10-K: Bio Essence Shifts to OEM, Reports Profit Amid Legal Woes

Bio Essence Corp. reported a significant turnaround to net income in 2025, driven by a strategic shift to OEM services, despite ongoing litigation and internal control deficiencies.

Summary

• Net income from continuing operations was $896,197 for the year ended December 31, 2025, a substantial increase from a net loss of $1,565,721 in 2024.
• Total revenues increased by 485.78% to $1,897,566 in 2025 from $323,940 in 2024, primarily due to a higher volume of OEM service orders.
• The company strategically shifted its focus from product sales to OEM services, resulting in nil product sales in 2025 compared to $37,415 in 2024.
• Gross profit from continuing operations rose by 558.02% to $1,428,413 in 2025 from $217,077 in 2024.
• Operating expenses decreased by 21.89% to $528,402 in 2025, mainly due to reduced office rent and CAM fees.
• The company faces a going concern uncertainty due to an accumulated deficit of $9,553,073 as of December 31, 2025, and a working capital deficit of $2,016,834.
• A legal complaint was filed on February 27, 2026, by Stason Industrial Corporation seeking approximately $1.5 million in damages for breach of contract and lease obligations.
• Management concluded that disclosure controls and procedures and internal control over financial reporting were not effective as of December 31, 2025.
• The company has 4 full-time employees.
• Jian Yang is the controlling shareholder with 55.3% ownership (21,000,000 shares).
• Yin Yan, CEO, owns 35.2% of common stock (13,396,000 shares).

Sentiment

Score: 4

Explanation: StockSavvy.ai views this as a mixed bag. While the company achieved a notable profit turnaround and revenue growth, the underlying financial health, particularly liquidity and internal controls, remains precarious, compounded by significant legal challenges.

Positives

• Significant turnaround to net income of $896,197 in 2025 from a net loss of $1,565,721 in 2024.
• Total revenues increased by 485.78% to $1,897,566 in 2025, driven by a higher volume of OEM service orders, including large orders from three new major customers.
• Gross profit increased by 558.02% to $1,428,413 in 2025.
• Operating expenses decreased by 21.89% due to reduced office rent and CAM fees.
• Repaid $1,186,177 in loans from a major shareholder in 2025.
• Collected $380,000 of a loan to a major shareholder on March 20, 2026.

Negatives

• Going concern uncertainty due to an accumulated deficit of $9,553,073 and a working capital deficit of $2,016,834 as of December 31, 2025.
• Disclosure controls and procedures and internal control over financial reporting were deemed not effective as of December 31, 2025.
• Facing a lawsuit from Stason Industrial Corporation seeking approximately $1.5 million for breach of contract and lease obligations, with an accrued liability of $1.5 million.
• A separate claim alleging failure to perform laboratory and pharmaceutical processing services, with an uncertain outcome and no accrual recorded.
• No cash and equivalents as of December 31, 2025.
• Current ratio of 0.17:1 as of December 31, 2025, indicating poor liquidity.
• No dividends are anticipated in the near future.
• The company has no separate audit committee and no qualified financial expert, citing inadequate financial resources.
• No code of ethics has been developed yet.

Risks

• Ability to continue as a going concern is dependent on generating sufficient revenue and raising additional funds.
• Inherent uncertainties in forward-looking statements, with actual results potentially differing materially due to various risks.
• Litigation risk from Stason Industrial Corporation seeking $1.5 million for breach of contract and lease obligations.
• Uncertain outcome of the SOW claim regarding alleged failure to perform laboratory and pharmaceutical processing services.
• Lack of effective disclosure controls and procedures and internal control over financial reporting.
• Reliance on loans from officers/major shareholders for principal source of funds.
• Difficulty meeting upcoming cash requirements if profitable operations cannot be sustained and additional capital is unavailable.
• Potential dilution to existing shareholders if additional funding is secured through sales of debt or equity securities.
• Concentration of credit risk with four major customers accounting for 21.6%, 12.7%, 10.1%, and 10.0% of total sales in 2025.
• Concentration of vendor risk with three major vendors accounting for 49.21%, 34.01%, and 14.18% of total manufacturing service in 2025.
• Inherent limitations on the effectiveness of controls, meaning they may not prevent or detect all error and fraud.

Future Outlook

Management plans to increase income by strengthening its sales force, providing attractive sales incentive programs, and increasing marketing and promotion activities. The company also intends to raise additional funds through private or public offerings or by obtaining loans. The remaining intangible assets are expected to be fully amortized during 2026. The company is evaluating the impact of new accounting pronouncements (ASU 2024-03, ASU 2025-01, ASU 2025-02, ASU 2025-05) on its financial statements.

