UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form
For the quarterly period ended
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ESG INC.
QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS1
| 1 | Printer to update |
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
ESG INC.
Consolidated Balance Sheet
(Unaudited)
| June 30, | December 31, | |||||||
| 2025 | 2024 | |||||||
| Assets | ||||||||
| Current Assets | ||||||||
| Cash | $ | $ | ||||||
| Restricted cash | ||||||||
| Accounts receivable | ||||||||
| Inventories | ||||||||
| Other receivable | ||||||||
| Advance to suppliers | ||||||||
| Total Current Assets | ||||||||
| Property, plant and equipment, net | ||||||||
| Intangible assets, net | ||||||||
| Value added tax receivable | ||||||||
| Total Non-current Assets | ||||||||
| Total Assets | $ | $ | ||||||
| Liabilities and Shareholders' Equity | ||||||||
| Current Liabilities | ||||||||
| Short-term bank loans | $ | $ | ||||||
| Account payable | ||||||||
| Accrued expenses and other current liabilities | ||||||||
| Deferred income, current | ||||||||
| Total Current liabilities | ||||||||
| Bank loans | ||||||||
| Deferred income | ||||||||
| Long-term payable | ||||||||
| Total Non-current liabilities | ||||||||
| Total Liabilities | ||||||||
| Commitments and Contingencies | ||||||||
| Shareholders' Equity | ||||||||
| Common stock | ||||||||
| Additional paid in capital | ||||||||
| Accumulated comprehensive income (loss) | ( | ) | ( | ) | ||||
| Accumulated deficit | ( | ) | ||||||
| Total Company stockholders' Equity | ||||||||
| Noncontrolling interest | ||||||||
| Total Equity | ||||||||
| Total Liabilities and Stockholders' Equity | $ | $ | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
1
ESG INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(Unaudited)
| Three Months Ended | Six Months Ended | |||||||||||||||
| June 30, 2025 | June 30, 2024 | June 30, 2025 | June 30, 2024 | |||||||||||||
| Revenues | $ | $ | $ | $ | ||||||||||||
| Cost of goods sold | ||||||||||||||||
| Gross profit | ||||||||||||||||
| Operating expenses | - | - | ||||||||||||||
| Selling, General and administrative expense | ||||||||||||||||
| Research and development cost | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Income (Loss) from operations | ( | ) | ||||||||||||||
| Non-operating income (expense) | ||||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other Income | ( | ) | ||||||||||||||
| Total non-operating income (expenses), net | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Income (Loss) before income taxes | ( | ) | ||||||||||||||
| Income taxes | ||||||||||||||||
| Net income (loss) | ( | ) | ||||||||||||||
| Less: income (loss) attributable to noncontrolling interest | ( | ) | ||||||||||||||
| Net income (loss) to ESG Inc. | $ | $ | $ | $ | ( | ) | ||||||||||
| Other comprehensive item | ||||||||||||||||
| Foreign currency translation gain (loss) attributable to the Company | ( | ) | ( | ) | ||||||||||||
| Foreign currency translation gain (loss) attributable to noncontrolling interest | ( | ) | ( | ) | ||||||||||||
| Comprehensive income (loss) attributable to the Company | ( | ) | ||||||||||||||
| Comprehensive income (loss) attributable to noncontrolling interest | ( | ) | ||||||||||||||
| 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, 2024 | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | $ | |||||||||||||||||||||
| Net income | - | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||
| Foreign currency translation adjustment | - | |||||||||||||||||||||||||||||||
| Balance at March 31, 2025 | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | $ | |||||||||||||||||||||
| Net income | ||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | $ | $ | $ | $ | ||||||||||||||||||||||||||||
| Balance at June 30, 2025 | $ | $ | ( | ) | ||||||||||||||||||||||||||||
| Balance at December 31, 2023 | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | $ | |||||||||||||||||||||
| Net income | - | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||
| Foreign currency translation adjustment | - | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||
| Balance at March 31, 2024 | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | $ | |||||||||||||||||||||
| Net income | $ | |||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||
| Balance at June 30, 2024 | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | $ | |||||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
3
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| For the Six Months Ended | ||||||||
| June 30, 2025 | June 30, 2024 | |||||||
| Cash flows from operating activities: | ||||||||
| Net income (loss) | $ | $ | ( | ) | ||||
| Adjustments to reconcile loss to net cash used in operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Changes in assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | ( | ) | ||||
| Inventories | ( | ) | ||||||
| Accounts payables | ( | ) | ||||||
| Other current and non-current liabilities | ( | ) | ||||||
| Net cash provided by (used in) 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 loans payable | ( | ) | ( | ) | ||||
| proceeds from non-bank loans | ||||||||
| Net cash provided by (used in) financing activities | ( | ) | ||||||
| Effect of exchange rate changes on cash | ||||||||
| Net increase (decrease) in cash | ( | ) | ( | ) | ||||
| Cash, beginning of year | ||||||||
| Cash, end of year | $ | $ | ||||||
| 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.
