ESG Inc 10-Q for FY2024 Q3
ESG Inc. (ESGH)
About this 10-Q
ESG Inc filed this 10-Q on November 13, 2024, covering the quarter ended September 30, 2024 (FY2024 Q3).
Headline figures
Quarter ended September 30, 2024, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $2.23M
- up 331.2% from $518.19K a year earlier
- Net income
- $22.7K
- down 50.3% from net income of $45.65K a year earlier
- Diluted EPS
- $0.01
- compared with -$0.01 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form
For the quarterly period ended
For the transition period from __________ to __________
Registration No.
(Exact name of registrant as specified in its charter)
| (State or Other Jurisdiction of Incorporation or Organization) |
(I.R.S. Employer Identification No.) | |
|
|
||
| (Address of Principal Executive Offices) | (Zip Code) |
(Registrant’s telephone number, including area code)
| n/a | n/a |
(Former Name, former address and former fiscal year, if changed since last report)
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act: None
Indicate by check mark
whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Indicate by check mark
whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation
S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit
such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “non-accelerated filer,” “ smaller reporting company,” and “ emerging growth company ” in Rule 12b-2 of the Exchange Act. (Check all that apply):
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| ☒ | Smaller reporting company | ||
| Emerging growth company |
If an emerging growth
company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or
revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark
whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐
State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date: common shares issued and outstanding as of September 30, 2024.
ESG INC.
QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS
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Part I. Financial Information
Item 1. Financial Statements (unaudited)
ESG INC.
CONSOLIDATED BALANCE SHEETS
| September 30, 2024 (Unaudited) | December 31, 2023 | |||||||
| ASSETS | ||||||||
| Current Assets | ||||||||
| Cash | ||||||||
| Accounts receivable and other receivables | ||||||||
| Advance to suppliers | ||||||||
| Inventories | ||||||||
| Total Current Assets | ||||||||
| Property, plant and equipment, net | ||||||||
| Intangible assets, net | ||||||||
| Value added tax receivable | ||||||||
| Note receivable | ||||||||
| Total Non-current Assets | ||||||||
| Total Assets | ||||||||
| LIABILITIES AND EQUITY | ||||||||
| Current Liabilities | ||||||||
| Short-term bank loans | ||||||||
| Account payable | ||||||||
| Payable to related party | ||||||||
| Accrued expenses and other liabilities | ||||||||
| Deferred income | ||||||||
| Total Current Liabilities | ||||||||
| Long-term payable | ||||||||
| Total Liabilities | ||||||||
| Commitments and Contingencies | ||||||||
| Shareholders' Equity (Deficit) | ||||||||
| Common stock, $ par value, authorized, issued and outstanding as of September 30, 2024 and December 31, 2023, respectively. | ||||||||
| Additional paid in capital | ||||||||
| Accumulated comprehensive income (loss) | ( | ) | ( | ) | ||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Equity Attributable to stockholders of ESG Inc. | ||||||||
| Equity attributable to noncontrolling interest | ||||||||
| Total Equity | ||||||||
| Total Liabilities and Stockholders' Equity | ||||||||
The accompanying notes are an integral part of these consolidated financial statements.
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ESG INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(Unaudited)
| For the three months ended | For the nine months ended | |||||||||||||||
| September 30, 2024 | September 30, 2023 | September 30, 2024 | September 30, 2023 | |||||||||||||
| Revenues | ||||||||||||||||
| Cost of goods sold | ||||||||||||||||
| Gross Profit | ||||||||||||||||
| Research and development cost | ||||||||||||||||
| Selling expenses | ||||||||||||||||
| General and administrative expense | ||||||||||||||||
| Operating Income | ( | ) | ( | ) | ||||||||||||
| Interest (expense) | ( | ) | ( | ) | ( | ) | ||||||||||
| Other Income (loss) | ( | ) | ( | ) | ||||||||||||
| Income (loss) before Income Taxes | ( | ) | ( | ) | ( | ) | ||||||||||
| Income taxes | ||||||||||||||||
| Consolidated net Income (loss) | ( | ) | ( | ) | ( | ) | ||||||||||
| Less: Net income (loss) attributable to noncontrolling interest | ( | ) | ( | ) | ||||||||||||
| Net Income (Loss) Attributable to Shareholders of ESG Inc. | ( | ) | ( | ) | ||||||||||||
| Other comprehensive items | ||||||||||||||||
| Foreign currency translation gain (loss) attributable to ESG Inc. | ( | ) | ( | ) | ( | ) | ||||||||||
| Foreign currency translation gain (loss) attributable to noncontrolling interest | ( | ) | ( | ) | ( | ) | ||||||||||
| Total comprehensive income (loss) attributable to noncontrolling interest | ( | ) | ( | ) | ( | ) | ||||||||||
| Total comprehensive Income (loss) Attributable to Shareholders of ESG Inc. | ( | ) | ( | ) | ( | ) | ||||||||||
| Net income loss per share - basic and diluted | ) | ) | ) | |||||||||||||
| Weighted average shares outstanding - basic and diluted | ||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
