( | ) | ||||
| Proceeds from (repayment of) government loans | ( | ) | ||||||
| Loan from shareholder | ||||||||
| Net cash provided by continuing operations | ||||||||
| Net cash provided by discontinued operations | ( | ) | ( | ) | ||||
| Net cash provided by financing activities | ||||||||
| NET DECREASE (INCREASE) IN CASH & EQUIVALENTS | ( | ) | ||||||
| CASH & CASH EQUIVALENTS, BEGINNING OF YEAR ($ | ||||||||
| CASH & EQUIVALENTS, END OF YEAR | $ | $ | ||||||
| Supplemental Cash Flow Data: | ||||||||
| Income tax paid | $ | $ | ||||||
| Interest paid | $ | $ | ||||||
| Supplemental disclosures of non-cash investing and financing activities: | ||||||||
| Conversion of loan from shareholders to common shares | $ | $ | ||||||
| Fixed assets obtained in exchange for new finance lease liabilities | $ | $ | ||||||
| Recognition of ROU asset and operating lease liability | $ | $ | ||||||
| Termination of ROU asset and operating lease liability | $ | $ | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
F-5
BIO ESSENCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2023 AND 2022
1. ORGANIZATION AND DESCRIPTION OF BUSINESS
Bio
Essence Corporation (“the Company” or “Bio Essence”) 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 were 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: 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 March 1, 2017, the
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”) 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, BEP (up to disposal date), BEH and McBE. All significant inter-company transactions and balances were eliminated in consolidation.
Reclassification
Certain prior period accounts have been reclassified in conformity with the current period’s presentation. These reclassifications had no impact on the reported results of operations and cash flows.
Going Concern
The
Company incurred net losses 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, allowance for doubtful accounts, and the reserve for obsolete and slow-moving inventories. Actual results could differ from those estimates.
Leases
The Company follows ASC 842 and determines if an arrangement is a lease or contains a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”) assets, and operating lease liabilities (current and non-current) in the Company’s 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.
F-6
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 nonfinancial assets. The Company recognized no impairment of ROU assets as of December 31, 2023 and 2022.
Cash and 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.
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 December 31, 2023 and 2022, the bad debt allowance
was $
Inventory
Inventories are stated at the lower of cost or net realizable value with cost determined on a weighted-average basis. Management compares the cost of inventories with the net realizable value and an allowance is made for writing down their inventories to net realizable value, if lower.
Property and Equipment
Property
and equipment are stated at cost, less accumulated depreciation, and impairment losses, if any. Major repairs and betterments that significantly
extend original useful lives or improve productivity are capitalized and depreciated over the period benefited. Maintenance and repairs
are expensed as incurred. When property and equipment are retired or otherwise disposed of, the related cost and accumulated depreciation
are removed from the respective accounts, and any gain or loss is included in operations.
| Leasehold improvements | ||||
| Office furniture |
Impairment of Long-Lived Assets
Long-lived assets, which include property and equipment and 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 December 31, 2023 and 2022, there was no significant impairments of its long-lived assets.
F-7
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 December 31, 2023 and 2022, 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, 2019 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.
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.
F-8
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 manufactured 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 years ended December 31, 2023 and 2022.
Cost of Revenue
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.
Cost of manufacture service consists primarily of direct labor costs and related overhead that are directly attributable to the manufacture process.
Shipping and Handling Costs
Shipping
and handling costs related to delivery of finished goods are included in selling expenses. During the years ended December 31, 2023 and
2022, 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 years ended December 31, 2023
and 2022, advertising expenses were $
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.
F-9
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 December 31, 2023 and 2022, 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 suppliers, accounts payable, taxes payable, other payables and accrued liabilities approximate estimated fair values because of their short maturities.
Share-based Compensation
The Company accounts for share-based compensation awards in accordance with ASC 718, “Compensation – Stock Compensation”. The cost of services received from employees and non-employees in exchange for awards of equity instruments is recognized in the consolidated statement of operations based on the estimated fair value of those awards on the grant date and amortized on a straight-line basis over the requisite service period or vesting period. The Company records forfeitures as they occur.
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 years ended December 31, 2023 and 2022.
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 year ended December 31, 2023, one major customer accounted for
The
Company had three major vendors accounted for
F-10
Segment Reporting
ASC Topic 280, “Segment Reporting,” requires use of the “management approach” model for segment reporting. The management approach model is based on the way a company’s chief operating decision maker organizes segments within the Company for making operating decisions assessing performance and allocating resources. Reportable segments are based on products and services, geography, legal structure, management structure, or any other manner in which management disaggregates a company.
Management determined the Company’s operations constitute a single reportable segment in accordance with ASC 280. The Company operates exclusively in one business and industry segment: manufacture and sale of health supplement products.