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ESG INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 20252
(Unaudited)
Note 1 – Summary of Significant Accounting Policies
Basis of Presentation and Preparation
The consolidated financial statements include the accounts of ESG Inc. and its wholly owned subsidiaries (collectively “ESG” or the “Company”). In the opinion of the Company’s management, the condensed consolidated financial statements reflect all adjustments, which are normal and recurring in nature, necessary for fair financial statement presentation. The preparation of these condensed consolidated financial statements and accompanying notes in conformity with U.S. generally accepted accounting principles (“GAAP”) requires the use of management estimates. These consolidated financial statements and accompanying notes should be read in conjunction with the Company’s annual consolidated financial statements and accompanying notes included in its Annual Report on Form 10-K for the fiscal year ended December 31, 2024 (the “2024 Form 10-K”).
Note 2 – 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. As of June 30, 2025, the Company had limited cash and working capital deficiency of $
The working capital deficiency was primarily caused by bank
loans and payables. The bank loans had total balance of $
Note 3 – Revenue
Net sales disaggregated by significant products for the three and six months ended June 30, 2025 and 2024 were as follows:
| Three Month Ended | % of Total Revenue | |||||||||||||||||
| Geographic | Products | June 30, 2025 | June 30, 2024 | June 30, 2025 | June 30, 2024 | |||||||||||||
| China, mainland | Compost III | $ | $ | % | % | |||||||||||||
| China, mainland | White Button Mushroom | % | % | |||||||||||||||
| China, Hongkong | Mushroom powder seasonings | % | ||||||||||||||||
| Total | Total net sales | $ | $ | |||||||||||||||
| 1 | Printer to add. |
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| Six Month Ended | % of Total Revenue | |||||||||||||||||
| Geographic | Products | June 30, 2025 | June 30, 2024 | June 30, 2025 | June 30, 2024 | |||||||||||||
| China, mainland | Compost III | $ | $ | % | % | |||||||||||||
| China, mainland | White Button Mushroom | % | % | |||||||||||||||
| China, Hongkong | Mushroom powder seasonings | % | ||||||||||||||||
| Total | Total net sales | $ | $ | |||||||||||||||
Note 4 – Concentration
Customer
The Company had two customers that individually represented 10% or
more of total sales, which accounted for
Accounts Receivables
As of June 30, 2025, the account receivable from
one customer accounted for
Note 5 –Consolidated Financial Statement Details
The following tables show the Company’s consolidated financial statement details as of June 30, 2025 and December 31, 2024:
Inventories
| June 30, 2025 | December 31, 2024 | |||||||
| raw materials | $ | $ | ||||||
| Inventories in transit | ||||||||
| finished goods | ||||||||
| work in progress | ||||||||
| Total inventories | $ | $ | ||||||
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Property, Plant and Equipment, Net
| June 30, 2025 | December 31, 2024 | |||||||
| Gross property, plant and equipment | $ | $ | ||||||
| Accumulated depreciation | ( | ) | ( | ) | ||||
| Total property, plant and equipment, net | $ | $ | ||||||
Accrued expenses and other liabilities
| June 30, 2025 | December 31, 2024 | |||||||
| Advances from customers | $ | $ | ||||||
| Salary payable | ||||||||
| Tax payable | ( | ) | ||||||
| Other payable | ||||||||
| Long-term payable, current portion | ||||||||
| Total | $ | $ | ||||||
Note 6 – Account receivables
As of June 30, 2025 and December 31, 2024, the
accounts receivable were $
Note 7 – Other Payables
Other payable are primary composed of debt with private fund and accrued
interest, deposit and current portion of long term debt. As of June 30, 2025 and December 31, 2024, the Company had outstanding debt with
private fund and institutions recorded as other payables for an aggregate carrying amount of $
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Note 8 – Bank Loans
Short-term bank loans consisted of the following:
| December 31, | 2025 | Interest rate | Due date | 2024 | Interest rate | Due date | ||||||||||||||
| Agricultural Bank of China Funan Branch (1) | % | % | ||||||||||||||||||
| Anhui Funan Rural Commercial Bank (2) | % | % | ||||||||||||||||||
| Anhui Funan Rural Commercial Bank (3) | % | % | ||||||||||||||||||
| Anhui Funan Rural Commercial Bank (4) | % | % | ||||||||||||||||||
| Bank of China Funan Branch (5) | % | % | ||||||||||||||||||
| Total | $ | $ | ||||||||||||||||||
| (1) |
| (2) |
| (3) |
| (4) |
| (5) |
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Note 9 – Income Taxes
The income taxes were zero for the three and six months ended June 30, 2025 and 2024. Compost III and white button mushroom are income tax and VAT tax free products.