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ESG INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(Unaudited)
| Common stock | Additional paid aid-in | Accumulated income | Accumulated other comprehensive | Total Company's | Noncontrolling | |||||||||||||||||||||||||||
| Share | Amount | capital | (deficit) | Income | equity | interest | Total | |||||||||||||||||||||||||
| Balance at December 31, 2023 | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | $ | |||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||
| Foreign currency translation adjustment | - | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||
| Balance at March 31, 2024 | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Net income | - | |||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | - | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||
| Balance at June 30, 2024 | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Net income (loss) | - | ( | ) | ( | ) | |||||||||||||||||||||||||||
| Foreign currency translation adjustment | - | |||||||||||||||||||||||||||||||
| Balance at September 30, 2024 | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | $ | |||||||||||||||||||||
| Balance at December 31, 2022 | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||
| Foreign currency translation adjustment | - | |||||||||||||||||||||||||||||||
| Balance at March 31, 2023 | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Net income | - | |||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | - | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||
| Balance at June 30, 2023 | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Net income | - | |||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | - | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||
| Balance at September 30, 2023 | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | $ | |||||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
-3-
ESG INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
（Unaudited)
| For The Nine Months Ended | ||||||||
| September 30, 2024 | September 30, 2023 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile loss to net cash used in operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Loss on obsolete inventories | ||||||||
| Changes in assets and liabilities: | ||||||||
| Accounts receivable and other receivable | ( | ) | ( | ) | ||||
| Advance to suppliers | ( | ) | ( | ) | ||||
| Inventory | ( | ) | ||||||
| Value added tax receivable | ( | ) | ||||||
| Note receivable | ||||||||
| Accounts payable | ||||||||
| Payable to related party | ( | ) | ||||||
| Accrued expenses and other payables | ( | ) | ||||||
| Deferred income | ( | ) | ( | ) | ||||
| Net cash provided by operating activities | ||||||||
| Cash flows from investing activities: | ||||||||
| Acquisition of fixed assets | ( | ) | ||||||
| Net cash used in investing activities | ( | ) | ||||||
| Cash flows from financing activities: | ||||||||
| Proceeds from loans | ||||||||
| Payment of debt | ( | ) | ( | ) | ||||
| Net cash used in financing activities | ( | ) | ( | ) | ||||
| Effect of exchange rate changes on cash | ( | ) | ( | ) | ||||
| Net increase (decrease) in cash | ( | ) | ||||||
| Cash, beginning of the period | ||||||||
| Cash, end of the period | $ | $ | ||||||
| Supplemental disclosures of cash flow information: | ||||||||
| Cash paid for interest | $ | $ | ||||||
| Cash paid for income tax | $ | $ | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
-4-
ESG INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2024
(Unaudited)
NOTE 1- ORGANIZATION AND DESCRIPTION OF BUSINESS
ESG Inc. (“ESG”) was incorporated in July 2021 as a Nevada corporation and headquartered at Kennett Square, PA, USA. ESG is a holding company without operations and is engaged in food production and distribution through its subsidiaries.
ESG incorporated ESG China Limited as ESG’s wholly owned subsidiary
in Hong Kong on November 18, 2022. ESG China Limited incorporated Hainan ESG Technology Co., Ltd., a China corporation (“Hainan
ESG”) with
On September 28, 2023, ESG entered into a share exchange agreement
with Funan Allied United Farmer Products Co., Ltd., a China corporation incorporated in May 2017 (“AUFP”), and 74.52% of shareholders
of AUFP, (each a “Shareholder,” and collectively, the “Shareholders”), through Hainan ESG. Pursuant to such agreement,
the Shareholders exchanged their equity of AUFP to Hainan ESG for shares of common stock of ESG, and ESG has agreed to offer of
ESG shares. Following this transaction, AUFP became a
AUFP incorporated Anhui Allied United Mushroom Technology Co., Ltd. (“AUMT”) in China in March 2018 to manufacture white button mushroom compost while AUFP incorporated Anhui Allied United Mushroom Co., Ltd. (“AUM”) in China in April 2018 to grow fresh white button mushrooms and provide mushroom growing management services. AUFP, AUMT, and AUM are operating entities in China.
Prior to the share exchange, Mr. Zhi Yang owned
Since the Company is effectively controlled by the same controlling shareholders before and after the share exchange agreement, it is considered under common control. Therefore the above mentioned transactions were accounted for as a recapitalization. The reorganization has been accounted for at historical cost and prepared on the basis as if the aforementioned transactions had become effective as of the beginning of the first period presented in the accompanying financial statements of the Company.
