Quarterly Report for Quarter Ending September 30, 2025 (Form 10-Q)

Management's Discussion and Analysis of Financial Condition and Results of Operations

Business Overview

The Company was incorporated in 2000 in the state of California. Fusion Diet Systems ("FDS") was incorporated in 2010 in the state of Utah. Bio Essence and FDS have been owned under common control since 2016. Bio Essence and FDS are mainly engaged in manufacturing and distributing health supplement products. In January 2017, Bio Essence incorporated two subsidiaries in the state of California: BEP and BEH, Bio Essence transferred its manufacturing operation into BEP and transferred its distributing operation into BEH. On March 1, 2017, the 100% shareholder of FDS transferred all her ownership in FDS into Bio Essence. On December 7, 2021, the Company dissolved FDS. On November 12, 2021, Bio Essence incorporated a wholly owned subsidiary McBE Pharma Inc. ("McBE") in the state of California, McBE will be engaged in research and development and manufacture of prescription medicine. As a result of the ownership restructure, BEP, BEH, and MCBE became wholly owned subsidiaries of Bio Essence, and Bio Essence serves as a holding corporation for these subsidiaries. McBE has not engaged in any operations since its inception. On December 12, 2023, the Company entered into an agreement with Newway Inc. to sell the 100% equity ownership of BEP for $300,000. On March 28, 2024, the Company entered into an agreement with Health Up Inc to sell the 100% equity ownership of BEH for $400,000. On April 15, 2024, the Company dissolved McBE.

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

Related Party Transactions

Loans from Officer

As of September 30, 2025 and December 31, 2024, the Company had loans from one major shareholder (also the Company's senior officer) of $277,196 and $577,546, respectively. As of September 30, 2025 and December 31, 2024, the Company had loan from another major shareholder for $608,631 and $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.

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, BEH (up to disposal date), and McBE (up to dissolution date). All significant inter-company transactions and balances were eliminated in consolidation.

Going Concern

The Company incurred net losses of $132,890 and $1,538,158 from the company's continuing operations for the nine months ended September 30, 2025 and 2024, respectively. The Company incurred net income of $12,998 and net loss of $1,199,493 from the company's continuing operations for the three months ended September 30, 2025 and 2024, respectively. The Company also had an accumulated deficit of $10,582,160 from the company's continuing operations as of September 30, 2025. These conditions raise substantial doubt about the Company's ability to continue as a going concern. The Company plans to increase its income by strengthening its sales force, providing attractive sales incentive programs, and increasing marketing and promotion activities. Management also intends to raise additional funds by way of a private or public offering, or by obtaining loans from banks or others. While the Company believes in the viability of its strategy to generate sufficient revenue and in its ability to raise additional funds on reasonable terms and conditions, there can be no assurances to that effect. The ability of the Company to continue as a going concern is dependent upon the Company's ability to further implement its business plan and generate sufficient revenue and its ability to raise additional funds by way of a public or private offering. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

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.

Credit Losses

On January1, 2023, the Company adopted Accounting Standards Update 2016-13 "Financial Instruments - Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments," which replaces the incurred loss methodology with an expected loss methodology that is referred to as the current expected credit loss ("CECL") methodology.

The Company's account receivables and other receivables in the balance sheet are within the scope of ASC Topic 326. As the Company has limited customers and debtors, the Company uses the loss-rate method to evaluates the expected credit losses on an individual basis. When establishing the loss rate, the Company makes the assessment on various factors, including historical experience, credit-worthiness of customers and debtors, current economic conditions, reasonable and supportable forecasts of future economic conditions, and other factors that may affect its ability to collect from the customers and debtors. The Company also provides specific provisions for allowance when facts and circumstances indicate that the receivable is unlikely to be collected.

Expected credit losses are recorded as allowance for credit losses on the consolidated statements of operations. After all attempts to collect a receivable have failed, the receivable is written off against the allowance. In the event the Company recovers amount that is previously reserved for, the Company will reduce the specific allowance for credit losses.

Accounts Receivable, Net

The Company's policy is to maintain an allowance for potential credit losses on accounts receivable. Management reviews the composition of accounts receivable and analyzes historical bad debts, customer concentrations, customer credit worthiness, current economic trends and changes in customer payment patterns to evaluate the adequacy of these reserves. As of September 30, 2025 and December 31, 2024, there was no bad debt allowance.