Management Comments

• 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.
• Management has evaluated the claim [Stason lawsuit] and determined that a loss is probable. While the Company intends to participate in the legal process, management believes the liability recorded as of December 31, 2025 representing the most likely outcome of this matter.
• Management does not believe it is reasonably possible that a loss materially in excess of the amount accrued will be incurred [for Stason lawsuit].
• Management concluded that a loss related to the SOW claim was neither probable nor reasonably estimable; accordingly, no accrual has been recorded for this matter.
• The Company's management does not expect that its disclosure controls or its ICFR will prevent or detect all error and all fraud.

Industry Context

StockSavvy.ai notes that the shift towards OEM services aligns with a broader trend in the health and nutrition industry where specialized manufacturing and private label services are in high demand, allowing companies to leverage existing infrastructure without the overhead of direct product sales and distribution. The company's focus on traditional Chinese medicines (TCM) and specialized dietary supplements positions it within a growing niche market, though competition remains intense.

Comparison to Industry Standards

• The company's net income turnaround is a positive sign, but its working capital deficit of $2,016,834 and current ratio of 0.17:1 are significantly below industry averages for established health supplement manufacturers, which typically aim for a current ratio of 1.5-2.0 or higher to ensure operational liquidity. For example, larger players like Herbalife Nutrition or GNC Holdings (prior to its restructuring) generally maintain stronger liquidity positions.
• The reliance on a single major shareholder for funding and the identified material weaknesses in internal controls are red flags that contrast sharply with the robust governance and financial structures expected of publicly traded companies, even smaller reporting companies. Comparably, well-governed peers would have independent audit committees and established codes of ethics.
• The substantial increase in OEM service revenue (570.68%) is impressive and suggests strong market demand for its manufacturing capabilities, even if outsourced. This growth rate could be competitive with specialized contract manufacturers in the nutraceutical space, but the overall scale of revenue ($1.89 million) remains small compared to industry leaders.

Management Changes

Corporate Governance

Legal Proceedings

• On or about February 27, 2026, Stason Industrial Corporation (SIC) and Stason Pharmaceuticals, Inc. (SPI) filed a Complaint in the Superior Court of Orange County, California, alleging breach of contract and lease obligations. The Complaint seeks $1,504,823.81 in damages as of January 2026, relating to unpaid rent, lost revenue, and other damages. The Company denies the allegations and intends to bring counterclaims.
• The Complaint also alleges breach of a separate contract (Statement of Work) where the Company allegedly failed to perform certain laboratory and pharmaceutical processing services, seeking recovery of alleged unreturned service payments and lost revenues. The ultimate outcome is uncertain, and no accrual has been recorded for this claim as of December 31, 2025.

Related Party Transactions

• As of December 31, 2025, the Company had loans to one major shareholder (also the Company's senior officer) of $385,173. These loans are unsecured, non-interest bearing, and deemed receivable on demand. Subsequently, $380,000 was repaid on March 20, 2026.
• As of December 31, 2024, the Company had loans from the same shareholder for $1,186,177, including $608,631 for settling a litigation. These loans were unsecured, non-interest bearing, and deemed payable on demand. All outstanding loans from shareholders were repaid in full by November 30, 2025.

Stakeholder Impact

• Shareholders: Potential for dilution if future capital raises involve equity issuance. The going concern uncertainty and legal proceedings pose risks to share value. The significant increase in net income and revenue could be positive, but the lack of dividends and weak governance are concerns.
• Employees: The company has 4 full-time employees. The ongoing operational shift and financial uncertainties could impact job security, though the growth in OEM services might stabilize operations.
• Customers: The strategic shift to OEM services and the acquisition of three new major customers indicate a focus on this segment, potentially benefiting these customers with specialized manufacturing services. However, the company's financial instability could pose supply chain risks.
• Suppliers/Creditors: The working capital deficit and reliance on shareholder loans suggest potential risks for creditors. The legal dispute with Stason Industrial Corporation highlights risks related to contractual obligations.

Next Steps

• Strengthen sales force and implement attractive sales incentive programs.
• Increase marketing and promotion activities.
• Raise additional funds through private/public offerings or loans.
• Retain legal counsel and bring counterclaims/affirmative defenses in the Stason lawsuit.
• Develop and implement effective disclosure controls and procedures and internal control over financial reporting.
• Search for and hire a qualified financial expert for the audit committee.
• Develop a code of ethics as the company's business expands.
• Evaluate the impact of new accounting pronouncements (ASU 2024-03, ASU 2025-01, ASU 2025-02, ASU 2025-05).

Key Dates

Recommendation

The company's impressive turnaround to profitability and substantial revenue growth in OEM services are strong positive indicators. However, these are significantly offset by severe liquidity issues, a formal going concern warning from auditors, ongoing material litigation, and critical deficiencies in internal controls and corporate governance. While the operational pivot shows promise, the financial and structural risks warrant a cautious 'hold' stance until there is clear evidence of improved liquidity, resolution of legal matters, and strengthened internal controls.

Keywords

herbal health, dietary supplements, nutritional supplements, OEM services, SEC filing, 10-K, financial results, going concern, litigation, internal controls, corporate governance, Bio Essence Corp, BIOE