Our operating subsidiaries are involved in direct white button mushroom composting, growing, food production, distribution, as well as import and export of Phase III compost and food to strategize. With the core business philosophy to develop and operate sustainable and technology-driven food businesses consistent with the principles of Environmental, Sustainable, and Governance investing, we believe that the growing global demand for sustainable high quality food presents a unique opportunity to operate companies engaged in this critical area that is being paid increasing attention by global investors.
-5-
NOTE 2- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation and consolidation
The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and include all adjustments necessary for the fair presentation of the Company’s financial position for the periods presented.
The consolidated financial statements of the Company include the financial
statements of the Company and its
Interim Financial Information
The unaudited financial statements have been prepared in accordance with generally accepted accounting principles (GAAP) applicable to interim financial information and the requirements of Form 10-Q and Rule 8-03 of Regulation S-X of the Securities and Exchange Commission. Accordingly, they do not include all of the information and disclosure required by accounting principles generally accepted in the United States of America for complete financial statements. Interim results are not necessarily indicative of results for a full year. In the opinion of management, all adjustments considered necessary for a fair presentation of the financial position and the results of operations and cash flows for the interim periods have been included. These financial statements should be read in conjunction with the audited financial statements as of and for the year ended December 31, 2023, as not all disclosures required by generally accepted accounting principles for annual financial statements are presented. The interim financial statements follow the same accounting policies and methods of computations as the audited financial statements as of and for the year ended December 31, 2023.
Use of estimates
In preparing the consolidated financial statements in conformity with U.S. 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 consolidated financial statements, as well as the reported amounts of revenues and expenses during the reporting year. Significant items subject to such estimates and assumptions include allowance for doubtful accounts, advances to suppliers, valuation of inventories, useful lives of property, plant, and equipment, and intangible assets.
Cash and cash equivalent
Cash and cash equivalent includes demand deposits with financial institutions that are highly liquid in nature.
Account receivable
Accounts receivable are presented net of an allowance for
doubtful accounts. The Company maintains an allowance for doubtful accounts for estimated losses. The Company reviews its accounts
receivable on a periodic basis and makes general and specific allowance when there is doubt as to the collectability of individual
balances. In evaluating the collectability of individual receivable balances, the Company considers many factors, including the age
of the balance, customer’s payment history, its current creditworthiness, and current economic trends. Accounts are written
off after efforts at collection prove unsuccessful. As of September 30, 2024 and December 31, 2023, allowance for doubtful accounts
was nil
Advances to suppliers, net
Advances to suppliers represent prepayments made to ensure continuous
high-quality supplies and favorable purchase prices for premium quality. These advances are settled upon suppliers delivering raw materials
to the Company when the transfer of ownership occurs. The Company review its advances to suppliers on a periodic basis and makes general
and specific allowances when there is doubt as to the ability of a supplier to provide supplies to the Company or refund an advance. As
of September 30, 2024 and December 31, 2023, advance to suppliers was $
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Inventory
Inventory is comprised primarily of raw materials, work-in-progress and finished goods. The value of inventory is determined using the weighted average method. The Company periodically estimates an inventory allowance for estimated unmarketable inventories when necessary. Inventory amounts are reported in net of allowances.
Property, plant and equipment, net
Property, plant and equipment are stated at cost, less accumulated
depreciation. Major repair and improvements that significantly extend original useful lives or improve productivity are capitalized and
depreciated over the period benefited. Repair and maintenance costs are expensed as incurred. Depreciation is recorded principally by
the straight-line method over the estimated useful lives of our property, plant and equipment which generally have the following ranges:
buildings and improvements:
Intangible assets, net
Intangible assets with finite lives are amortized using the straight-line method over their estimated period of benefit. Evaluation of the recoverability of intangible assets is made to take into account events or circumstances that warrant revise estimates of useful lives or that indicate that impairment exists. All of the Company’s intangible assets are subject to amortization. No impairment of intangible assets has been identified as of the balance sheet date.
Intangible assets consist of land use rights, patent and purchased
software. Intangible assets are stated at cost less accumulated amortization. The land purchased for industrial use has the right of use
for
Revenue recognition
The Company follows Accounting Standards Codification Topic 606, Revenue from Contracts with Customers (ASC 606).
FASB ASC Topic 606 requires the use of a new five-step model to recognize revenue from customer contracts. The five-step model requires the Company (i) identify the contract with the customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, including variable consideration to the extent that it is probable that a significant future reversal will not occur, (iv) allocate the transaction price to the respective performance obligations in the contract, and (v) recognize revenue when (or as) the Company satisfies each performance obligation.
