Epsium Enterprise Limited(EPSM) - 2024 Q4 - Annual Report

Introduction This section introduces the report and provides a cautionary note on forward-looking statements and associated risks Cautionary Note Regarding Forward-Looking Statements This section warns that the Annual Report contains forward-looking statements subject to risks, and actual results may differ, with no obligation to update them - Forward-looking statements are based on current beliefs, expectations, and assumptions, but actual results may differ materially due to various factors, including those detailed in 'Risk Factors'[18][19] - The company operates in a highly competitive and rapidly changing environment, with new risks constantly emerging, making it impossible to predict all potential impacts[19] - The company does not assume any obligation to update forward-looking statements except as required by applicable laws[20] Part I This part covers the company's identity, key information, business overview, and financial performance for the reporting period Item 1. Identity of Directors, Senior Management and Advisers This item is not applicable to the report, indicating no specific disclosures are made regarding the identity of directors, senior management, and advisers in this section - This item is marked as 'Not applicable'[24] Item 2. Offer Statistics and Expected Timetable This item is not applicable to the report, indicating no specific disclosures are made regarding offer statistics and expected timetable in this section - This item is marked as 'Not applicable'[25] Item 3. Key Information This section outlines Epsium's corporate structure, Macau operations, regulatory status, cash transfer policies, dividend intentions, and comprehensive risk factors - Epsium is a British Virgin Islands holding company, conducting operations through its 80%-owned Macau subsidiary, Luz, which is an import trading and wholesaler of alcoholic beverages, primarily Chinese liquor[26][27] - The company adopted a cash management policy on September 27, 2023, to improve cash transfers between the company and its affiliates, with related party transactions subject to the Code of Business Conduct and Ethics[36] - Epsium BVI is permitted under BVI laws to fund subsidiaries through loans or capital contributions without restrictions or government registration[37] - The company intends to retain all available funds and future earnings for business operation and expansion, not anticipating declaring or paying dividends in the foreseeable future[47][179] - Epsium is an 'emerging growth company' and a 'foreign private issuer', allowing it to take advantage of reduced reporting requirements and exemptions from certain U.S. domestic public company provisions[53][56] - The company is a 'controlled company' under Nasdaq rules, with Mr. Son I Tam owning over 50% of outstanding Ordinary Shares, granting him control over shareholder-approved matters[58] A. [Reserved] This section is reserved and contains no information B. Capitalization and Indebtedness This section is not applicable, indicating no specific disclosures regarding capitalization and indebtedness are provided here - This item is marked as 'Not applicable'[61] C. Reasons for the Offer and Use of Proceeds This section is not applicable, indicating no specific disclosures regarding the reasons for the offer and use of proceeds are provided here - This item is marked as 'Not applicable'[63] D. Risk Factors This section outlines various risks that could materially and adversely affect the company's business, financial condition, and the value of its Ordinary Shares - The company's revenue declined by 57.1% and net income by 92.3% for the fiscal year ended December 31, 2024, compared to 2023, primarily due to an overall economic slowdown and increased competition in the wholesale market for lower-priced alcohol products[72] - The company's success is highly dependent on the gaming and tourism industries of Macau, making it vulnerable to economic, political, and social changes in Macau and China, as well as travel restrictions and natural disasters[69][120][122][127][128] - The company relies on a limited number of customers and suppliers, with significant percentages of revenue and purchases concentrated among a few entities, posing risks if these relationships are disrupted[97][101][104] - Material weaknesses in internal control over financial reporting were identified, including lack of proper documentation for related party transactions, insufficient accounting staff with U.S. GAAP knowledge, and inadequate oversight, which could lead to financial misstatements[201] - The company's status as an 'emerging growth company' and 'foreign private issuer' allows for reduced reporting requirements, which may provide less information to investors compared to U.S. domestic public companies[53][56][192][194] - The trading price of the company's Ordinary Shares is likely to be volatile due to various factors, including market and industry performance, changes in financial estimates, and general economic conditions[171] Item 4. Information on the Company This section details the company's history, corporate structure, business overview, products, competitive advantages, operations, and the regulatory environment in Macau - Epsium BVI was incorporated on March 24, 2020, and changed its name to EPSIUM ENTERPRISE LIMITED on April 23, 2021. It is a holding company with operations conducted through its Macau subsidiary, Luz[210][218] - Luz, established in 2010, is an import trading and wholesaler of primarily alcoholic beverages in Macau, with Chinese liquor, French cognac, and Scottish whiskey being the main products, accounting for over 95% of total sales revenue in recent fiscal years[214][219][227] - The company's competitive advantages include industry expertise and a successful track record (Luz ranked as the number one wholesaler of Chinese liquor in Macau from 2020-2022), stable relationships with suppliers and customers, and mutually beneficial collaborations with hotel casinos through consignment arrangements[253][254][255][256] - Growth strategies include creating and selling highly personalized high-end alcoholic beverage products, launching private-labeled products, and developing an e-commerce platform for retail sales and