Revenue Recognition

The Company recognizes revenues following the five-step model prescribed under ASC 606: (i) identify contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenues when (or as) we satisfy the performance obligation.

Revenue is measured at the amount of consideration we expect to receive in exchange for the sale of our product, which occurs at a point in time, typically upon delivery to the customer. The Company expenses incremental costs of obtaining a contract as and when incurred if the expected amortization period of the asset that it would have recognized is one year or less or the amount is immaterial.

Revenues from sales of goods are measured at net of reserves established for applicable discounts and allowances that are offered within contracts with the Company's customers, and are recognized when the goods are delivered to the customers.

Product revenue reserves, which are classified as a reduction in product revenues, are generally characterized in the following categories: discounts, returns and rebates. These reserves are based on estimates of the amounts earned or to be claimed on the related sales and are classified as reductions of accounts receivable as the amount is payable to the Company's customers.

Revenues from manufacture services are recognized when the manufacture process is completed pursuant to the customers' requirement and the finished goods were delivered to the customers.

The Company's return policy allows for the return of damaged or defective products and shipment errors. A notice of damage or wrong items should make within five days from receiving the goods, and actual return of the products must be completed within 30 days from the date of receiving the goods. Delayed notification for damaged or wrong products will not be accepted for return or exchange. Custom formulas and capsules are not returnable. The amount for return of products was immaterial for the nine and three months ended September 30, 2025 and 2024.

Results of operations

Comparison of continuing operations for the nine months ended September 30, 2025 and 2024

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.

		2025				% of Sales				2024				% of Sales				Dollar Increase (Decrease)				Percent Increase (Decrease)
Sales of goods		$	-				-	%		$	37,415				21.21	%		$	(37,415	)			(100.00	)%
Manufacture service revenue			416,896				99.71	%			136,109				77.17	%			280,787				206.30	%
Shipping and delivery income			1,216				0.29	%			2,861				1.62	%			(1,645	)			(57.50	)%
Total revenues			418,112				100.00	%			176,385				100.00	%			241,727				137.05	%
Cost of goods sold			-				-	%			20,513				11.63	%			(20,513	)			(100.00	)%
Cost of manufacture service			133,120				31.84	%			45,693				25.91	%			87,427				191.34	%
Total cost of revenues			133,120				31.84	%			66,206				37.53	%			66,914				101.07	%
Gross profit			284,992				68.16	%			110,179				62.47	%			174,813				158.66	%
Selling expenses			30,593				7.32	%			-				-	%			30,593				100.00	%
General and administrative expenses			384,015				91.85	%			573,469				325.12	%			(189,454	)			(33.04	)%
Operating expenses			414,608				99.16	%			573,469				325.12	%			(158.861	)			(27.70	)%
Loss from operations			(129,616	)			(31.00	)%			(463,290	)			(262.66	)%			333,674				(72.02	)%
Other income (expenses), net			(2,474	)			(0.59	)%			(1,074,068	)			(608.93	)%			(1,071,594	)			(99.77	)%
Loss before income taxes			(132,090	)			(31.59	)%			(1,537,358	)			(871.59	)%			1,405,268				(91.41	)%
Income tax expense			800				0.19	%			800				0.45	%			-				-	%
Net loss from continuing operations			(132,890	)			(31.78	)%			(1,538,158	)			(872.05	)%			1,405,268				(91.36	)%
Loss from discontinued operations			-				-	%			(120,827	)			(68.50	)%			120,827				100.00	%
Gain from disposal of discontinued operations			-				-	%			377,752				214.16	%			(377,752	)			(100.00	)%
Net income		$	(132,890	)			(31.78	)%		$	(1,281,233	)			(726.38	)%		$	1,148,343				(89.63	)%

Revenues

Revenues from the company's continuing operations for the nine months ended September 30, 2025 and 2024 were $418,112 and $176,385, respectively. We had $nil product sales, $416,896 OEM service revenue, and $1,216 shipping and delivery income for the nine months ended September 30, 2025. We had $37,415 product sales, $136,109 OEM service revenue, and $2,861 shipping and delivery income for the nine months ended September 30, 2024. Revenue from the company's discontinued operations for the nine months ended September 30, 2024 was $153,865. The significant increase in revenue during the nine months ended September 30, 2025, compared to the same period in 2024, was primarily attributable to a higher volume of OEM service orders, including a major order from a new customer, Qnet Limited. The Company's strategic emphasis on OEM service revenue rather than product sales contributed to the overall growth in revenue and an improvement in the revenues.