Revenue is generated by selling fresh mushrooms to authorized distributors and wholesalers mainly in Yangzi River Delta. Contracts were signed after the communication of the price and quantities with customers. Our sales terms generally do not allow to sell without a deposit being made and do not allow for a right of return. Usually, the deposit from the customer equals or more than the sales amount. Control of the mushrooms is transferred upon receipt or loaded in the truck of carriers at our warehouse, as determined by the specific terms of the contract. Upon transfer of control to the customer, which completes our performance obligation, revenue is recognized.
Customer concentration
| Schedule customer concentration | ||||||||||||||||
| For the Three Months Ended September 30, (Unaudited) | For the Nine Months Ended September 30, (Unaudited) | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Customer A | % | % | % | % | ||||||||||||
| Customer B | % | % | ||||||||||||||
| Customer C | % | % | ||||||||||||||
| Customer D | % | % | ||||||||||||||
| Customer E | % | % | ||||||||||||||
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Deferred income
Government grants (sometimes referred to as subsidies, subventions,
etc.) are as assistance by government in the form of transfers of resources to an entity in return for past or future compliance with
certain conditions relating to the operating activities of the entity. Deferred income consists primarily of government grants related
to depreciable assets. Government grants received relating to depreciable assets are recorded as deferred income and recognized in over
the life of the related assets. Company records income when receiving a grant which constitutes compensation for expenses or losses already
incurred or for the purpose of giving immediate financial support to the entity with no future related costs. As of September 30, 2024
and December 31, 2023, deferred income was $
Research and development expenses
Research and development expenses are expensed in the period when incurred.
These costs primarily consist of cost of materials used, salaries paid for the Company’s development department, and fees paid to
the third parties. The research and development expenses were $
Noncontrolling interests
The Company follows FASB ASC Topic 810, “Consolidation,” governing the accounting for and reporting of noncontrolling interests (“NCIs”) in partially owned consolidated subsidiaries and the loss of control of subsidiaries. Certain provisions of this standard indicate, among other things, that NCI (previously referred to as minority interests) be treated as a separate component of equity, not as a liability, that increases and decreases in the parent’s ownership interest that leave control intact be treated as equity transactions rather than as step acquisitions or dilution gains or losses, and that losses of a partially-owned consolidated subsidiary be allocated to non-controlling interests even when such allocation might result in a deficit balance.
The net income (loss) attributed to NCI was separately designated in the accompanying statements of operations and comprehensive income (loss). Losses attributable to NCI in a subsidiary may exceed a non-controlling interest’s interests in the subsidiary’s equity. The excess attributable to NCIs is attributed to those interests. NCIs shall continue to be attributed their share of losses even if that attribution results in a deficit NCI balance.
AUFP and its subsidiaries, AUM and AUMT were
Foreign currency translation and comprehensive income (loss)
The accounts of the Company’s Chinese entities are maintained in Chinese Yuan (“RMB”) and the accounts of the U.S. parent company are maintained in United States dollar (“USD”). The accounts of the Chinese entities were translated into USD in accordance with FASB ASC Topic 830 “Foreign Currency Matters.” All assets and liabilities were translated at the exchange rate on the balance sheet date; stockholders’ equity is translated at historical rates and the statements of operations and cash flows are translated at the weighted average exchange rate for the period. The resulting translation adjustments are reported under other comprehensive income (loss) in accordance with FASB ASC Topic 220, “Comprehensive Income.” Gains and losses resulting from foreign currency transactions are reflected in the statements of operations.
The Company follows FASB ASC Topic 220-10, “Comprehensive Income (loss).” Comprehensive income (loss) comprises net income (loss) and all changes to the statements of changes in stockholders’ equity, except those due to investments by stockholders, changes in additional paid-in capital and distributions to stockholders.
The exchange rates used to translate amounts in RMB to USD for the purposes of preparing the CFS were as follows:
| Schedule of foreign currency exchange rates | ||||||||||||
| September 30, 2024 | September 30, 2023 | December 31, 2023 | ||||||||||
| Period-end date USD: RMB exchange rate | ||||||||||||
| Average USD for the reporting period: RMB exchange rate | ||||||||||||
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Income taxes
The Company uses the asset and liability method of accounting for income taxes in accordance with FASB ASC Topic 740, “Income Taxes.” Under this method, income tax expense is recognized for the amount of: (i) tax 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 year’s net operating losses carried forward.
The Company accounts for income for income taxes in accordance with ASC 740, Income Taxes. ASC 740 requires an asset and liability approach
for financial accounting and reporting for income taxes and allows recognition and measurement of deferred tax assets based upon the likelihood
of realization of tax benefits in future years. Under the asset and liability approach, deferred taxes are provided for the net effects
of temporary difference between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for
income tax purposes. A valuation allowance is provided for deferred tax assets if it is more likely than not these items will either expire
before the Company is able to realize their benefits, or not be deductible in the future.