marketing[277][279][280] - Macau's economy heavily relies on gaming and tourism, which significantly impacts the company's business. The region benefits from a favorable tax policy on spirits compared to Hong Kong and China[226][343][345] - Key market drivers for the alcoholic beverage market in Macau include the booming e-commerce, growing consumption power and entertainment expenditure, streamlined distribution, and economic recovery from COVID-19[362][363][364][365] A. History and development of the company This section outlines Epsium BVI's incorporation, name changes, subsidiary establishment, ownership structure, and significant share transactions - Epsium BVI was incorporated on March 24, 2020, and changed its name to EPSIUM ENTERPRISE LIMITED on April 23, 2021[210] - In February 2024, the company underwent a share surrender and cancellation, reducing the total issued shares from 60,002,670 to 12,000,534 ordinary shares[211] - Epsium HK, an 80%-owned subsidiary of Epsium BVI, was incorporated on March 12, 2020, and primarily facilitates inventory procurement for Luz in Hong Kong[212][213][215] - Luz, the Macau operating subsidiary, was incorporated in 2010, with 80% equity held by Epsium HK and 20% by Mr. Son I Tam[214] B. Business Overview This section provides a comprehensive overview of Epsium's business model, product portfolio, competitive landscape, strategic advantages, operational aspects, and the Macau market - Luz is an import trading and wholesale seller of premium alcoholic beverages in Macau, with Chinese liquor, French cognac, and Scottish whiskey comprising the majority of its sales revenue[219][227] Sales Revenue Contribution by Product Category (FY2022-2024) | Product Category | 2024 | 2023 | 2022 | | :--------------- | :--- | :--- | :--- | | Chinese Liquor | 87.67% | 96.39% | 92.62% | | Cognac | 0.79% | 1.52% | 10.22% | | Whiskey | 2.64% | 1.17% | 1.62% |\ | Total (main 3) | 95.92% | 99.01% | 99.44% | - The company maintains a collection of rare alcoholic beverages (Moutai, Remy Martin, Macallan, fine wines) for potential auction, which constituted 23.70% of total assets value as of December 31, 2024[245][247] - The company's marketing involves leveraging brand owners' efforts, targeted product exposure, in-person customer visits, and collaborations with hotel casinos through consignment arrangements[267][269][272] - Macau's alcoholic beverage market is driven by e-commerce growth, increasing consumer spending, efficient distribution, and post-COVID-19 economic recovery, particularly in tourism and gaming[362][363][364][365] The Products We Sell This sub-section details Epsium's primary alcoholic beverage sales, mainly Chinese liquor, and its collection of rare beverages for future auction - Chinese liquor, particularly Moutai, is the most significant product, accounting for 87.67% to 96.39% of total sales revenue from 2022 to 2024[234] Moutai Liquor Sales as Percentage of Total Revenues (FY2022-2024) | Product Type | 2022 | 2023 | 2024 | | :---------------- | :------ | :------ | :------ | | Feitian Moutai | 77.20% | 84.40% | 63.47% | | Aged Moutai | 4.20% | 4.23% | 1.59% | | Laojiu Moutai | N/A | N/A | N/A | | Customized Moutai | 4.55% | 4.83% | 25.27% | - The company maintains a collection of rare alcoholic beverages, including high-vintage Moutai, Remy Martin, Macallan, and famous wines, which constituted 23.70% of net inventories as of December 31, 2024[245][247] Competition This sub-section details Epsium's competitive position in Macau's high-end Chinese liquor market and the fragmented brandy and whiskey segments - Epsium primarily competes in the high-end Chinese liquor wholesale market in Macau, where it is the number one wholesaler with a 30.7% market share between 2020 and 2022[251][254] - The combined sales of brandy and whiskey accounted for 3.30%, 2.70%, and 11.83% of total sales for fiscal years 2024, 2023, and 2022, respectively, in a relatively fragmented market with over 200 wholesalers[252] Our Competitive Advantages Epsium's advantages include industry expertise, long operational history, strong supplier/customer relationships, and strategic hotel casino collaborations - The company benefits from over 15 years of industry experience from its CEO, Mr. Son I Tam, and Luz's successful track record, establishing a strong reputation in Macau's high-end alcoholic beverage wholesale market[253][254] - Stable relationships with major suppliers and a network of long-term customers contribute to operational efficiency and market stability[255][256] - Collaborations with prestigious hotel casinos through consignment arrangements for rare vintage Chinese liquor provide a stable sales channel, enhance prestige, and generate high-profit margins[256][257][258] Suppliers Epsium procures alcoholic beverages ad hoc from various suppliers, with significant purchases concentrated among a few major entities annually - The company procures products ad hoc based on business objectives and market conditions, without formal long-term supply arrangements[260][263] Major Suppliers by Percentage of Total Purchases (FY2022-2024) | Year | Supplier 1 | Supplier 2 | Supplier 3 | Total | | :--- | :--------- | :--------- | :--------- | :---- | | 2024 | 36.5% | 30.5% | 20.6% | 87.6% | | 2023 | 72.6% | 12.8% | N/A | 85.4% | | 2022 | 54.9% | 21.0% | 13.7% | 89.6% | - Decisions on inventory procurement timing and product choice require deep industry experience and judgment due to fluctuating exchange rates and market conditions[261] Customers Epsium's sales are concentrated among a few major customers, primarily casinos, hotels, supermarkets, and food/alcoholic beverage distributors. While sales are concentrated, the company does not rely on any single customer consistently year after year, allowing for streamlined operations - Sales are highly concentrated on major customers, but no single customer consistently accounted for more than 18.5% of total sales across 2022-2024[265] Major Customers by Percentage of Total Sales (FY2022-2024) | Year | Customer 1 | Customer 2 | Customer 3 | Customer 4 | Total | | :--- | :--------- | :--------- | :--------- | :--------- | :---- | | 2024 | 18.3% | 11.7% | N/A | N/A | 30.0% | | 2023 | 17.7% | 16.1% | N/A | N/A | 33.8% | | 2022 | 15.4% | 12.4% | 10.6% | 10.4% | 48.8% | Marketing and Sales