Note 10 – Segment Information
The following table shows information by reportable segment for the three and six months ended June 30, 2025 and 2024:
| White button mushroom | Compost III | Mushroom powder seasonings | Corporate | Eliminations | Total | |||||||||||||||||||
| Three Months Ended June 30, 2025 | ||||||||||||||||||||||||
| Net operating revenues: | ||||||||||||||||||||||||
| Third party | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Intersegment | ( | ) | ||||||||||||||||||||||
| Total net operating revenues | ||||||||||||||||||||||||
| Cost of goods sold | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
| Intersegment cost of goods sold | ( | ) | ( | ) | ||||||||||||||||||||
| Total net operating cost | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||
| Selling, general administrative expenses | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||
| Research and development | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||
| Operating income (loss) | ( | ) | ( | ) | ||||||||||||||||||||
| Interest income (expense) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||
| Other income (loss) — net | ||||||||||||||||||||||||
| Income before income taxes | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||
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| White button mushroom | Compost III | Mushroom powder seasonings | Corporate | Eliminations | Total | |||||||||||||||||||
| Six Months Ended June 30, 2025 | ||||||||||||||||||||||||
| Net operating revenues: | ||||||||||||||||||||||||
| Third party | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Intersegment | ( | ) | ||||||||||||||||||||||
| Total net operating revenues | $ | |||||||||||||||||||||||
| Cost of goods sold | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||
| Intersegment cost of goods sold | ( | ) | ( | ) | ||||||||||||||||||||
| Total net operating cost | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||
| Selling, general administrative expenses | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||
| Research and development | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||
| Operating income (loss) | ( | ) | ( | ) | ||||||||||||||||||||
| Interest income (expense) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||
| Other income (loss) — net | ||||||||||||||||||||||||
| Income before income taxes | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||
10
| White button mushroom | Compost III | Mushroom powder seasonings | Corporate | Eliminations | Total | |||||||||||||||||||
| Three Months Ended June 30, 2024 | ||||||||||||||||||||||||
| Net operating revenues: | ||||||||||||||||||||||||
| Third party | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Intersegment | ( | ) | ||||||||||||||||||||||
| Total net operating revenues | ||||||||||||||||||||||||
| Cost of goods sold | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||
| Intersegment cost of goods sold | ( | ) | ||||||||||||||||||||||
| Total net operating cost | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||
| Selling, general administrative expenses | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||
| Research and development | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||
| Operating income (loss) | ( | ) | ( | ) | ||||||||||||||||||||
| Interest income (expense) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||
| Other income (loss) — net | ( | ) | ||||||||||||||||||||||
| Income before income taxes | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | $ | $ | ||||||||||||
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| White button mushroom | Compost III | Mushroom powder seasonings | Corporate | Eliminations | Total | |||||||||||||||||||
| Six Months Ended June 30, 2024 | ||||||||||||||||||||||||
| Net operating revenues: | ||||||||||||||||||||||||
| Third party | $ | $ | $ | $ | $ | - | $ | |||||||||||||||||
| Intersegment | ( | ) | ||||||||||||||||||||||
| Total net operating revenues | ||||||||||||||||||||||||
| Cost of goods sold | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||
| Intersegment cost of goods sold | ( | ) | ||||||||||||||||||||||
| Total net operating cost | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||
| Selling, general administrative expenses | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||
| Research and development | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||
| Operating income (loss) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
| Interest income (expense) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||
| Other income (loss) — net | ( | ) | ( | ) | ||||||||||||||||||||
| Income before income taxes | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||||||
12
Note 11 - Correction of Immaterial Misstatement
During the year ended December 31, 2024, the Company
corrected an error that occurred in 2019. The payment of approximately $420,067 was posted under the wrong supplier account which was
subsequently settled based on a settlement agreement. The Company determined that the prior year financial statements should be corrected,