Costs of revenues

Costs of revenues from the company's continuing operations for the nine months ended September 30, 2025 and 2024 were $133,120 and $66,206, respectively. We had $nil cost of sales for products and $133,120 cost for OEM service revenue for the nine months ended September 30, 2025. We had $20,513 cost of sales for products and $45,693 cost for OEM service revenue for the nine months ended September 30, 2024. The increase in cost of revenues was mainly due to increase in revenues. Costs of revenues from the company's discontinued operations for the nine months ended September 30, 2024 was $76,592.

Gross profit

For the factors mentioned above, the gross profits from the company's continuing operations for the nine months ended September 30, 2025 and 2024 were $284,992 and $110,179, respectively. The increase in gross profit was mainly due to increase in revenues. The gross profits from the company's discontinued operations for the nine months ended September 30, 2024 was $77,273.

Operating expenses

Selling expenses consisted mainly of advertising, show expenses, products marketing, shipping expenses, and promotion expenses. Selling expenses from the company's continuing operations for the nine months ended September 30, 2025 and 2024 were $30,593 and $1,286, respectively. Selling expense from the company's discontinued operations for the nine months ended September 30, 2024 was $13,716.

General and administrative expenses consisted 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 $384,015 for the nine months ended September 30, 2025, compared to $573,469 for the nine months ended September 30, 2024, a decrease of $189,454 or 33.04%, the decrease was mainly due to decreased office rent and office CAM fee by $387,998, decreased license and permits expense by $1,283, which was partly offset by increased salary expense by $91,753 and increased consulting fee by $107,597. General and administrative expenses from the company's discontinued operations was $178,936 for the nine months ended September 30, 2024.

Other income (expenses), net

Other expenses from the company's continuing operations was $2,474 and $1,074,068 for the nine months ended September 30, 2025 and 2024, respectively. For the nine months ended September 30, 2025, other expenses mainly consisted of interest expense of $1,646 and other expenses of $828. For the nine months ended September 30, 2024, other expenses mainly consisted of interest expense of $1,617, impairment of ROU asset of $1,050,940 due to early termination of the lease, and other expenses of $54,597, which was partly offset by other income of $33,086. Other expenses from the company's discontinued operations was $5,448 for the nine months ended September 30, 2024.

Net loss from continuing operations

We had a net loss of $132,890 from the company's continuing operations for the nine months ended September 30, 2025, compared to $1,538,158 for the nine months ended September 30, 2024, a decrease of $1,405,268 or 91.36%.

Net loss from discontinued operations

We had a net loss of $256,925 from the company's discontinued operations for the nine months ended September 30, 2024.

Comparison of continuing operations for the three months ended September 30, 2025 and 2024

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.

		2025				% of Sales				2024				% of Sales				Dollar Increase (Decrease)				Percent Increase (Decrease)
Sales of goods		$	-				-	%		$	37,415				27.78	%		$	(37,415	)			(100.00	)%
Manufacture service revenue			136,800				100.00	%			94,414				70.10	%			42,386				44.89	%
Shipping and delivery income			-				-	%			2,861				2.12				(2,861	)			100.00	%
Total revenues			136,800				100.00	%			134,690				100.00	%			2,110				1.57	%
Cost of goods sold			-				-	%			8,005				5.94	%			(8,005	)			(100.00	)%
Cost of manufacture service			41,040				30.00	%			45,693				33.92	%			(4,653	)			(10.18	)%
Total cost of revenues			41,040				30.00	%			53,698				39.87	%			(12,658	)			(23.57	)%
Gross profit			95,760				70.00	%			80,992				60.13	%			14,768				18.23	%
Selling expenses			650				0.48	%			-				-	%			650				100.00	%
General and administrative expenses			80,857				59.11	%			227,440				168.86	%			(146,583	)			(64.45	)%
Operating expenses			81,507				59.58	%			227,440				168.86	%			(145,933	)			(64.16	)%
Income (loss) from operations			14,253				10.42	%			(146,448	)			(108.73	)%			(108.73	)			(109.73	)%
Other income (expenses), net			(1,255	)			(0.92	)%			(1,053,045	)			(781.83	)%			1,051,790				(99.88	)%
Loss before income taxes			12,998				9.50	%			(1,199,493	)			(890.56	)%			1,212,491				(101.08	)%
Income tax expense			-				-	%			-				-	%			-				-	%
Net income (loss) from continuing operations			12,998				9.50	%			(1,199,493	)			(890.56	)%			1,212,491				(101.08	)%
Loss from discontinued operations			-				-	%			-				-	%			-				-	%
Gain from disposal of discontinued operations			-				-	%			-				-				-				-	%
Net income (loss)		$	12,998				9.50	%		$	(1,199,493	)			(890.56	)%		$	1,212,491				(101.08	)%