Epsium's marketing strategy involves leveraging brand owners' efforts, targeted product exposure, and in-person customer education. A key sales channel is collaborations with hotel casinos through consignment arrangements, which provide access to affluent customers and enhance the company's prestige - Marketing strategies focus on leveraging brand owners' efforts, targeted product exposure, in-person customer visits, and promotional events to enhance product knowledge and brand perception[267][268][269] - Consignment arrangements with major hotel casinos (e.g., Melco Resorts, MGM Grand Paradise) are an important sales channel, allowing casinos to offer high-end products without upfront payment and providing Epsium access to VIP guests[272][273] - Consignment-based sales contributed an average of 15.68% to the company's profit margin over the past three years, despite representing a smaller percentage of total sales[258] Challenges and Growth Opportunities and Strategies Epsium faces challenges such as low entry barriers in the Macau alcoholic beverage market, potential short-lived distributorships, and high working capital requirements. To counter these, the company plans to create personalized high-end products, launch private labels, and develop an e-commerce platform for retail sales - Challenges include low entry barriers in the Macau alcoholic beverage import and trading market, the risk of short-lived distributorships, and the need for large working capital due to expensive high-end inventory[278] - Growth strategies involve transitioning from a wholesaler to a manufacturer of highly personalized high-end alcoholic products for affluent customers and casinos[277] - The company plans to create its own private-labeled whiskey brands by sourcing high-quality casks and implementing innovative marketing to maximize their market potential and profitability[279] - Launching an e-commerce platform is a strategy to expand into retail, showcase unique products, run promotions, reduce overhead costs, and gain recognition for its own brands[280] Seasonality Epsium's business is seasonal, with sales fluctuating based on festivals, holidays, and tourism seasons in Macau and surrounding regions, particularly China. The first quarter is typically the busiest, followed by the third and fourth quarters - The business is seasonal, with high sales during holidays, festivals, and busy tourism seasons in Macau and China[281] - The first quarter is typically the busiest, followed by the third and fourth quarters, with the second quarter being the slowest[281] Intellectual Property Epsium holds two trademarks in Macau, one in Hong Kong, and two domain names. The company relies on intellectual property laws and disclosure restrictions for protection, acknowledging that Macau's laws may offer less comprehensive protection than in the U.S - The company holds 2 trademarks in Macau, 1 trademark in Hong Kong, and 2 domain names[282] - Intellectual property protection in Macau may not be as effective as in the United States[282] Trademarks and Domain Names | Type | Name | Issuing Authority / Registration Institution | Trademark Application Number | Date | Status | Expiration Date | | :-------- | :---------------- | :------------------------------------------- | :--------------------------- | :----------- | :--------- | :-------------- | | Trademark | (Class: 35) | Government of Macau SAR, Economic and Technological Development Bureau | 190127 | April 8, 2022 | Registered | April 8, 2029 | | Trademark | (Class: 36) | Government of Macau SAR, Economic and Technological Development Bureau | 190128 | April 8, 2022 | Registered | April 8, 2029 | | Trademark | (Class: 35 and 36)| Government of Hong Kong SAR, Trademarks Registry, Intellectual Property Department | 305849371 | April 1, 2022 | Registered | March 1, 2032 | | Domain | luzmacau.com | N/A | N/A | N/A | Registered | N/A | | Domain | epsium-group.com | N/A | N/A | N/A | Registered | N/A | Employees Epsium has 13 full-time employees across general administration, accounting & finance, operation management, project management, and executive roles. The company maintains good working relationships with its employees and has not experienced major labor disputes - The company has 13 full-time employees, including 3 in general administration, 2 in accounting and finance, 5 in operation management, 1 in project management, and 2 executive officers[285][286] - Employees are not represented by a labor organization or covered by a collective bargaining agreement, and the company maintains good working relationships[286] Legal Proceedings As of the report date, Epsium is not a party to any material lawsuits and is unaware of any threats that could significantly impact its business. However, it may face claims in the ordinary course of business - The company is not a party to any material lawsuits and is unaware of any threats that could significantly impact its business[287] - Future legal actions may arise in the ordinary course of business from shareholders, third parties, or regulators[287] Insurance Epsium maintains workers' compensation and third-party liability insurance for vehicles, as required by Macau law. However, it lacks business disruption insurance, and certain risks may not be covered, potentially leading to significant costs - The Operating Entity maintains workers' compensation insurance for employees and third-party liability insurance for vehicles, in compliance with Macau laws[116][288] - The company does not have business disruption insurance, and certain risks like war or force majeure may not be covered, potentially leading to significant costs[116] Our Property and Facilities Epsium's principal executive office and a warehouse are located in Macau, operating under lease agreements. The office lease runs until September 2025, and the warehouse lease until April 2027 - The principal executive office is located in Macau, with a lease term from September 7, 2023, to September 6, 2025[289] - A warehouse in Macau, spanning 3,654 square feet, is leased from May 1, 2020, to April 30, 2027[289] Regulations This section summarizes the key laws and regulations impacting Epsium's operations in Macau, including the Basic Law, rules on alcoholic beverage sales and import/export, intellectual property, company