even though such revision previously was and continues to be immaterial to the prior year financial statements. As a result, the accompanying
consolidated balance sheet for the year ended December 31, 2023 has been corrected for the following: accounts payable decreased from
$1,450,405 to $
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion and analysis of our financial condition and results of operations together with our unaudited consolidated financial statements and the notes thereto included elsewhere in this Quarterly Report on Form 10-Q (this “Form 10-Q”) for the quarterly period ended June 30, 2025, as well as the audited consolidated financial statements and the related notes included in our Annual Report on Form 10-K for the year ended December 31, 2024 filed by the Company with the U.S. Securities and Exchange Commission (the “SEC”) on April 15, 2025 (the “2024 Form 10-K”). Some of the information contained in this discussion and analysis or set forth elsewhere in this Form 10-Q, including information with respect to our plans and strategy for our business and related financing, includes forward-looking statements that involve risks, uncertainties and assumptions. You should read the “Forward-Looking Statements” and “Risk Factors” sections of this Form 10-Q and our 2024 Form 10-K for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements.
Forward-Looking Statements
This Form 10-Q contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. All statements in this report other than statements of historical fact, including statements regarding our business plans and strategies; projections of revenues, expenses, profitability or cash flows; expectations regarding plant expansions, new product development and processing capabilities; the impact of government policies, subsidies or tax incentives; and anticipated benefits of our composting and mushroom-processing initiatives, are forward-looking statements. Words such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “plan,” “project,” “seek,” “target,” “will,” “would” and similar expressions are intended to identify forward-looking statements.
These forward-looking statements are based on management’s current beliefs and assumptions and on information currently available to us, but involve a number of risks and uncertainties, many of which are beyond our control, that could cause actual results to differ materially from those set forth in or implied by such statements. Important factors that could cause actual results to differ include, but are not limited to, the following (see “Risk Factors” in Part II, Item 1A of our 2024 Form 10-K for further discussion):
| · | recent shifts in U.S. and international trade policies—especially those affecting China—may increase tariffs or investment restrictions and adversely impact our supply chain, financing and operating results. |
| · | the impact of contagious-disease outbreaks (e.g., COVID-19 or future epidemics) on our operations, supply chains and customers; |
| · | our dependence on a small number of large distributors and processors in China; |
| · | our ability to comply with PRC food-safety, environmental, composting and export regulations and to maintain all necessary licenses and permits; |
| · | Lack of diversification in our business via a reliance on fresh white button mushrooms and recent processing business; |
| · | changes to PRC or local tax incentives, farming subsidies or agricultural-development plans; |
13
| · | volatility in the cost of substrate materials, energy, labor and transportation; |
| · | our need for and access to additional debt or equity financing on acceptable terms; |
| · | our common shares are currently listed on the OTCMKTS of the OTC Markets Group, Inc. which provides shareholders with limited liquidity due to low trade volume and limits our access to the broader capital markets which may hamper our ability to raise funds and increase share-price volatility. |
| · | delays or cost overruns in facility expansions, equipment installations or scaling of operations; |
| · | losses due to mushroom diseases, pests or system malfunctions in climate-controlled facilities; |
| · | as a closely held corporation, a small number of shareholders control a significant portion of our shares, which may limit trading float and influence governance decisions. |
| · | fluctuations in the exchange rate between the Renminbi and the U.S. dollar and PRC restrictions on currency conversion; |
| · | our ability to protect proprietary growing, processing and composting technologies under PRC IP laws; |
| · | evolving PRC and U.S. data-security and privacy laws, and potential impacts of cybersecurity reviews; |
| · | our dependence on and ability to retain experienced executives and technical staff; |
| · | our capacity to integrate new operations, strengthen controls and maintain quality and safety as we grow; and |
Other risks described in our filings with the SEC, including elsewhere in this Form 10-Q and our 2024 Form 10-K.