New Accounting Pronouncements
In March 2023, the FASB issued ASU 2023-01, Lease (Topic 842): Common Control Arrangements, which clarifies the accounting for leasehold improvements associated with leases between entities under common control (hereinafter referred to as common control lease). ASU 2023-01 requires entities to amortize leasehold improvements associated with common control lease over the useful life to the common control group (regardless of the lease term) as long as the lessee controls the use of the underlying asset through a lease, and to account for any remaining leasehold improvements as a transfer between entities under common control through an adjustment to equity when the lessee no longer controls the underlying asset. This ASU will be effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted for both interim and annual financial statements that have not yet been made available for issuance. An entity may apply ASU 2023-01 either prospectively or retrospectively. The Company’s management does not believe the adoption of ASU 2023-09 will have a material impact on its financial statements and disclosures.
In November 2023, the FASB issued ASU 2023-07, the amendments in the ASU are intended to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses that are regularly provided to the chief operating decision maker and included within each reported measure of segment profit or loss. In addition, the amendments enhance interim disclosure requirements, clarify circumstances in which an entity can disclose multiple segment measures of profit or loss, provide new segment disclosure requirements for entities with a single reportable segment, and contain other disclosure requirements. The purpose of the amendments is to enable “investors to better understand an entity’s overall performance” and assess “potential future cash flows.” The amendments in ASU 2023-07 are effective for all public entities for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. The Company’s management does not believe the adoption of ASU 2023-09 will have a material impact on its financial statements and disclosures.
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures (ASU 2023-09), which requires disclosure of incremental income tax information within the rate reconciliation and expanded disclosures of income taxes paid, among other disclosure requirements. ASU 2023-09 is effective for fiscal years beginning after December 15, 2024. Early adoption is permitted. The Company’s management does not believe the adoption of ASU 2023-09 will have a material impact on its financial statements and 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.
F-11
3. DISCONTINUED OPERATIONS
On
December 12, 2023, the Company entered into a Stock Purchase Agreement (“SPA”) with Newways, Inc., a California corporation
(“Newways”) whereby the Company agreed to sell to Newways its wholly owned subsidiary, BEP, in exchange for cash consideration
of $
| AS OF DECEMBER 31, | AS OF DECEMBER 31, | |||||||
| 2023 | 2022 | |||||||
| ASSETS | ||||||||
| CURRENT ASSETS | ||||||||
| Accounts receivable, net | $ | $ | ||||||
| Other receivable | ||||||||
| Prepaid expenses | ||||||||
| Advance to suppliers | ||||||||
| Inventory, net | ||||||||
| Total current assets | ||||||||
| NONCURRENT ASSETS | ||||||||
| Property and equipment, net | ||||||||
| Intangible assets, net | ||||||||
| Total non-current assets | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
| CURRENT LIABILITIES | ||||||||
| Bank overdraft | $ | $ | ||||||
| Accounts payable | ||||||||
| Taxes payable | ||||||||
| Accrued liabilities and other payables | ||||||||
| Accrued interest on government loans | ||||||||
| Finance lease liabilities | ||||||||
| Loan payables | ||||||||
| Total current liabilities | ||||||||
| NONCURRENT LIABILITIES | ||||||||
| Finance lease liabilities | ||||||||
| Loan payables | ||||||||
| Government loans payable | ||||||||
| Total non-current liabilities | ||||||||
| TOTAL LIABILITIES | $ | $ | ||||||
F-12
The
operations of BEP was accounted for as discontinued operations in the accompanying consolidated
financial statements for all periods presented.
| For the years ended December 31, | ||||||||
| 2023 | 2022 | |||||||
| Revenue, Net | $ | $ | ||||||
| Cost of Revenues | ||||||||
| Gross Profit | ||||||||
| Operating Expenses | ||||||||
| Loss from Operations | ( | ) | ( | ) | ||||
| Other Income (Expenses) | ||||||||
| Interest expense | ( | ) | ( | ) | ||||
| Financial expense | ( | ) | ( | ) | ||||
| Other income (expenses) | ( | ) | ||||||
| Total Other Income (Expenses) | ( | ) | ||||||
| Loss Before Income Taxes | ( | ) | ( | ) | ||||
| Income Tax Expense | ||||||||
| Net Loss from Discontinued Operations | $ | ( | ) | $ | ( | ) | ||
4. INVENTORY
| December 31, 2023 | December 31, 2022 | |||||||
| Raw materials | $ | $ | ||||||
| Finished goods – health supplements | ||||||||
| Less: inventory impairment allowance | ( | ) | ( | ) | ||||
| Total | $ | $ | ||||||
As
of December 31, 2023, the total inventory from discontinued operations was $
5. SECURITY DEPOSIT
As
of December 31, 2023 and 2022, the security deposit from the company’s continuing operations was for rent of the Company’s
office and warehouse of $
6. PROPERTY AND EQUIPMENT, NET
| December 31, 2023 | December 31, 2022 | |||||||
| Leasehold improvements | $ | $ | ||||||
| Office furniture and equipment | ||||||||
| Total | ||||||||
| Less: accumulated depreciation | ( | ) | ( | ) | ||||
| Net | $ | $ | ||||||
Depreciation
expense for the years ended December 31, 2023 and 2022 from the company’s continuing operations was $
As
of December 31, 2023, the net total property and equipment from discontinued operations was $
F-13
7. INTANGIBLE ASSETS, NET
| December 31, 2023 |
December 31, 2022 |
|||||||
| Computer Software | $ | $ | ||||||
| Trademark | ||||||||
| Total | ||||||||
| Less: accumulated amortization | ( |
) | ( |
) | ||||
| Net | $ | $ | ||||||
Amortization
of intangible assets from the company’s continuing operations was $
Estimated
amortization for the existing intangible assets with finite lives from the company’s continuing operations for each of the
next
8. TAXES PAYABLE
Taxes
payable from the company’s continuing operations at December 31, 2023 and 2022, was for sales tax and payroll tax payable of $
9. ACCRUED LIABILITIES AND OTHER PAYABLES
| December 31, 2023 | December 31, 2022 | |||||||
| Accrued expenses | $ | $ | ||||||
| Credit card payable | ||||||||
| Customer deposit | ||||||||
| Other payable | ||||||||
| Total | $ | $ | ||||||
Other payable mainly consists of payable to BEP which was sold at December 31, 2023.