investments, unfair competition, consumer protection, and taxation. It emphasizes Macau's high degree of autonomy under the 'One Country, Two Systems' principle - Macau operates under the 'One Country, Two Systems' principle, with its own Basic Law, granting it high autonomy and generally exempting it from PRC national laws, except for specific listed exceptions[292][295][296] - Macau implemented the Law on the Prevention and Control of Minors' Consumption of Alcoholic Beverages in November 2023, prohibiting sales to individuals under 18, which may negatively impact the business[125][300][301] - Import and export of alcoholic products in Macau require licenses from the Economic and Technological Development Bureau, with non-compliance leading to fines, confiscation, and potential criminal liability[302][303][304][305] - Macau levies a Complementary Tax on company profits, with an exempted portion of MOP 600,000 and a 12% tax rate on excess taxable income, as per the 2024 Budget Law[324] - Alcoholic beverages with an ABV of 30% or more are subject to a consumption tax upon manufacture or entry into Macau[325] - Macau has no foreign exchange controls, allowing free capital flow, and the Pataca is indirectly pegged to the U.S. dollar via the Hong Kong dollar[338] Industry Overview This section provides an in-depth analysis of the alcoholic beverage market in Macau, highlighting its reliance on gaming and tourism, favorable tax policies, and market dynamics. It covers product classifications, the value chain, roles of distributors, retail price analysis, competition factors, market drivers, and emerging trends, along with regulatory frameworks - Macau's economy is largely driven by casino gaming and tourism, making its gaming industry the largest globally, significantly influencing the alcoholic beverage market[343] - Macau's favorable tax policy, with lower import consumption tax on spirits compared to Hong Kong and China, provides a significant advantage to the local liquor market, offering lower pricing and a diverse range of products[345][375] - The import value of beverages in Macau increased at a CAGR of 21.1% from 2017 to 2022, driven by alcoholic beverages, and is projected to grow at 8.2% CAGR to MOP 11,690.5 million by 2027[348][363] - Post-pandemic, high-end product sales showed significant growth in 2024, supported by tourism and hospitality developments, while the broader market for lower-priced alcoholic beverages faced contraction due to economic downturn and competition[346][347] - Market trends include changing consumer preferences towards unique and innovative products (craft beer, artisanal spirits), increasing health consciousness leading to demand for lower-alcohol options, and continuous development of global and local supply chains[370][371][372] C. Organizational Structure This section illustrates Epsium's corporate legal structure, showing Epsium BVI as the holding company, Epsium HK as the majority-owned Hong Kong subsidiary, and Luz as the majority-owned Macau operating entity. Mr. Son I Tam is the principal shareholder with significant direct and indirect ownership - Epsium BVI is the holding company, with Epsium HK as its 80%-owned subsidiary, which in turn majority-owns Luz, the Macau operating entity[382] - Mr. Son I Tam, CEO and Chairman, directly holds 80.369% ownership in Epsium BVI, 19% in Epsium HK, and 20% in Luz, constructively owning 92.80% of Luz[26][385][387] D. Property, plants and equipment This section refers to the 'Our Property and Facilities' sub-section within the Business Overview for details on the company's property, plants, and equipment - Information on property, plants, and equipment is detailed in 'Item 4. Information on the Company-B. Business Overview- Our Property and Facilities'[383] Item 4A. Unresolved Staff Comments This item is not applicable, indicating no unresolved staff comments are reported - This item is marked as 'Not applicable'[384] Item 5. Operating and Financial Review and Prospects This section analyzes Epsium's financial condition and results, highlighting significant declines in 2024 revenue and net income due to market factors Consolidated Results of Operations (FY2022-2024) | Metric | 2024 (US$) | 2023 (US$) | 2022 (US$) | | :------------------------- | :----------- | :----------- | :----------- | | Revenue, net | 12,518,070 | 29,195,798 | 11,173,092 | | Cost of goods sold | 10,913,548 | 23,653,815 | 9,250,981 | | Gross profit | 1,604,522 | 5,541,983 | 1,922,111 | | Total operating expenses | 1,196,623 | 1,209,219 | 684,279 | | Operating Income | 407,899 | 4,332,764 | 1,237,832 | | Income before provision for taxes | 409,359 | 4,306,224 | 1,305,948 | | Provision for income taxes | 124,665 | 587,984 | 175,002 | | Net income | 284,694 | 3,718,240 | 1,130,946 | - Revenue decreased by 57.12% in 2024 compared to 2023, primarily due to an economic downturn and fierce competition in the local market for lower-priced alcoholic beverages, despite a 121.57% increase in high-end product sales in casinos and hotels[402][403] - Net income decreased by 92.34% in 2024 compared to 2023, largely driven by the significant decline in sales and gross profit[399] - Gross profit margin decreased from 18.98% in 2023 to 12.82% in 2024, mainly due to decreased sales and profit margin from local customers[411] - Net cash used in operating activities was $1,392,824 in 2024, a significant decrease from $1,862,077 provided in 2023, mainly due to changes in prepayments, other receivables, and inventories, offset by a decrease in net income[443] - The company completed its IPO on March 27, 2025, raising approximately $4.908 million in net proceeds, which will be used for sales and product innovation, asset acquisition, general corporate purposes, and reserves[391][438][439] A. Operating results. This sub-section details Epsium's financial performance, showing significant declines in revenue, net income, and gross profit in 2024 - Revenue decreased by 57.12% to $12,518,070 in 2024 from $29,195,798 in 2023, primarily due to an economic depression and fierce competition in the local market, leading to lower wholesale pricing[402][403] - Net income saw a 92.34% decline, from $3,718,240 in 2023 to $284,694 in 2024, mainly attributed to decreased sales and gross profit[399] - Gross profit