Contingencies
Certain conditions may exist as of the date the consolidated financial statements (“CFS”) are issued, which may result in a loss to the Company but which will only be resolved when one or more future events occur or fail to occur. In accordance with ASC 450, the Company’s management and legal counsel assess such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or unasserted claims that may result in such proceedings, the Company’s legal counsel evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought. If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, the estimated liability would be accrued in the Company’s CFS.
If the assessment indicates that a potential material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, the nature of the contingent liability, together with an estimate of the range of possible loss if determinable and material, would be disclosed.
NOTE 3- GOING CONCERN
The accompanying consolidated financial statements were prepared assuming
the Company will continue as a going concern, which contemplates continuity of operations, realization of assets, and liquidation of liabilities
in the normal course of business. At September 30, 2024, the Company had negative working capital of $
To enhance our ability to continue to operate, we are dedicating resources to generate recurring revenues and sustainable operating cash flows. Currently, we are increasing our production capacity to generate more revenues and decrease unit cost.
NOTE 4- ACCOUNT RECEIVABLE AND OTHER RECEIVABLES
Account receivable and other receivable consisted of the following:
| Schedule of foreign currency exchange rates | ||||||||
September 30, 2024 (Unaudited) | December 31, 2023 | |||||||
| Accounts receivable | $ | $ | ||||||
| Other receivable | ||||||||
| Total | $ | $ | ||||||
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NOTE 5- PROPERTY, PLANT AND EQUIPMENT
The following table summarizes our property, plant and equipment:
| Schedule of property and equipment | ||||||||
September 30, 2024 (Unaudited) | December 31, 2023 | |||||||
| Buildings and improvements | $ | $ | ||||||
| Machinery, equipment and vehicle fleet | ||||||||
| Construction in progress | ||||||||
| Property, plant and equipment - cost | ||||||||
| Less: Accumulated depreciation | ( | ) | ( | ) | ||||
| Property, plant and equipment - net | $ | $ | ||||||
For the three months ended September 30, 2024 and 2023, depreciation
expenses were $
NOTE 6- INVENTORIES
Inventories consisted of the following:
| Schedule of inventories | ||||||||
| September 30, | ||||||||
| 2024 | December 31, | |||||||
| (Unaudited) | 2023 | |||||||
| Raw materials | $ | $ | ||||||
| Finished goods | ||||||||
| Work in progress - compost | ||||||||
| - growing mushrooms | ||||||||
| Total | $ | $ | ||||||
NOTE 7- INTANGIBLE ASSETS
Intangible assets are stated at cost or acquisition-date fair value less accumulated amortization and consist of the following:
| Schedule of intangible assets | ||||||||
September 30, (Unaudited) | December 31, 2023 | |||||||
| Land use right | $ | $ | ||||||
| Software | ||||||||
| Patent | ||||||||
| Subtotal | ||||||||
| Less: Accumulated amortization | ( | ) | ( | ) | ||||
| Total | $ | $ | ||||||
Amortization expenses were $
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Estimated future amortization expense is as follows as of September 30, 2024:
| Schedule of estimated future amortization expense | ||||
| Years ending December 31, | Amortization expense | |||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
| Thereafter | ||||
| Total | ||||
NOTE 8- BANK LOANS
Short-term bank loans consisted of the following:
| Schedule of short-term bank loans | ||||||||||||||||||||||||
September 30, 2024 (unaudited) | Interest rate | Due date | December 31, 2023 | Interest rate | Due date | |||||||||||||||||||
| Agricultural Bank of China Funan Branch | $ | % | $ | % | ||||||||||||||||||||
| Anhui Funan Rural Commercial Bank | % | % | ||||||||||||||||||||||
| Anhui Funan Rural Commercial Bank | % | % | ||||||||||||||||||||||
| Anhui Funan Rural Commercial Bank | % | % | ||||||||||||||||||||||
| Industrial and Commercial Bank of China, Funan (1) | % | % | ||||||||||||||||||||||
| Bank of China Funan Branch (2) | % | % | ||||||||||||||||||||||
| Total | $ | - | - | $ | - | - | ||||||||||||||||||
(1) $712,433 and $704,513 of loans from Industrial and Commercial Bank of China, Funan were pledged by fixed assets as of September 30, 2024 and December 31, 2023, respectively.