Revenues

Revenues from the company's continuing operations for the three months ended September 30, 2025 and 2024 were $136,800 and $134,690, respectively. We had $nil product sales, $136,800 OEM service revenue, and $nil shipping and delivery income for the three months ended September 30, 2025. We had $37,415 product sales, $94,414 OEM service revenue, and $2,861 shipping and delivery income for the three months ended September 30, 2024. The increase in revenue was mainly due to higher contributions from OEM service, consistent with the Company's sustained strategic focus on developing and enhancing this segment.

Costs of revenues

Costs of revenues from the company's continuing operations for the three months ended September30, 2025 and 2024 were $41,040 and $53,698, respectively. We had $nil cost of sales for products and $41,040 cost for OEM service revenue for the three months ended September 30, 2025. We had $8,005 cost of sales for products and $45,693 cost for OEM service revenue for the three months ended September 30, 2024.

Gross profit

For the factors mentioned above, the gross profits from the company's continuing operations for the three months ended September 30, 2025 and 2024 were $95,760 and $80,992, respectively. Although total revenue for the three months ended September 30, 2025 did not change significantly compared to the same period in 2024, the gross profit margin increased. The improvement was primarily due to the Company's continued strategic focus on OEM service revenue rather than product sales, which generally yields a higher gross profit percentage.

Operating expenses

Selling expenses consisted mainly of advertising, show expenses, products marketing, shipping expenses, and promotion expenses. Selling expenses from the company's continuing operations for the three months ended September 30, 2025 and 2024 were $650 and $nil, respectively.

General and administrative expenses consisted mainly of employee salaries and welfare, business meeting, utilities, accounting, consulting, and legal expenses. General and administrative expenses from the company's continuing operations were $80,857 for the three months ended September 30, 2025, compared to $227,440 for the three months ended September 30, 2024, a decrease of $146,583 or 64.45%, the decrease was mainly due to decreased office rent by $167,492, decreased consultant fee by $2,011, decreased commercial and worker's compensation insurance expenses by $2,485, and decreased legal and accounting fee by $3,050, which was partly offset by increased salary expense by $27,164.

Other income (expenses), net

Other expenses from the company's continuing operations was $1,255 and $1,053,045 for the three months ended September 30, 2025 and 2024, respectively. For the three months ended September 30, 2025, other expenses mainly consisted of interest expense of $556 and other expenses of $699. For the three months ended September 30, 2024, other expenses mainly consisted of interest expense of $536, loss of $1,052,509 from security deposit forfeiture due to early termination of the lease.

Net income (loss) from continuing operations

We had a net income of $12,998 from the company's continuing operations for the three months ended September 30, 2025, compared to net loss of $1,199,493 for the three months ended September 30, 2024, an increase of $1,212,491 or 101.08%.

Liquidity and Capital Resources

As of September 30, 2025, from the company's continuing operations, we had cash and equivalents of $28,741, other current assets of $155,637, other current liabilities of $3,230,021, working capital deficit of $3,045,643, a current ratio of 0.06:1. As of December 31, 2024, from the company's continuing operations, we had cash and equivalents of $1,371, other current assets of $279,321, other current liabilities of $2,802,700, working capital deficit of $2,522,008, a current ratio of 0.10:1.

The following is a summary of cash provided by or used in each of the indicated types of activities during the nine months ended September 30, 2025, and 2024, respectively.