Should any of these or other risks materialize, or should any of the underlying assumptions prove incorrect, actual results may differ materially from those expressed in or implied by forward-looking statements. Except as required by law, we undertake no obligation to update or revise these forward-looking statements, whether as a result of new information, future events or otherwise.
Overview
ESG Inc. (“ESG”) was incorporated in July 2021 in the State of Nevada under the name “Plasma Innovative Inc.” (“Plasma”). On November 6, 2023, Plasma Innovative Inc. entered into a share exchange agreement (the “Share Exchange Agreement”) with ESG Inc. (“ESGI”), a Nevada corporation, and the shareholders of ESGI (the “ESGI Shareholders”), whereby One Hundred Percent (100%) of the ownership interest of ESGI was exchanged for 10,432,800 shares of common stock of Plasma issued to the ESGI Shareholders. On November 22, 2023, Plasma Innovative Inc. filed Articles of Merger with the State of Nevada to merge ESG Inc. into Plasma Innovative Inc. Plasma Innovative Inc. was the surviving entity with its name changed into ESG Inc.
ESG is a Nevada holding company, headquartered in Kennett Square, Pennsylvania. Through the deep agricultural and food-industry experience of its management team, ESG develops and operates sustainable, plant-based food-ingredient and production businesses, initially focusing on high-quality mushroom composting, cultivation and processing with plans to expand into broader food-related ventures.
At the top of its corporate structure, ESG holds its Chinese operations through two intermediate entities—ESG China Limited in Hong Kong and Hainan ESG Technology Co., Ltd. (“Hainan ESG”) in the PRC. On September 28, 2023, Hainan ESG acquired a 74.52% equity interest in Funan Allied United Farmer Products Co., Ltd. (“AUFP”) via a share-exchange transaction. AUFP in turn directly owns two Chinese operating subsidiaries:
| · | Anhui Allied United Mushroom Technology Co., Ltd. (“AUMT”) – manufactures Phase III compost using locally sourced straw and manure, with capacity of up to 90,000 tons per year. |
| · | Anhui Allied United Mushroom Co., Ltd. (“AUM”) – operates mushroom-growing facilities covering roughly 335,000 sq. ft., producing up to 20 million pounds of fresh white button mushrooms annually. |
All of ESG’s operations are conducted through these wholly-foreign-owned entities in China (including a WFOE structure), each duly organized under PRC law and holding all required governmental authorizations. The Company exercises full managerial control over its subsidiaries and complies with applicable overseas-listing filing requirements under CSRC Trial Measures and related PRC regulations.
Leveraging its vertically integrated platform, ESG combines advanced composting technology, climate-controlled cultivation and emerging processing capabilities—such as the launch of dried mushroom seasoning powder for export—to meet growing global demand for sustainable, plant-based foods. Guided by our principles, the Company aims to deliver high-quality products while driving innovation, environmental stewardship and long-term value creation.
14
During the second quarter, the Company initiated a temporary scale-down of production at its China facility to allow for the installation of new equipment and completion of facility construction necessary to comply with China's Environmental Protection Agency (EPA) regulations in order to integrate operations between the existing facility and the planned expansion. While the scale-down of production reduces revenues in 2025, management expects improved operational efficiency and compliance benefits upon completion.
Available Information
The Company periodically provides certain information to investors on its corporate website, www.esgfood.net. This includes press releases and other information about financial performance, information on environmental, social and governance matters. The information contained on the websites referenced in this Form 10-Q is not incorporated by reference into this filing. Further, the Company’s references to website URLs are intended to be inactive textual references only.
Results of Operations
Comparison of the three months ended June 30, 2025 and 2024
Revenue
For the three months ended June 30, 2025, we had revenues of $2,490,036 and $2,509,781, respectively, a $19,745 or 0.8% decrease. The decrease was primarily due to the reduced input and production of Compost III and fresh mushroom, as efforts were prioritized on building an additional environmental protection facility.
Cost of Goods Sold
For the three months ended June 30, 2025 and 2024 total cost of goods sold was $1,407,670 and $2,077,594, respectively, a decrease of $669,924 or 32.2%. This decrease was primarily due to the reduced input.