As
of December 31, 2023, the total accrued expenses and other payables from discontinued operations was $
F-14
10. GOVERNMENT LOANS PAYABLE
In
May and June 2020, BEH, BEP and FDS received a total of $
In
May and June 2020, BEH, BEP and FDS received total of $
| Year Ending | Amount | |||
| December 31, 2024 | $ | |||
| December 31, 2025 | ||||
| December 31, 2026 | ||||
| December 31, 2027 | ||||
| December 31, 2028 | ||||
| Thereafter | ||||
| Total | $ | |||
11. RELATED PARTY TRANSACTIONS
Loans from Shareholder
At
December 31, 2023 and 2022, the Company had loans from one major shareholder (also the Company’s senior officer) for $
F-15
On
May 31, 2023, the Board of Directors of Bio Essence Corp. (the “Company”), approved a debt-to-equity conversion. The Company
and Ms. Yan (the Company’s Chief Executive Officer also the Company’s major shareholder) agreed to a debt conversion
whereby Ms. Yan receives
12. INCOME TAXES
The
Company and its subsidiaries are subject to
At
December 31, 2023 and 2022, 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 reduce
The
Company has NOL carry-forwards for Federal and California income tax purposes of $
| December 31, 2023 | December 31, 2022 | |||||||
| Net deferred tax assets (liability): | ||||||||
| Bad debt expense | $ | $ | ||||||
| Inventory impairment | ( | ) | ||||||
| Operating lease charge | ||||||||
| Depreciation and amortization | ( | ) | ||||||
| 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
| 2023 | 2022 | |||||||
| 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 | ( | )% | ( | )% | ||||
| Change in valuation allowance | % | % | ||||||
| Effective income tax rate | % | % | ||||||
F-16
| 2023 | 2022 | |||||||
| Income tax expense – current | $ | $ | ||||||
| Income tax benefit – current | ||||||||
| Total income tax expense | $ | $ | ||||||
13. LEASES
Operating Leases
Warehouse and office lease
Effective
October 1, 2018, the Company entered a
On
May 18, 2023, the Company entered a
| Year Ended December 31, 2023 | Year Ended December 31, 2022 | |||||||
| Operating lease cost | $ | $ | ||||||
| Weighted Average Remaining Lease Term - Operating leases including options to renew | ||||||||
| Weighted Average Discount Rate - Operating leases | % | % | ||||||
| For the 12 months ending | Operating Leases | |||
| December 31, 2024 | $ | |||
| December 31, 2025 | ||||
| December 31, 2026 | ||||
| Thereafter | ||||
| Total undiscounted cash flows | ||||
| Less: imputed interest | ( | ) | ||
| Present value of lease liabilities | $ | |||
F-17
Equipment leases
In
2017, the Company entered two leases for two copiers with terms of
| Year Ended | Year Ended | |||||||
| December 31, 2023 | December 31, 2022 | |||||||
| Operating lease cost | $ | $ | ||||||
| Weighted Average Remaining Lease Term - Operating leases | ||||||||
| Weighted Average Discount Rate - Operating leases | % | % | ||||||
Finance lease
Effective
March 15, 2022, the company entered two
Year December 31, | Year Ended December 31, 2022 | |||||||
| Finance lease cost | ||||||||
| Amortization | $ | $ | ||||||
| Interest on lease liabilities | ||||||||
| Total finance lease cost | $ | $ | ||||||
| Weighted Average Remaining Lease Term - Finance leases | ||||||||
| Weighted Average Discount Rate – Finance leases | % | % | ||||||
| For the 12 months ending | Finance Leases | |||
| December 31, 2024 | $ | |||
| December 31, 2025 | ||||
| December 31, 2026 | ||||
| December 31, 2027 | ||||
| Total undiscounted cash flows | ||||
| Less: imputed interest | ( | ) | ||
| Present value of finance lease liabilities | $ | |||
14. LOAN PAYABLES
In
June 2021, BEP, the discontinued entity entered a loan agreement of $
15. 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 did not have any material subsequent event.
F-18