decreased by 71.05% to $1,604,522 in 2024 from $5,541,983 in 2023, largely due to a significant drop in local market sales and profit margin[409] - Operating income decreased by 90.59% to $407,899 in 2024 from $4,332,764 in 2023, reflecting the overall decline in sales and profitability[418] - The company's sales of high-end products in casinos and hotels increased by approximately 121.57% in 2024, partially offsetting the decline in the broader market[403] B. Liquidity and Capital Resources This section assesses Epsium's liquidity, capital resources, and cash flow, detailing IPO proceeds and critical accounting policies Key Liquidity Metrics (FY2022-2024) | Metric | 2024 (US$) | 2023 (US$) | 2022 (US$) | | :------------------------- | :----------- | :----------- | :----------- | | Cash | 148,828 | 1,316,158 | 525,561 | | Net cash from operating activities | (1,392,823) | 1,862,077 | 1,395,747 | | Working Capital | 8,050,758 | 7,777,022 | 4,046,214 | - Net cash used in operating activities was $1,392,824 in 2024, a significant decrease from cash provided in 2023, mainly due to changes in prepayments, other receivables, and inventories[443] - The company received $4,908,000 in net proceeds from its IPO and over-allotment option exercise in March/April 2025, with funds allocated for sales/product innovation (10%), asset acquisition/investment (60%), general corporate purposes (20%), and reserves (10%)[438][439][655] - Critical accounting policies include the use of estimates and assumptions, revenue recognition (applying ASC 606), leases (ASC Topic 842), inventories valuation (lower of cost or net realizable value), and income taxes (ASC Topic 740)[463][464][465][469][471][475] C. Research and Development, Patents and Licenses, etc. This section refers to the 'Business Overview' for information on research and development, patents, and licenses - Information on research and development, patents, and licenses is provided in 'Item 4.B. Information on the Company-Business Overview'[478] D. Trend Information The company reports no new material adverse trends, uncertainties, demands, commitments, or events for FY2024 beyond disclosed information - No new material adverse trends, uncertainties, demands, commitments, or events for FY2024 are identified beyond those already disclosed in the annual report[479] E. Critical Accounting Estimates This section reiterates the importance of management's estimates and assumptions in financial statements, particularly for assets, credit loss, and leases - Preparation of financial statements requires management to make significant estimates and assumptions, including for recoverability of long-lived assets, allowance for expected credit loss, inventory reserves, depreciable lives, and lease discount rates[480] - Estimates and assumptions are reviewed periodically, with revisions reflected in the financial statements in the period they are determined[480] Item 6. Directors, Senior Management and Employees This section provides information on Epsium's directors, executive officers, key employees, their compensation, board practices, and share ownership - The board of directors consists of four directors, with three being independent according to Nasdaq listing rules and Exchange Act standards[496] - Key executive officers include Mr. Son I Tam (CEO, Chairman) and Mr. Ming Yin Gordon Au Yeung (CFO), with Mr. Tam having over 15 years of experience in alcoholic beverage distribution[484][485] - The company has established an audit committee, a nominating committee, and a compensation committee, each with independent directors[497][499][500][503] - Mr. Son I Tam beneficially owns 80.369% of the Ordinary Shares as of April 30, 2025, making the company a 'controlled company' under Nasdaq rules[513] Compensation of Mr. Son I Tam (FY2023-2024) | Fiscal Year | Compensation (MOP) | Compensation (USD) | | :---------- | :----------------- | :----------------- | | 2024 | 296,000 | 36,821 | | 2023 | 260,000 | 32,218 | A. Directors and Senior Management This sub-section lists directors and executive officers, providing biographies and highlighting their experience and qualifications - Mr. Son I Tam serves as Director, Chairman, and CEO, with over 15 years of experience in alcoholic beverage distribution and a postgraduate degree in Business Management[484] - Mr. Ming Yin Gordon Au Yeung joined as CFO on January 3, 2025, bringing over two decades of experience in accounting, auditing, and corporate governance across various industries[485] - Independent directors include Mr. Kewei Joshua Cui (co-founder of SOCC Capital Consultancy), Ms. Ut Ha Lei (Customer Relationship Manager at Banco Delta Asia S.A.), and Mr. Siu Keung Yeung (Chartered Accountant and Senior Finance Manager)[486][487][488] B. Compensation This sub-section details compensation for executive officers and independent directors, noting Mr. Son I Tam's 2024 compensation and lack of an equity plan Compensation for Mr. Son I Tam (FY2023-2024) | Fiscal Year | Compensation (MOP) | Compensation (USD) | | :---------- | :----------------- | :----------------- | | 2024 | 296,000 | 36,821 | | 2023 | 260,000 | 32,218 | - Independent directors did not receive compensation for their services in 2023 and 2024[492] - The company has not adopted any equity incentive plan[493] C. Board Practices This sub-section describes Epsium's board composition, committee functions, director independence, duties under BVI law, and election/removal procedures - The board of directors consists of four directors, with three meeting Nasdaq's independence requirements and Rule 10A-3 of the Exchange Act[496] - The Audit Committee, chaired by Ut Ha Lei, oversees financial reporting, internal controls, and related party transactions, with Siu Keung Yeung qualifying as an 'audit committee financial expert'[499][501] - Directors owe fiduciary duties to the company under British Virgin Islands law, including duties of loyalty, good faith, and care, diligence, and skill[505] - Directors can be elected by shareholder resolution or appointed by the board to fill vacancies, and can be removed with or without cause by shareholder resolution[507][587] D. Employees This section refers to the 'Business Overview' for details on the company's employees - Information on employees is detailed in 'Item 