UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form
For the quarterly period ended
For the transition period from __________ to __________
Commission File Number.
(Exact name of registrant as specified in its charter)
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(State or Other Jurisdiction of
Incorporation or Organization) |
(I.R.S. Employer
Identification No.) |
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| (Address of Principal Executive Offices) | (Zip Code) |
(Registrant’s telephone number, including area code)
| 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
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 | ☐ |
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☒ | Smaller reporting company |
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| Emerging growth company |
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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 November 14, 2025
ESG INC.
QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS 1
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
ESG INC.
Consolidated Balance Sheet
| September 30, | December 31, | |||||||
| 2025 | 2024 | |||||||
| Assets | ||||||||
| Current Assets | ||||||||
| Cash | $ |
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$ |
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| Restricted cash |
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| Accounts receivable |
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| Inventories |
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| Other receivable |
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| Advance to suppliers |
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| Value added tax receivable, current |
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| Total Current Assets |
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| Property, plant and equipment, net |
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| Intangible assets, net |
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| Value added tax receivable |
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| Total Non-current Assets |
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| Total Assets | $ |
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$ |
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| Liabilities and Shareholders' Equity | ||||||||
| Current Liabilities | ||||||||
| Short-term bank loans | $ |
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$ |
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| Convertible notes payable |
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| Account payable |
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| Accrued expenses and other current liabilities |
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| Deferred income, current |
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| Total Current liabilities |
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| Deferred income |
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| Long-term payable |
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| Total Non-current liabilities |
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| Total Liabilities |
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| Commitments and Contingencies | ||||||||
| Shareholders' Equity | ||||||||
| Common stock |
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| Additional paid in capital |
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| Accumulated comprehensive income (loss) |
(
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(
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| Accumulated deficit |
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| Total Company stockholders' Equity |
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| Noncontrolling interest |
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| Total Equity |
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| Total Liabilities and Stockholders' Equity | $ |
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$ |
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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 | Nine Months Ended | |||||||||||||||
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September 30,
2025 |
September 30,
2024 |
September 30,
2025 |
September 30,
2024 |
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| Revenues | $ |
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$ |
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$ |
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$ |
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| Cost of goods sold |
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| Gross profit |
(
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) |
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| Operating expenses | - | - | ||||||||||||||
| Selling, General and administrative expense |
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| Research and development cost |
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| Total operating expenses |
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| Income (Loss) from operations |
(
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) |
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(
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(
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| Non-operating income (expense) | ||||||||||||||||
| Interest expense |
(
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(
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(
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(
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| Other Income |
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(
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(
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| Total non-operating income (expenses), net |
(
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(
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) |
(
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) |
(
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| Income (Loss) before income taxes |
(
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(
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(
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(
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| Income taxes | ||||||||||||||||
| Net income (loss) |
(
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(
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(
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(
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| Less: income (loss) attributable to noncontrolling interest |
(
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(
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(
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(
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| Net income (loss) to ESG Inc. | $ |
(
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) | $ |
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$ |
(
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) | $ |
(
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) | |||||
| Other comprehensive item | ||||||||||||||||
| Foreign currency translation gain (loss) attributable to the Company |
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(
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) | |||||||||||
| Foreign currency translation gain (loss) attributable to noncontrolling interest |
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(
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) | |||||||||||
| Comprehensive income (loss) attributable to the Company |
(
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) |
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(
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(
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| Comprehensive income (loss) attributable to noncontrolling interest |
(
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) |
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(
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(
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| 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 .