(2) $1,139,893 and $1,127,220 of loans from Bank of China were pledged by fixed assets as of September 30, 2024 and December 31, 2023, respectively.
| (2) |
NOTE 9- ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities consisted of the following:
| Schedule of accrued expenses and other current liabilities | ||||||||
| September 30, 2024 | December 31, | |||||||
| (Unaudited) | 2023 | |||||||
| Advances from customers | $ | $ | ||||||
| Salary payable | ||||||||
| Tax payable | ||||||||
| Other payable | ||||||||
| Total | $ | $ | ||||||
Other payable was primarily comprised of loans from non-bank institutions
and deposit from customers. Loans included $
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NOTE 10- VALUE ADDED TAX RECEIVABLE
Selling merchandise in China is generally subject to the value-added
tax (“VAT”). The Company and its subsidiaries’ primary operations are classified as agriculture products and its revenue
is exempt from VAT and income tax. The amount of VAT liability is determined by applying the applicable tax rate to the invoiced amount
of goods sold (output VAT) less VAT paid on purchases made with the relevant supporting invoices (input VAT). VAT input was primarily
due to purchase of property, plant and equipment. As of September 30, 2024 and December 31, 2023, VAT input was $
NOTE 11- ASSET ACQUISITION
On May 11, 2021, Anhui Allied United Mushroom Co., Ltd. signed the
Agreement (“Agreement”) with Suhua Yang and Hao Yan, the owners of Funan Zhihua Mushroom Co., Ltd. (“Target Company”).
As the consideration of transferring
NOTE 12- COMMITMENTS AND CONTINGENCIES
Commitments
On January 5, 2022, Funan Modern Recycling Agriculture Investment Co.,
Ltd. (“FMRA”) signed an agreement with AUFP to fund AUFP
Legal contingencies
Management has identified certain legal mattes where we believe an unfavorable outcome is resonably estimated. Management believes that the total liabilities of the Company that may arise as a result of currently pending proceedings will not have a material adverse effect on the Company taken as a whole.
On September 3, 2021, Anhui Daquan Construction Company ("Daquan”)
filed a lawsuit against Funan Zhihua Mushroom Co., Ltd. (a merged company, “Zhihua”) on unpaid contractual price of $
On November 10, 2022, Funan Yuanlangju Construction Co., Ltd. filed
a lawsuit against AUFP for $
On December 2, 2022, Liu Pengpeng filed a lawsuit against AUFP for
$
NOTE 13- OTHER INCOME (LOSS)
Other income (loss) consists of incomes from government grants and losses from obsolete inventory write-offs:
| Schedule of other income loss | ||||||||||||||||
| For the three months ended September 30, (Unaudited) | For the nine months ended September 30, (Unaudited) | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Asset-based grant | $ | $ | ||||||||||||||
| Income-based grant | ||||||||||||||||
| Total income from government grants | ||||||||||||||||
| Loss on obsolete inventory write off | ( | ) | ( | ) | ||||||||||||
| Other income (loss) | $ | ( | ) | $ | ( | ) | ||||||||||
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NOTE 14- INCOME TAXES
The Company recorded no income taxes for the three and nine months
ended September 30, 2024 and 2023. Net income and net loss were not offset among the operating subsidiaries. Net income of $
The following table reconciles the U.S. statutory rates to the Company’s effective tax rate for the three and nine months ended September 30, 2024 and 2023:
| Schedule of effective tax rates | ||||||||
| For the three months ended | ||||||||
September 30, 2024 | September 30, 2023 | |||||||
| (Unaudited) | (Unaudited) | |||||||
| US federal statutory rates | - | % | - | % | ||||
| Tax rate difference between PRC and U.S. | - | % | - | % | ||||
| Effect of income tax exemption on certain income | - | % | - | % | ||||
| Change in valuation allowance | % | % | ||||||
| Effective tax rate | $ | $ | ||||||
| For the nine months ended | ||||||||
September 30, 2024 | September 30, 2023 | |||||||
| (Unaudited) | (Unaudited) | |||||||
| US federal statutory rates | ( | %) | ( | %) | ||||
| Tax rate difference between PRC and U.S. | ( | %) | ( | %) | ||||
| Effect of income tax exemption on certain income | ( | %) | ( | %) | ||||
| Change in valuation allowance | % | % | ||||||
| Effective tax rate | $ | $ | ||||||
The provision for income tax expense (benefit) for the nine months ended September 30, 2024 and 2023 consisted of the following:
| Schedule of income tax expense (benefit) | ||||||||
| For the nine months ended | ||||||||
| September 30, 2024 | September 30, 2023 | |||||||
| (Unaudited) | (Unaudited) | |||||||
| Income tax expense - current | $ | $ | ||||||
| Income tax benefit -deferred | ( | ) | ( | ) | ||||
| Increase in valuation allowance | ||||||||
| Total income tax expense | $ | $ | ||||||
| Schedule of net deferred tax assets | ||||||||
September, 30, 2024 (Unaudited) | December 31, 2023 | |||||||
| Deferred tax asset | ||||||||
| Net operating loss | $ | ( | ) | $ | ( | ) | ||
| Less: valuation allowance | ||||||||
| Net deferred tax asset | $ | $ | ||||||
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NOTE 15- RELATED PARTY TRANSACTION
On October 22, 2022, Mr. Zhi Yang, the Company founder and CEO subscribed million
shares of common stock. Mr. Yang paid $
NOTE 16- EQUITY
The Company authorized shares of common stock at par value of $ and shares of preferred stock at par value $. shares of common stock were issued and outstanding as of September 30, 2024 and December 31, 2023. There were preferred stock were issued as of September 30, 2024 and December 31, 2023.