4. Information on the Company-B. Business Overview-Employees'[511] E. Share Ownership This sub-section details beneficial ownership of Epsium's Ordinary Shares, highlighting Mr. Son I Tam as the principal shareholder with over 80% ownership. It also confirms no awareness of arrangements that could lead to a change of control Beneficial Ownership of Ordinary Shares (as of April 30, 2025) | Shareholder | Number of Shares Beneficially Owned | Percent | | :------------------------------ | :---------------------------------- | :------ | | Son I Tam | 10,800,000 | 80.369% | | Ming Yin Gordon Au Yeung | 0 | 0% | | Kewei Joshua Cui | 0 | 0% | | Ut Ha Lei | 0 | 0% | | Siu Keung Yeung | 0 | 0% | | All directors and executive officers as a group | 10,800,000 | 80.369% | | 5% Principal Shareholders (Son I Tam) | 10,800,000 | 80.369% | - Mr. Son I Tam is the principal shareholder, beneficially owning 80.369% of the Ordinary Shares[513] - The company is not aware of any arrangements that may result in a change of control[514][515] F. Disclosure of a registrant's action to recover erroneously awarded compensation. The company was not required to prepare an accounting restatement or recover erroneously awarded compensation for the fiscal year 2024 - The company was not required to prepare an accounting restatement or recover erroneously awarded compensation for the fiscal year ended December 31, 2024[516] Item 7. Major Shareholders and Related Party Transactions This section details transactions with major shareholders and related parties, including cash transfers and loans, and highlights internal control weaknesses - Cash transfers occurred between the Operating Entity (Luz), Epsium HK, and Epsium BVI to cover payment obligations, including professional service fees and management compensation[518][519][520][522] - In 2023, Epsium HK facilitated inventory procurement for Luz from Hong Kong suppliers, with Luz transferring $8,660,422 to Epsium HK for these purchases[521] - Cash advancements to and loans from Mr. Son I Tam occurred without formal contracts, interest, or repayment terms, leading to identified material weaknesses in internal control over financial reporting[523] Net Amount Owed to Mr. Tam by Operating Entities (FY2022-2024) | Year | Net Amount Owed to Mr. Tam (US$) | | :--- | :------------------------------- | | 2024 | 363,066 | | 2023 | 8,526 | | 2022 | 1,054,833 | - The Operating Entity's office space lease was initially entered into by Mr. Son I Tam in his individual capacity, with the Operating Entity paying the rent. A new lease was signed directly by the Operating Entity in September 2023[528] A. Major Shareholders This section refers to 'Item 6. Directors, Senior Management and Employees-E. Share Ownership' for information on major shareholders - Information on major shareholders is detailed in 'Item 6. Directors, Senior Management and Employees-E. Share Ownership'[518] B. Related Party Transactions This sub-section details cash transfers, advancements, and loans with related parties, noting historical lack of formal contracts and subsequent policy adoption - Cash transfers from the Operating Entity (Luz) were used to cover professional service fees and administrative fees for Epsium BVI and Epsium HK[518][519][520][522] - In 2023, Epsium HK acted as an intermediary for Luz to procure inventory from Hong Kong suppliers, involving an aggregate transfer of $8,660,422 from Luz to Epsium HK[521] - Cash advancements to and loans from Mr. Son I Tam occurred without contracts, interest, or repayment terms, but all loans to Mr. Tam were fully paid off by November 3, 2023[523][526] Net Amount Owed to Mr. Tam by Operating Entities (FY2022-2024) | Year | Net Amount Owed to Mr. Tam (US$) | | :--- | :------------------------------- | | 2024 | 363,066 | | 2023 | 8,526 | | 2022 | 1,054,833 | - The company adopted a Code of Business Conduct and Ethics on September 27, 2023, to better manage related party transactions and address internal control weaknesses[523] C. Interests of Experts and Counsel This section is not applicable, indicating no specific disclosures regarding the interests of experts and counsel are provided here - This item is marked as 'Not applicable'[530] Item 8. Financial Information This section confirms consolidated financial statements, discusses dividend policy, and reports significant changes, including the recent IPO and over-allotment - The company's consolidated financial statements are appended to this Annual Report[531] - The board has discretion on dividend distribution, subject to BVI law solvency requirements, and currently intends to retain future earnings for business expansion, not anticipating cash dividends in the foreseeable future[532][533] - The company closed its IPO on March 27, 2025, issuing 1,250,000 ordinary shares at $4.00 per share, and subsequently received $4,240,500 in net proceeds[539][541] - The underwriter fully exercised the over-allotment option on April 16, 2025, for an additional 187,500 Ordinary Shares, generating $667,500 in net proceeds[542] A. Consolidated Statements and Other Financial Information This sub-section confirms consolidated financial statements, refers to legal proceedings, and details the company's dividend policy - Consolidated financial statements are included as part of this Annual Report[531] - The company intends to retain future earnings for business expansion and does not anticipate paying cash dividends in the foreseeable future[533] - Dividend payments are subject to British Virgin Islands law solvency requirements and will depend on future operations, earnings, capital requirements, and other factors[532] B. Significant Changes This sub-section reports the closing of the company's IPO and the full exercise of the over-allotment option, detailing net proceeds received - The company closed its IPO on March 27, 2025, listing 1,250,000 ordinary shares on the Nasdaq Capital Market under 'EPSM' at $4.00 per share[539] - Net proceeds from the IPO, after deducting expenses, amounted to approximately $4,240,500[541] - The underwriter fully exercised the over-allotment option on April 16, 2025, purchasing an additional 187,500 Ordinary Shares, yielding $667,500 in net proceeds[542] Item 9. The Offer and Listing This section confirms Epsium's Ordinary Shares are listed