Bio Essence Corp. (BIOE) – 10-K Filing Analysis – Fiscal Year 2024
Executive Summary
This report analyzes Bio Essence Corp.’s 10-K filing for the fiscal year ended December 31, 2024. The company, an herbal health, diet, and nutrition supplement provider, has undergone significant restructuring, including the sale and dissolution of its subsidiaries. While revenue has increased due to OEM service offerings, substantial net losses persist, raising concerns about the company’s ability to continue as a going concern. The company’s internal controls are deemed ineffective, and reliance on related-party loans presents further risk. Overall, a “Sell” recommendation is warranted due to the company’s financial instability and operational uncertainties.
Company Overview
Bio Essence Corp. is a holding company operating in the herbal health and nutrition supplement industry. The company has transitioned from manufacturing and distributing its own products to primarily providing OEM services, outsourcing manufacturing after selling its manufacturing subsidiary, BEP. Recent strategic changes include the sale of BEP and BEH and the dissolution of McBE Pharma, Inc. The company’s operations are now managed directly rather than through subsidiaries.
Detailed Analysis
Financial Statement Analysis
Income Statement
| Item |
2024 |
2023 |
Change ($) |
Change (%) |
| Revenues |
$323,940 |
$0 |
$323,940 |
N/A |
| Cost of Revenues |
$106,863 |
$0 |
$106,863 |
N/A |
| Gross Profit |
$217,077 |
$0 |
$217,077 |
N/A |
| General and Administrative Expenses |
$676,515 |
$345,590 |
$330,925 |
95.76% |
| Loss from Operations |
($459,438) |
($345,590) |
($113,848) |
32.94% |
| Other Expenses, Net |
($1,105,483) |
($57,414) |
($1,048,069) |
1825.45% |
| Net Loss from Continuing Operations |
($1,565,721) |
($404,604) |
($1,161,117) |
286.98% |
Key Observations:
- Significant increase in revenue due to OEM service revenue.
- Substantial increase in general and administrative expenses, primarily due to increased office rent and consulting fees.
- Massive increase in other expenses due to impairment of ROU asset.
- Net loss from continuing operations widened significantly, indicating operational inefficiencies and financial strain.
Balance Sheet
| Item |
December 31, 2024 |
December 31, 2023 |
| Cash and Equivalents |
$1,371 |
$0 |
| Total Current Assets |
$280,692 |
$300,000 |
| Total Assets |
$281,024 |
$2,758,580 |
| Total Current Liabilities |
$2,802,700 |
$2,450,456 |
| Total Liabilities |
$3,250,114 |
$4,418,874 |
| Accumulated Deficit |
($10,449,270) |
($9,140,474) |
| Stockholders’ Deficit |
($2,969,090) |
($1,660,294) |
Key Observations:
- Minimal cash reserves, raising immediate liquidity concerns.
- Current liabilities significantly exceed current assets, resulting in a substantial working capital deficit.
- The accumulated deficit continues to grow, eroding the company’s equity base.
- Total assets decreased significantly due to the disposal of subsidiaries and impairment of assets.
Cash Flow Statement
| Item |
2024 |
2023 |
| Net Cash Provided by (Used in) Operating Activities |
$623,865 |
($1,025,673) |
| Net Cash Used in Investing Activities |
($114) |
($91,484) |
| Net Cash (Used in) Provided by Financing Activities |
($622,494) |
$1,111,009 |
Key Observations:
- Operating activities provided cash in 2024, a significant improvement from 2023, primarily due to payments received from the sale of BEP and BEH.
- Financing activities used cash, mainly due to loan repayments to a major shareholder.
Management’s Discussion and Analysis (MD&A) Insights
- Management acknowledges the going concern issue and plans to increase income through sales force improvements, incentives, and marketing.
- Reliance on related-party loans is a significant factor in the company’s financing.
- The company is actively seeking additional financing through private or public offerings or loans.
- Management admits to ineffective disclosure controls and procedures and is working to implement improvements.
Red Flags & Uncommon Metrics
- Going Concern: The auditor’s report includes a going concern paragraph, indicating substantial doubt about the company’s ability to continue operations.
- Internal Control Weakness: Management admits that the company’s internal controls over financial reporting are not effective.
- Related Party Transactions: Significant reliance on loans from officers and major shareholders, which are unsecured, non-interest bearing, and payable on demand.
- Impairment Loss: A substantial impairment loss of ROU asset due to early termination of the lease.
- Lack of Audit Committee: The company does not have a separate audit committee or a qualified financial expert.
Risk and Opportunity Assessment
Risks
- Liquidity Risk: Minimal cash reserves and a significant working capital deficit raise concerns about the company’s ability to meet its short-term obligations.
- Going Concern Risk: Recurring losses and a substantial accumulated deficit threaten the company’s long-term viability.
- Internal Control Risk: Ineffective internal controls increase the risk of financial misstatements and fraud.
- Related Party Risk: Reliance on related-party loans creates potential conflicts of interest and financial instability.
- Concentration Risk: The company relies on a few major customers and vendors, making it vulnerable to changes in their business relationships.
Opportunities
- OEM Service Growth: The company’s shift to OEM services has generated revenue, presenting an opportunity for further expansion.
- Strategic Restructuring: The sale and dissolution of subsidiaries may streamline operations and reduce costs.
- Potential Financing: Management’s efforts to secure additional financing could provide much-needed capital.
Conclusion and Actionable Insights
Bio Essence Corp. faces significant financial challenges and operational uncertainties. The company’s minimal cash reserves, substantial working capital deficit, and recurring losses raise serious concerns about its ability to continue as a going concern. The ineffective internal controls and reliance on related-party loans further exacerbate the risks. While the shift to OEM services presents an opportunity for growth, the company’s financial instability outweighs the potential benefits.
Recommendation: Sell. Investors should avoid or divest from Bio Essence Corp. due to its high financial risk and uncertain future. The company’s ability to secure additional financing and improve its operational efficiency is highly uncertain.