NOTE 17- SUBSEQUENT EVENTS
The Company has evaluated subsequent events through the filing of this Quarterly Report on Form 10-Q, and determined that there have been no events that have occurred that would require adjustments to our disclosures in the consolidated financial statements
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
OPERATIONS REVIEW
Net Operating Revenues
Three Months Ended September 30, 2024 versus Three Months Ended September 30, 2023
During the three months ended September 30, 2024, net operating revenues were $122,041, compared to net loss of $17,722 during the three months ended September 30, 2023, an increase of $139,763 or 789%.
Nine Months Ended September 30, 2024 versus nine Months Ended September 30, 2023
During the nine months ended September 30 2024, net operating loss was $262,096, compared to $127,150 of net operating income during the nine months ended September 30, 2023, a decrease of $389,246, or 306%.
The decrease was due to the testing of expanded facility. After the expansion of triple capacity is completed, the Company started testing the expanded facility. From late July the expansion operates at 3 times of the capacity in 2023. We passed the testing phase this quarter and We expect the revenue and gross profit margin will increase in the fourth quarter.
Gross Profit Margin
Gross profit margin is a ratio calculated by dividing gross profit by net operating revenues. Our gross profit margin increased to 22.76% for the three months ended September 30, 2024, compared to 80.34% for the three months ended September 30, 2023. Our gross profit margin decreased to 11.94% for the nine months ended September 30, 2024, compared to 24.54% for the nine months ended September 30, 2023. The decrease was primarily due to the testing phase of expansion facility. We expect commodity costs to have a favorable impact on our gross profit margin during the fourth quart of 2024 after the expansion operation testing phases out and reaches its full capacity.
Research and Development Expenses
During the three months ended September 30, 2024, Research and development expenses decreased $8,257, or 5.40%, compared to $416,333 for the three months ended September 30, 2023. During the nine months ended September 30, 2024, Research and development expenses decreased $52,940, or 11.58%, compared to $457,306 for the nine months ended September 30, 2023. The difference was mainly due to the increase of currency exchange rate used to translate financial statements.
Selling, General Administrative Expenses
During the three months ended September, 2024, selling expenses increased $1,029, or 81.45%, compared to $1,263 for the three months ended September 30, 2023. During the three months ended September 30, 2024, general and administrative expenses decreased $40,297, or 14.39%, compared to $279,953 for the three months ended September 30, 2023. During the nine months ended September 30, 2024, selling expenses increased $2,913, or 156%, compared to $1,863, general and administrative expenses decreased $173,193, or 19.77%, compared to $876,271 for the nine months ended September 30, 2023. The decrease was mainly due to the decrease of professional fee and the fluctuation of foreign currency exchange rate.
Interest Expense
During the three months ended September 30, 2024, interest expense was decreased $187,933 or 300%, compared to negative $62,533 during the three months ended September 30, 2023. Negative $62,533 of interest expense was due to the interest forgiveness by the loaner during the three months ended September 30, 2023. During the nine months ended September 30, 2024, interest expenses were decreased $119,851, or 41.74%, compared to $287,134 during the nine months ended September 30, 2023. The decrease was primarily due to the impact of the reduce of loans and interest forgiveness.
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Other income (loss)
During the three months ended September 30, 2024, other loss was $180, compared to $29,652 of net income during the three months ended September 30, 2023, a decrease of $29,832, or 101%. During the nine months ended September 30, 2024, other loss was $15,605, compared to $133,180 of net income during the nine months ended September 30, 2023. The decrease was mainly due to $29,246 and $201,480 of raw material write-off during the three and nine months ended September 30, 2024, respectively.
Income Taxes
The Company recorded no income taxes during the three and nine months ended September 30, 2024 and 2023, respectively.
LIQUIDITY, CAPITAL RESOURCES AND FINANCIAL POSITION
Cash Flows from Operating Activities
Net cash provided by operating activities during the nine months ended September 30, 2024 and 2023 was $951,005 and $974,916, respectively, a decrease of $23,911, or 2.45%. This decrease was primarily due to the decrease of revenue.
Cash Flows from Investing Activities
Net cash used in investing activities during the nine months ended September 30, 2024 and 2023 was $385,337 and $0, respectively. The increase was due to the purchase of production machine.