on Nasdaq under 'EPSM' and states other related sub-sections are not applicable - Epsium's Ordinary Shares are listed on the Nasdaq Capital Market under the symbol 'EPSM'[543][545] - Sections on Plan of Distribution, Selling Shareholders, Dilution, and Expenses of the Issue are marked as 'Not applicable'[544][546][547][548] Item 10. Additional Information This section provides additional information on share capital, corporate governance, material contracts, exchange controls, and taxation in relevant jurisdictions - The company is authorized to issue 1,000,000,000 shares, including 800,000,000 Ordinary Shares and 200,000,000 preferred shares, with a par value of $0.00002 per share[553] - Under BVI law, directors can authorize dividends if the company is solvent and assets exceed liabilities. Shareholders have voting rights of one vote per Ordinary Share[554][555][556] - Macau income is subject to Complementary Tax (up to 12% on income exceeding MOP 600,000), while BVI entities are exempt from income and capital gains tax[604][605][607] - The company does not expect to be a Passive Foreign Investment Company (PFIC) for U.S. federal income tax purposes, but this determination is annual and subject to change based on asset composition and market value[190][622] - As an 'emerging growth company' and 'foreign private issuer', Epsium benefits from reduced reporting requirements, but this may provide less information to investors and could lead to higher compliance costs if status is lost[192][194][195] A. Share Capital This section is not applicable, indicating no specific disclosures regarding share capital are provided here - This item is marked as 'Not applicable'[549] B. Memorandum and Articles of Association This sub-section summarizes Epsium's corporate governance documents, covering share structure, shareholder rights, director roles, and BVI corporate law differences - The company is authorized to issue 1,000,000,000 shares, including 800,000,000 Ordinary Shares and 200,000,000 preferred shares, each with a par value of $0.00002[553] - Holders of Ordinary Shares are entitled to equal dividend payments and a pro rata share in surplus assets upon liquidation, provided the company is solvent[554][555][564] - Each Ordinary Share grants one vote at shareholder meetings. Directors can be elected by shareholder resolution or board appointment and removed by shareholder resolution[556][557][507][587] - BVI law and the company's articles allow for indemnification of directors and executive officers against liabilities and expenses, provided they acted honestly and in good faith for the company's best interests[579] - Shareholders have statutory and common law remedies under BVI law, including actions for prejudiced members and derivative actions, though these may be more limited than under U.S. law[575][576][577] C. Material Contracts The company has not entered into any material contracts other than those in the ordinary course of business and described in this report - No material contracts have been entered into other than in the ordinary course of business and as described in this annual report[600] D. Exchange Controls There are currently no exchange control regulations in the British Virgin Islands applicable to the company or its shareholders - No exchange control regulations in the BVI apply to the company or its shareholders[602][609] E. Taxation This sub-section details tax implications for the company and shareholders under BVI, Macau, and U.S. laws, including potential PFIC rules - Macau income is subject to Complementary Tax, with an exempted portion of MOP 600,000 and a 12% tax rate on excess taxable income[604][605] - The company and its distributions to non-BVI residents are exempt from all BVI income tax, estate, inheritance, succession, or gift taxes, and stamp duty on share transactions[607][608] - The company does not expect to be a PFIC, but this status is determined annually based on income and asset composition, and fluctuations in share market value could impact this[190][622] - U.S. Holders of Ordinary Shares may be subject to special tax rules if the company is classified as a PFIC, including excess distribution rules, unless a 'mark-to-market' or 'qualified electing fund' election is made[624][628][630] F. Dividends and Paying Agents This section is not applicable, indicating no specific disclosures regarding dividends and paying agents are provided here - This item is marked as 'Not applicable'[637] G. Statement by Experts This section is not applicable, indicating no specific disclosures regarding statements by experts are provided here - This item is marked as 'Not applicable'[638] H. Documents on display Epsium is subject to SEC periodic reporting requirements as a foreign private issuer, filing annual reports on Form 20-F. These documents are available for inspection at the SEC's public reference facilities and on its website - The company is subject to SEC periodic reporting requirements as a foreign private issuer, filing annual reports on Form 20-F within four months after each fiscal year end[640] - Reports and information filed with the SEC can be inspected at public reference facilities and on the SEC's website (www.sec.gov)[640](index=640&type=chunk) I. Subsidiary Information This section is not applicable, indicating no specific disclosures regarding subsidiary information are provided here - This item is marked as 'Not applicable'[641] J. Annual Report to Security Holders The company is not required to provide an annual report to security holders in response to the requirements of Form 6-K - The company is not required to provide an annual report to security holders in response to Form 6-K requirements[642] Item 11. Quantitative and Qualitative Disclosures About Market Risk This section discusses Epsium's exposure to market risks, primarily foreign currency risk due to operations in Hong Kong dollars and Macau Patacas, and inflation risk. Fluctuations in exchange rates and rising labor costs could materially impact financial results - The company is exposed to foreign exchange risk as revenues and operations are denominated in Hong Kong dollars and Macau Patacas, which fluctuate against the U.S. dollar[643] - Depreciation of RMB against USD or HKD could affect the purchasing power of Chinese