| SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | 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, BEH and FDS. All significant inter-company transactions and balances were
eliminated in consolidation. The
interim consolidated financial information as of June 30, 2021 and for the six and threemonths ended June 30, 2021 and 2020 was
prepared without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain
information and footnote disclosures, which are normally included in CFS prepared in accordance with U.S. GAAP were not included.
The interim consolidated financial information should be read in conjunction with the Financial Statements and the notes thereto,
included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020, previously filed with
the SEC on April 14, 2021. In
the opinion of management, all adjustments (which include all significant normal and recurring adjustments) necessary to present
a fair statement of the Company’s consolidated financial position as of June 30, 2021, its consolidated results of operations
and cash flows for the six and three months ended June 30, 2021 and 2020, as applicable, were made. Certain
amounts in the prior year’s CFS and notes have been revised to conform to the current year presentation. Going
Concern The
Company incurred net losses of $0.37 million and $0.30 million for the six months ended June 30, 2021 and 2020, respectively.
The Company incurred net losses of $0.16 million and $0.18 million for the three months ended June 30, 2021 and 2020, respectively.
The Company also had an accumulated deficit of $7.09 million as of June 30, 2021. These conditions raise a 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 program, 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. Leases The
Company determines if an arrangement is a lease or contains a lease at inception. Operating lease liabilities are recognized based
on the present value of the remaining lease payments, discounted using the discount rate for the lease at the commencement date.
As the rate implicit in the lease is not readily determinable for the operating lease, the Company generally uses an incremental
borrowing rate based on information available at the commencement date to determine the present value of future lease payments.
Operating lease right-of-use (“ROU assets”) assets represent the Company’s right to control the use of an identified
asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the
lease. ROU assets are generally recognized based on the amount of the initial measurement of the lease liability. The lease has
remaining lease term of approximately four years. Lease expense 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. ROU
assets are tested for impairment individually or as part of an asset group if the cash flows related to the ROU asset are not
independent from the cash flows of other assets and liabilities. An asset group is the unit of accounting for long-lived assets
to be held and used, which represents the lowest level for which identifiable cash flows are largely independent of the cash flows
of other groups of assets and liabilities. As of June 30, 2021 and December 31, 2020, the Company had ROU of $1,294,792 and $1,374,158,
respectively. The Company recognized no impairment of ROU assets as of June 30, 2021 and December 31, 2020. The
operating lease is included in operating lease right-of-use assets, operating lease liabilities-current and operating lease liabilities-non-current
on the consolidated balance sheets. 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 June 30, 2021 and December
31, 2020, the bad debt allowance was $151,752 and $151,372, respectively. 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. Depreciation
of property and equipment is provided using the straight-line method for substantially all assets as follows:
Leasehold improvements 7-10 years
Office furniture 5 years 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 June 30, 2021 and December 31, 2020, there was
no significant impairments of its long-lived assets. 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 50% likely of being realized upon settlement with the applicable taxing authority. The portion
of the benefits associated with tax positions taken that exceeds the amount measured as described above is reflected as a liability
for unrecognized tax benefits in the accompanying balance sheets along with any associated interest and penalties that would be
payable to the taxing authorities upon examination. Interest associated with unrecognized tax benefits is classified as interest
expense and penalties are classified in selling, general and administrative expenses in the statement of income. At
June 30, 2021 and December 31, 2020, 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, 2018 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 ASU No. 2014-09: (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 product sales are recorded net of reserves established for applicable discounts and allowances that are offered within contracts
with the Company’s 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. The
Company’s return policy allows for the return of damaged or defective products and shipment errors. A notice of damage or
wrong items should make within five days from receiving the goods, and actual return of the products must be completed within
30 days from the date of receiving the goods. Delayed notification for damaged or wrong products will not be accepted for return
or exchange. Custom formulas and capsules are not returnable. The amount for return of products was immaterial for the six and
three months ended June 30, 2021 and 2020. Cost
of Sales Cost
of sales (“COS”) 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 COS. Shipping