Cash Flows from Financing Activities
Net cash used in financing activities during the nine months ended September 30, 2024 and 2023 was $42,746 and $710,969, respectively. The Company made debt payment of $470,206 and borrowed $427,460 during the nine months ended September 30, 2024. The Company paid off $710,969 of debt during the nine months ended September 30, 2023.
Off-Balance Sheet Arrangements
There were no off-balance sheet arrangements as of September 30, 2024 and 2023, or that in the opinion of management that are likely to have, a current or future material effect on our financial condition or results of operations.
Contractual Obligations
None.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
As a “smaller reporting company” as defined by Item 10 of Regulation S-K, the Company is not required to provide information required by this Item.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
In connection with the preparation of this quarterly report, an evaluation was carried out by the Company’s management, with the participation of the principal executive officer, of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act (“Exchange Act”) as of September 30, 2024. Disclosure controls and procedures are designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the Commission’s rules and forms, and that such information is accumulated and communicated to management, including the principal executive officer, to allow timely decisions regarding required disclosures.
Based on that evaluation, the Company’s management concluded, as of the end of the period covered by this report, that the Company’s disclosure controls and procedures were not effective in recording, processing, summarizing, and reporting information required to be disclosed, within the time periods specified in the Commission’s rules and forms, and that such information was not accumulated and communicated to management, including the principal executive officer and the principal financial officer, to allow timely decisions regarding required disclosures.
Change in Internal Control over Financial Reporting
During the three months ended September 30, 2024, there have been no changes in internal control over financial reporting that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.
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PART II. Other Information
Item 1. Legal Proceedings
Management has identified certain legal matters where we believe an unfavorable outcome is reasonably estimated. Management believes that the total liabilities of the Company that may arise as a result of currently pending proceedings will not have a material adverse effect on the Company, taken as a whole.
On September 3, 2021, Anhui Daquan Construction Company ("Daquan”) filed a lawsuit against Funan Zhihua Mushroom Co., Ltd. (a merged company, “Zhihua”) on unpaid contractual price of $48,744. Zhihua has a dispute on construction quality which did not meet the requirements specified in the contract and filed a lawsuit for $26,095 of damages. On June 6, 2023, Daquan paid $26,095 to Zhihua to settle the lawsuit.
On November 10, 2022, Funan Yuanlangju Construction Co., Ltd. filed a lawsuit against AUFP for $60,147. The plaintiff sold construction materials to AUFP. AUFP had a dispute with the plaintiff over the amount of the sale. On July 7, 2023, the two parties reached a settlement that AUFP paid the plaintiff $50,740 in 2023.
On December 2, 2022, Liu Pengpeng filed a lawsuit against AUFP for $66,066. Liu Pengpeng signed a contract with AUFP on installation work and drainage construction. Liu Pengpeng breached the contract and failed to complete the construction work on time which caused a loss to AUFP. On July 7, 2023, Liu Pengpeng withdrew the lawsuit. On November 20, 2023, Liu Pengpeng filed a lawsuit for the same claim. The lawsuit was settled in September, 2024.
Item 1A. Risk Factors
As a “smaller reporting company” as defined by Item 10 of Regulation S-K, the Company is not required to provide information required by this Item.
Item 2. Unregistered Sale of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable to our Company.
Item 5. Other Information
Item 6. Exhibits
The following exhibits are included as part of this report by reference:
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| ESG INC. | ||
| Date: November 13, 2024 | By: | /s/ Zhi Yang |
| Name: | Zhi Yang | |
| Title: | President and CEO | |
| (Principal Executive, Financial and Accounting Officer) | ||
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EXHIBIT 31.1
Certification of the Company’s Principal Executive Officer and Principal Financial Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
and Securities and Exchange Commission Release 34-46427
I, Zhi Yang, certify that:
| 1. | I have reviewed this report on Form 10-Q of ESG Inc.; |
| 2. | Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods present in this annual report; |
| 4. | As the registrant’s sole certifying officer, I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | As the registrant’s sole certifying officer, I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: November 13, 2024
| /s/ Zhi Yang | |
| Zhi Yang | |
| President and CEO | |
| (Principal Executive Officer, Principal Financial Officer, and Principal Accounting Officer) |
EXHIBIT 32.1
Certification of Principal Executive Officer and Principal Financial Officer
Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Quarterly Report of ESG Inc. (the “Company”) on Form 10-Q for the period ended September 30, 2024 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Zhi Yang, certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge and belief:
| 1. | The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
| 2. | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Date: November 13, 2024
| /s/ Zhi Yang | |
| Zhi Yang | |
| President and CEO | |
| (Principal Executive Officer, Principal | |
| Financial Officer, and Principal Accounting Officer) |