tourists, impacting visitation and spending in Macau[645] - The company is exposed to inflation risk, where increases in labor costs could impair operating results and gross margins[646] Item 12. Description of Securities Other Than Equity Securities This section states that there are no disclosures applicable to debt securities, warrants and rights, other securities, or American Depositary Shares - Sections on Debt Securities, Warrants and Rights, Other Securities, and American Depositary Shares are marked as 'Not applicable'[647][648][649][650] Part II This part addresses defaults, use of IPO proceeds, internal controls, audit committee, corporate governance, and other regulatory disclosures Item 13. Defaults, Dividend Arrearages and Delinquencies This item reports that there are no defaults, dividend arrearages, or delinquencies - There are no defaults, dividend arrearages, or delinquencies[652] Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds This section confirms no material modifications to security holders' rights and details the use of proceeds from the initial public offering - No material modifications to the rights of security holders have occurred[653] - The company raised approximately $4,908,000 in net proceeds from its IPO and over-allotment option exercise[655] - As of the report date, about $1,438,491 of the net IPO proceeds have been used for working capital and general corporate purposes[655] Item 15. Controls and Procedures This section discloses that Epsium's disclosure controls and procedures were not effective as of December 31, 2024, due to identified material weaknesses in internal control over financial reporting. Remedial measures are being implemented, but their full effectiveness is not yet assured - Disclosure controls and procedures were not effective as of December 31, 2024[656] - Material weaknesses identified include lack of proper documentation for related party transactions, insufficient accounting staff with U.S. GAAP knowledge, revenue/inventory cutoff issues, inadequate oversight, and lack of clarity in job responsibilities/segregation of duties[657] - Remedial measures include appointing independent Board members with financial experience, engaging external consultants for Sarbanes-Oxley compliance, adopting a Code of Business Conduct and Ethics and a Cash Management Policy, and planning to hire more qualified accounting personnel[658] - The company is in a transition period and does not include a management's assessment or an attestation report from its independent registered public accounting firm on internal control over financial reporting[661][662] Item 16. [Reserved] This item is reserved and contains no information - This item is marked as '[RESERVED]'[664] Item 16A. Audit Committee Financial Expert The Board of Directors has determined that Mr. Siu Keung Yeung qualifies as an 'audit committee financial expert' and is independent according to Nasdaq listing standards - Mr. Siu Keung Yeung is designated as the audit committee financial expert and is independent under Nasdaq listing standards[664] Item 16B. Code of Ethics The board of directors has adopted a Code of Business Conduct and Ethics applicable to directors and senior officers, which has been filed as an exhibit - A Code of Business Conduct and Ethics has been adopted, applying to directors and senior officers, and is filed as Exhibit 11.1[665] Item 16C. Principal Accountant Fees and Services This section details the fees paid to TAAD, LLP, the independent registered public accounting firm, for audit, audit-related, and other services for the fiscal years 2023 and 2024. The audit committee pre-approves all services provided by the auditor Aggregate Fees for Services by TAAD, LLP (FY2023-2024) | Fee Type | 2024 (USD) | 2023 (USD) | | :---------------- | :--------- | :--------- | | Audit Fees | 159,650 | 148,320 | | Audit Related Fees| 19,467 | 38,941 | | Tax Fees | - | - | | All Other Fees | 31,157 | 33,973 | | Total Fees | 210,274 | 221,234 | - The audit committee's policy is to pre-approve all audit and non-audit services provided by the independent auditor[668] Item 16D. Exemptions from the Listing Standards for Audit Committees This item is not applicable, indicating no exemptions from listing standards for audit committees are reported - This item is marked as 'Not applicable'[669] Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers This item is not applicable, indicating no purchases of equity securities by the issuer and affiliated purchasers are reported - This item is marked as 'Not applicable'[670] Item 16F. Change in Registrant's Certifying Accountant This item is not applicable, indicating no change in the registrant's certifying accountant - This item is marked as 'Not applicable'[671] Item 16G. Corporate Governance This section refers to previous disclosures regarding the company's corporate governance practices, particularly its status as a foreign private issuer and the implications of adopting home country practices that may differ from Nasdaq standards - Corporate governance information is referenced from 'Item 3. Key Information - Implications of Our Being a Foreign Private Issuer' and 'Item 3. Key Information-D. Risk Factors-Risks Related to Our Ordinary Shares'[672] Item 16H. Mine Safety Disclosure This item is not applicable, indicating no mine safety disclosures are required - This item is marked as 'Not applicable'[673] Item 16I. Disclosure Regarding Foreign Jurisdictions That Prevent Inspections This item is not applicable, indicating no foreign jurisdictions prevent inspections relevant to the company - This item is marked as 'Not applicable'[674] Item 16J. Insider Trading Policies The company has adopted an insider trading policy governing the purchase, sale, and other dispositions of its securities by directors, senior management, and employees, which is attached as an exhibit - An insider trading policy has been adopted for directors, senior management, and employees, and is attached as an exhibit[675] Item 16K. Cybersecurity Epsium's executive officers oversee cybersecurity risk management and compliance, reporting material incidents to the board. The company is not aware of any material cybersecurity threats or incidents since the last fiscal year - Executive officers oversee cybersecurity