Gross Profit
Gross profit for the three months ended June 30, 2025 was $650,179, compared to $432,187 for the three months ended June 30, 2024. The increase was primarily attributable to a favorable increase in our gross margin to 43.5% from 17.2% for the three months ended June 30, 2025 compared to the same period in 2024.
Research and Development Expenses
Research and Development expenses increased $26,357, or 20.5% from $128,696 to $155,053 for the three months ended June 30, 2025 compared to the same period in 2024.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the three months ended June 30, 2025 decreased $26,656, or 18.1%, from $147,590 to $120,934, compared to the same period in 2024. The decrease was driven primarily by reducing labor costs and tightening control over discretionary spending, like replacing non-essential travel with virtual meetings
Interest Expenses
Interest expenses increased $1,803, or 1.4 %, to $133,921 for the three months ended June 30, 2025 compared to the same quarter in 2024 due to the decrease of the currency exchange rate.
Other Income (expenses)
Other income decreased $56,596, or 70.3% from $80,540 to $23,944 for the three months ended June 30, 2025, compared to $80,540 for the same quarter in 2024. The decrease was mainly due to a decrease in the amount of grant received.
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Comparison of the six months ended June 30, 2025 and 2024
Revenue
For the six months ended June 30, 2025, we had revenues of $4,077,180 compared to $4,888,062 for the same quarter in 2024, a $810,882 or 16.6% decrease. The decrease was primarily due to the reduced input and production of Compost III and fresh mushroom, as efforts were prioritized on building an additional environmental protection facility.
Cost of Goods Sold
For the six months ended June 30, 2025 the total cost of goods sold was $2,913,882 compared to the same period in $4,546,508, a decrease of $1,632,626 or 35.9% compared to the same period in 2024. This decrease was primarily due to the reduced production input and efficiency of the production and quality control.
Gross Profit
Gross profit for the six months ended June 30, 2025 was $1,163,298, compared to $341,554 for the six months ended June 30, 2024. The increase was primarily attributable to a favorable increase in our gross margin to 28.5% from 7.0% for the six months ended June 30, 2025.
Research and Development Expenses
Research and Development expenses decreased $38,408, or 14.8% from $259,784 to $221,376 for the six months ended June 30, 2025 compared to the same period in 2024.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the six months ended June 30, 2025 and 2024 decreased $55,642, or 11.9%, from $465,906 to $410,264, for the same period in 2024. The decrease was driven primarily by reducing labor costs and tightening control over discretionary spending, like replacing non-essential travel with virtual meetings.
Interest Expenses
Interest expenses decreased $17,282, or 6.1%, to $264,323 for the six months ended June 30, 2025 compared to $281,605 in the same period in 2024. The decrease was primarily due to the impact of currency exchange rate change.
Other Income (expenses)
Other income increased $168,338, or 1091.4% to $152,914 for the six months ended June 30, 2025, compared to $15,424 of expense for the same period in 2024. The increase was mainly due to the one time written-off of $162,069 in 2024.
Liquidity and Capital Resources
As of June 30, 2024, the Company had limited cash and a working capital deficiency of $5,756,417. These factors, among others, raise the substantial doubt about the Company’s ability to continue as a going concern. The working capital deficiency was primarily caused by short-term bank loans and payables. The bank loans had total balance of $6,002,150, and all the bank loans need to be renewed yearly and classified as current liabilities.
The management is working to finance our cash needs through a combination of equity offerings, debt financings and collaboration agreements. However, there is no assurance that all management’s plans will be successful.
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Cash Flows from Operating Activities
Net cash used in operating activities during the six months ended June 30, 2025 was $1,531,277 and generated $16,808 by operating activities for the six months ended June 30, 2024, a decrease of $1,548,085, or 9210.4%. This increase was primarily due to $3,156,329 of net accounts payable paid.
Cash Flows from Investing Activities
Net cash used in investing activities during the six months ended June 30, 2025 and 2024 was $208,253 compared to $264,441 during the same period in 2024, a decrease of $56,188, or 21.2%. The investing activities were PPE purchases both in 2025 and 2024.
Cash Flows from Financing Activities
Net cash provided in financing activities during the six months ended June 30, 2025 was $1,341,253 and -$56,853 compared to the same period in 2024, an increase of $1,398,106, or 2459.2%. The Company borrowed $1,437,774 and made a payment of $96,521 during the six months ended June 30, 2025. The Company borrowed $41,517 and made a payment of $98,370 toward debt during the six months ended June 30, 2024.