2
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 |
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$ |
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$ |
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$ |
(
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) | $ |
(
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) | $ |
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$ |
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$ |
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| Net income | - |
(
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) |
(
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) |
(
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) |
(
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) | |||||||||||||||||||||||
| Foreign currency translation adjustment | - |
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| Balance at March 31, 2025 |
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$ |
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$ |
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$ |
(
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) | $ |
(
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) | $ |
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$ |
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$ |
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| Net income | - |
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| Foreign currency translation adjustment | $ |
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$ |
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$ |
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$ |
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| Balance at June 30, 2025 |
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$ |
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$ |
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(
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| Net income | - |
(
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) |
(
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(
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(
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| Foreign currency translation adjustment | - |
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| Balance at September 30,2025 |
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$ |
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$ |
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(
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) |
(
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) |
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| Balance at December 31, 2023 |
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$ |
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$ |
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$ |
(
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) | $ |
(
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) | $ |
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$ |
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$ |
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| Net income | - |
(
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) |
(
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) |
(
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(
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) | |||||||||||||||||||||||
| Foreign currency translation adjustment | - |
(
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) |
(
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) |
(
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) |
(
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) | |||||||||||||||||||||||
| Balance at March 31, 2024 |
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$ |
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$ |
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$ |
(
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) | $ |
(
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) | $ |
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$ |
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$ |
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| Net income | - | $ |
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| Foreign currency translation adjustment | - |
(
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) |
(
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) |
(
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) |
(
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) | |||||||||||||||||||||||
| Balance at June 30, 2024 |
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$ |
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$ |
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$ |
(
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) | $ |
(
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) | $ |
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$ |
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$ |
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| Net income | - | $ |
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(
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(
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) | ||||||||||||||||||||||||
| Foreign currency translation adjustment | - |
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| Balance at September 30, 2024 |
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$ |
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$ |
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$ |
(
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) | $ |
(
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) | $ |
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$ |
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$ |
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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,
2025 |
September 30,
2024 |
|||||||
| Cash flows from operating activities: | ||||||||
| Net income (loss) | $ |
(
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) | $ |
(
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) | ||
| Adjustments to reconcile loss to net cash used in operating activities: | ||||||||
| Depreciation and amortization |
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| Loss on obsolete inventories |
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| Changes in assets and liabilities: | ||||||||
| Accounts receivable and other receivables |
|
(
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) | |||||
| Inventories |
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(
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) | |||||
| Accounts payables |
(
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) |
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| Other current and non-current liabilities |
(
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) |
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| Net cash provided by operating activities |
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| Cash flows from investing activities: | ||||||||
| Acquisition of fixed assets |
(
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) |
(
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) | ||||
| Net cash used in investing activities |
(
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) |
(
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| Cash flows from financing activities: | ||||||||
| Proceeds from loans |
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| Payment of loans payable |
(
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) |
(
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) | ||||
| Net cash used in financing activities |
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(
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) | |||||
| Effect of exchange rate changes on cash |
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(
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) | |||||
| Net increase (decrease) in cash |
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| Cash, beginning of year |
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| Cash, end of year | $ |
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$ |
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| Supplemental disclosures of cash flow information: | ||||||||
| Cash paid for interest | $ |
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$ |
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| 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, 2025
(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 September 30, 2025, the Company had limited cash and working capital deficiency of $
The working capital deficiency was primarily due to our capital structure.
All our bank loans are short term, and the total balance was $
Note 3 – Revenue
Net sales disaggregated by significant products for the three and nine months ended September 30, 2025 and 2024 were as follows:
| Three Month Ended | % of Total Revenue | |||||||||||||||||
| Geographic | Products |
September 30,
2025 |
September 30,
2024 |
September 30,
2025 |
September 30,
2024 |
|||||||||||||
| China, mainland | Compost III | $ |
|
$ |
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|
% |
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% | |||||||||
| China, mainland | White Button Mushroom |
|
|
|
% |
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% | |||||||||||
| China, Hongkong | Mushroom powder seasonings | |||||||||||||||||
| Total | Total net sales | $ |
|
$ |
|
|||||||||||||
5
| Nine Month Ended | % of Total Revenue | |||||||||||||||||
| Geographic | Products |
September 30,
2025 |
September 30,
2024 |
September 30,
2025 |
September 30,
2024 |
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| China, mainland | Compost III | $ |
|
$ |
|
|
% |
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% | |||||||||
| China, mainland | White Button Mushroom |
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|
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% |
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% | |||||||||||
| China, Hongkong | Mushroom powder seasonings |
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% | ||||||||||||||
| Total | Total net sales | $ |
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$ |
|
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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 September 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 September 30, 2025 and December 31, 2024:
Inventories
|
September 30,
2025 |
December 31,
2024 |
|||||||
| raw materials | $ |
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$ |
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| Inventories in transit |
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| finished goods |
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| work in progress |
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| Total inventories | $ |
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$ |
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||||
6
Property, Plant and Equipment, Net
|
September 30,
2025 |
December 31,
2024 |
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| Gross property, plant and equipment | $ |
|
$ |
|
||||
| Accumulated depreciation |
(
|
) |
(
|
) | ||||
| Total property, plant and equipment, net | $ |
|
$ |
|
||||
Accrued expenses and other liabilities
|
September 30,
2025 |
December 31,
2024 |
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| Advances from customers | $ | $ |
|
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| Salary payable |
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| Tax payable |
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| Other payable |
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| Long-term payable, current portion |
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| Total | $ |
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$ |
|
||||
Note 6 – Account Receivables and Allowance for Expected Credit Losses
As of September 30, 2025 and December 31, 2024,
the accounts receivable were $
The account receivable allowance as of September
30, 2025 and 2024 were $
Deposit and advances are required for Compost III and Fresh mushroom sales.