		2025				2024
Net cash provided by operating activities for continuing operations		$	328,701			$	337,576
Net cash used in operating activities for discontinued operations			-				(136,777	)
Net cash provided by operating activities			328,701				200,799
Net cash provided by investing activities for continuing operations			-				-
Net cash provided by investing activities for discontinued operations			-				-
Net cash provided by investing activities			-				-
Net cash used in financing activities for continuing operations			(301,331	)			(161,658	)
Net cash used in financing activities for discontinued operations			-				(9,323	)
Net cash used in provided by financing activities		$	(301,331	)		$	(170,981	)

Net cash provided by operating activities for continuing operations

Net cash provided by operating activities for continuing operations was $328,701 for the nine months ended September 30, 2025, compared to net cash provided by operating activities for continuing operations of $337,576 for the nine months ended September 30, 2024. The decrease of cash inflow of $8,875 from operating activities of continuing operations for the nine months ended September 30, 2025 was principally attributable to decreased cash inflow from receivable from sale of BEP by $300,000 as the payment was received in 2024, decreased cash inflow from accounts payable by $26,786, and decreased cash inflow from accrued liability and other payables by $533,599, partly offset by increased cash inflow on accounts receivable by $65,625, increased cash inflow on prepaid expenses and other receivables by $385,090, increased cash inflow on customer deposit by $496,524.

Net cash used in financing activities for continuing operations

Net cash used in financing activities for continuing operations was $301,331 for the nine months ended September 30, 2025, compared to net cash used in financing activities for continuing operations of $161,658 for the nine months ended September 30, 2024. The net cash used in financing activities for the nine months ended September 30, 2025 mainly consisted of $943,800 loan repayment to one major shareholder (also the senior officer) and payment of government loan of $981, partly offset by proceeds of $643,450 loan from the major shareholder (also the senior officer). The net cash used in financing activities for nine months ended September 30, 2024 mainly consisted of $461,800 loan repayment to one major shareholder (also the senior officer), decreased bank overdraft of $9,436, and repayment of government loan of $922, partly offset by proceeds of $310,500 loan from the major shareholder (also the senior officer),

Our current liabilities exceed current assets at September 30, 2025, and we incurred substantial losses. We may have difficulty meeting upcoming cash requirements. As of September 30, 2025, our principal source of funds was loans from an officer (also is the Company's major shareholder). As of September 30, 2025, we believe we will need $1.2 million cash to continue our current business for the next 12 months. In addition to our continuous effort to improve our sales and net profits, we have explored and continue to explore other options to provide additional financing to fund future operations as well as other possible courses of action. Such actions may include, but are not limited to, securing lines of credit, sales of debt or equity securities (which may result in dilution to existing shareholders), loans and cash advances from other third parties or banks, and other similar actions. There can be no assurance that we will be able to obtain additional funding (if needed), on acceptable terms or at all, through a sale of our common stock, loans from financial institutions, or other third parties, or any of the actions discussed above. If we cannot sustain profitable operations, and additional capital is unavailable, lack of liquidity could have a material adverse effect on our business viability, financial position, results of operations and cash flows.

Contractual Obligations

Long-Term Debts

Government loans

In May and June 2020, BEH, BEP and FDS received total of $215,600 from the Economic Injury Disaster Loan ("EIDL loan") from the SBA after deducting $100 Uniform Commercial Code ("UCC") handling charge and filing fee for each company. This is a low-interest federal disaster loan for working capital to small businesses and non-profit organizations of any size suffering substantial economic injury as a result of the Coronavirus (COVID-19), to help the businesses to meet financial obligations and operating expenses that could have been met had the disaster not occurred. This loan has interest of 3.75% and is not forgivable. The maturity of the loan is 30 years, installment payments including principal and interest of $288 monthly will begin 12 months from the date of the promissory note. On March 4, 2022, The FDS transferred its EIDL loan to BEC due to the dissolution of FDS. The SBA extended the deferment period to allow small businesses and not-for-profits that received EIDL funds do not have to begin payments on the loan until 30 months after the date of the note. Accordingly, the company began to make installment payments in the fourth quarter 2022.

As of September 30, 2025, the future minimum EIDL loan payments from the company's continuing operations to be paid by year are as follows:

Year Ending		Amount
		(unaudited)
September 30, 2026		$	1,314
September 30, 2027			1,391
September 30, 2028			1,444
September 30, 2029			1,498
September 30, 2030			1,554
Thereafter			50,605
Total		$	57,806

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.