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Off-Balance Sheet Arrangements
There were no off-balance sheet arrangements as of June 30, 2025, 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
Our long-term debt obligations as of June 30, 2025 were $1,031,438. $164,713 was included in accrued expenses and other current labilities as current portion of long-term liabilities and expected to be paid within 12 months. Our long-term debt obligations are related to assets acquisition. Refer to “Note 11 - Assets Acquisition and Long-term Payable” in our Annual Report on Form 10-K filed with the SEC on April 15, 2025.
Recently Issued Accounting Pronouncements
Disaggregation of Income Statement Expenses
In November 2024, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses (“ASU 2024-03”) and in January 2025, the FASB issued ASU No. 2025-01, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Clarifying the Effective Date, which clarified the effective date of ASU 2024-03. ASU 2024-03 will require the Company to disclose the amounts of purchases of inventory, employee compensation, depreciation and intangible asset amortization, as applicable, included in certain expense captions in the Consolidated Statements of Operations, as well as qualitatively describe remaining amounts included in those captions. ASU 2024-03 will also require the Company to disclose both the amount and the Company’s definition of selling expenses. The Company is currently evaluating the effect ASU 2024-03 may have on its consolidated financial statements and related disclosures.
Income Taxes
In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures (“ASU 2023-09”), which will require the Company to disclose specified additional information in its income tax rate reconciliation and provide additional information for reconciling items that meet a quantitative threshold. ASU 2023-09 will also require the Company to disaggregate its income taxes paid disclosure by federal, state and foreign taxes, with further disaggregation required for significant individual jurisdictions. The Company is currently evaluating the effect ASU 2023-09 may have on its consolidated financial statements and related disclosures.
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates, assumptions, and judgments that affect the amounts reported in the financial statements, including the notes thereto. For a description of the Company’s critical accounting policies and estimates, refer to “Part II—Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates” in our Annual Report on Form 10-K filed with the SEC on April 15, 2025. There were no significant changes to our critical accounting policies during the six months ended June 30, 2025.
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 Form 10-Q, 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 June 30, 2025. 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.
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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 six months ended June 30, 2025, 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.
Limitations of the Effectiveness of Internal Controls
A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the internal control system are met. Because of the inherent limitations of any internal control system, no evaluation of controls can provide absolute assurance that all control issues, if any, within a company have been detected.
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PART II. Other Information
Item 1. Legal Proceedings
From time to time, we may be involved in litigation that arises through
the normal course of business. As of the date of this filing, we are not aware of any material legal proceedings to which we or any of
our subsidiaries is a party or to which any of our property is subject, nor are we aware of any such threatened or pending litigation
or any such proceedings known to be contemplated by governmental authorities.
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.
During the second quarter, the Company initiated a temporary scale-down of production at its China facility to allow for the installation of new equipment and completion of facility construction necessary to comply with China's Environmental Protection Agency (EPA) regulations in order to integrate operations between the existing facility and the planned expansion. The Scale-down of production will become the suspension of production if it is necessary by the construction and installation. The suspension is expected to last approximately three months if any, during which time production will be reduced or nothing. While the scale-down and the suspension if any is anticipated to temporarily reduce revenues in 2025, management expects improved operational efficiency and compliance benefits upon completion.
Our decision to temporarily scale down or suspend production if necessary at our China facility to complete China's EPA compliance upgrades and integrate expansion may result in decreased revenue and increased costs in the near term. Delays in construction, equipment Installation, or regulatory approvals could extend the shutdown period, adversely affecting our financial results.
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.
Item 5.
As reported by the Company on a Current Report on Form 8-K filed with the SEC on August 8, 2025, on August 8, 2025, the Company terminated Prager Metis CPAs, LLC (“Former Auditor”) as its independent registered public accounting firm and engaged Boladale Lawal & Co. (“New Auditor”) as its independent registered public accounting firm which was approved by the Company’s Board of Directors.
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Item 6. Exhibits
Item 6. Exhibits.
| * | Filed herewith. |
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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: August [ ], 2025 | By: | /s/ Zhi Yang |
| Name: | Zhi Yang | |
| Title: | President and CEO | |
| (Principal Executive, Financial and Accounting Officer) | ||
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