and Handling Costs Shipping
and handling costs related to delivery of finished goods are included in selling expenses. During the six months ended June 30,
2021 and 2020, shipping and handling costs were $17,331 and $28,359, respectively. During the three months ended June 30, 2021
and 2020, shipping and handling costs were $9,197 and $14,972, respectively. 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 six
months ended June 30, 2021 and 2020, advertising expense was $15,125 and $18,787, respectively. During the three months ended
June 30, 2021 and 2020, advertising expense was $9,160 and $5,705, respectively. 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. 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 June 30, 2021 and December 31, 2020, 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 to employees in accordance with FASB ASC Topic 718, “Compensation –
Stock Compensation”, which requires that share-based payment transactions with employees be measured based on the grant-date
FV of the equity instrument issued and recognized as compensation expense over the requisite service period. The
Company accounts for share-based compensation awards to non-employees in accordance with FASB ASC Topic 718 and FASB ASC Subtopic
505-50, “Equity-Based Payments to Non-employees”. Share-based compensation associated with the issuance of equity
instruments to non-employees is measured at the FV of the equity instrument issued or committed to be issued, as this is more
reliable than the FV of the services received. The FV is measured at the date that the commitment for performance by the counterparty
has been reached or the counterparty’s performance is complete. 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). 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 six months ended June 30, 2021 and 2020, no customer accounted for more than 10% of the Company’s total sales. For the
three months ended June 30, 2021 and 2020, one customer accounted for more than 10% of the Company’s total sales for each
of the period. The
Company had one vendor accounted more than 10% of total purchases during the six months ended June 30, 2021. The Company had three
major vendors accounted for 30%, 22% and 11%, respectively, of total purchase during six months ended June 30, 2020. The
Company had no vendors accounts more than 10% of total purchases during the three months ended June 30, 2021. The Company had
three major vendors accounted for 28%, 17% and 15%, respectively, of total purchases during the three months ended June 30, 2020. 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 Recently
issued accounting pronouncements not yet adopted In
January 2017, the FASB issued ASU No. 2017-04, Simplifying the Test for Goodwill Impairment. The guidance removes Step 2 of the
goodwill impairment test, which requires a hypothetical purchase price allocation. A goodwill impairment will now be the amount
by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. The guidance
should be adopted on a prospective basis. As a smaller reporting company, the standard will be effective for the Company for interim
and annual reporting periods beginning after December 15, 2022, with early adoption permitted. The Company is currently evaluating
the impact of adopting this standard on its CFS. In
March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848) (“ASU 2020-04”). ASU 2020-04
contains practical expedients for reference rate reform related activities that impact debt, leases, derivatives and other contracts.
The guidance in ASU 2020-04 is optional and may be elected over time as reference rate reform activities occur. The Company continues
to evaluate the impact of the guidance and may apply the elections as applicable as changes in the market occur. In
August 2020, the FASB issued ASU 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470- 20) and Derivatives
and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in
an Entity’s Own Equity (“ASU 2020-06”), which simplifies the accounting for certain financial instruments
with characteristics of liabilities and equity. This ASU (1) simplifies the accounting for convertible debt instruments and convertible
preferred stock by removing the existing guidance in ASC 470-20, Debt: Debt with Conversion and Other Options, that requires
entities to account for beneficial conversion features and cash conversion features in equity, separately from the host convertible
debt or preferred stock; (2) revises the scope exception from derivative accounting in ASC 815-40 for freestanding financial instruments
and embedded features that are both indexed to the issuer’s own stock and classified in stockholders’ equity, by removing
certain criteria required for equity classification; and (3) revises the guidance in ASC 260, Earnings Per Share, to require
entities to calculate diluted earnings per share (EPS) for convertible instruments by using the if-converted method. In addition,
entities must presume share settlement for purposes of calculating diluted EPS when an instrument may be settled in cash or shares. For
SEC filers, excluding smaller reporting companies, ASU 2020-06 is effective for fiscal years beginning after December 15, 2021
including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after
December 15, 2020. For all other entities, ASU 2020-06 is effective for fiscal years beginning after December 15, 2023, including
interim periods within those fiscal years. Entities should adopt the guidance as of the beginning of the fiscal year of adoption
and cannot adopt the guidance in an interim reporting period. The Company is currently evaluating the impact that ASU 2020-06
may have on its CFS and related disclosures. |