Note 7 – Value Added Tax Receivable
Value added tax (“VAT”) receivable was $
On September 8, 2025, the local branch of the State Taxation Administration
issued a public notice approving a VAT refund of RMB 14,720,298.89 ( $
Note 8 – Other Payables
Other payables are primary composed of debts
with private funds and related accrued interest, deposits received from customers and current portion of long term debt. As of September 30, 2025 and
December 31, 2024, the Company had outstanding debt with private funds and institutions recorded as other payables for an aggregate
carrying amount of $
7
Note 9 – 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) |
|
8
Note 10 – Convertible Notes Payable
The convertible notes payable was $
On August 5, 2025, the Company issued a convertible
promissory note (the “Note”) in the principal amount of $
Note 11 – Income Taxes
The income taxes were zero for the three and nine months ended September 30, 2025 and 2024. Compost III and white button mushroom are income tax and VAT tax free products.
Note 12 – Segment Information
The following table shows information by reportable segment for the three and nine months ended September 30, 2025 and 2024:
| White button mushroom | Compost III | Mushroom powder seasonings | Corporate | Eliminations | Total | |||||||||||||||||||
| Three Months Ended September 30, 2025 | ||||||||||||||||||||||||
| Net operating revenues: | ||||||||||||||||||||||||
| Third party | $ |
|
$ |
|
$ | $ | $ | $ |
|
|||||||||||||||
| Intersegment |
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(
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) | |||||||||||||||||||||
| Total net operating revenues |
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| Cost of goods sold |
(
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) |
(
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) |
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| Intersegment cost of goods sold |
(
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) |
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|||||||||||||||||||||
| Total net operating cost |
(
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) |
(
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) |
(
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) | ||||||||||||||||||
| Selling, general administrative expenses |
(
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) |
(
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) |
(
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) |
(
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) |
(
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) | ||||||||||||||
| Research and development |
(
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) |
(
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) |
(
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) |
(
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) | ||||||||||||||||
| Operating income (loss) |
(
|
) |
(
|
) |
(
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) |
(
|
) |
(
|
) | ||||||||||||||
| Interest income (expense) |
(
|
) |
(
|
) |
(
|
) |
(
|
) | ||||||||||||||||
| Other income (loss) — net |
|
|
|
|
||||||||||||||||||||
| Income before income taxes | $ |
(
|
) | $ |
(
|
) | $ |
(
|
) | $ |
(
|
) | $ | $ |
(
|
) | ||||||||
9
| White button mushroom | Compost III | Mushroom powder seasonings | Corporate | Eliminations | Total | |||||||||||||||||||
| Nine Months Ended September 30, 2025 | ||||||||||||||||||||||||
| Net operating revenues: | ||||||||||||||||||||||||
| Third party |
|
|
$ |
|
$ | $ | $ |
|
||||||||||||||||
| Intersegment |
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(
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) | ||||||||||||||||||||
| Total net operating revenues |
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| Cost of goods sold |
(
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) |
(
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) |
(
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) |
(
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) | ||||||||||||||||
| Intersegment cost of goods sold |
(
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) |
(
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) |
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|||||||||||||||||||
| Total net operating cost |
(
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) |
(
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) |
(
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) |
(
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) | ||||||||||||||||
| Selling, general administrative expenses |
(
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) |
(
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) |
(
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) |
(
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) |
(
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) | ||||||||||||||
| Research and development |
(
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) |
(
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) |
(
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) |
(
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) | ||||||||||||||||
| Operating income (loss) |
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(
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) |
(
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) |
(
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) |
(
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) | |||||||||||||||
| Interest income (expense) |
(
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) |
(
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) |
(
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) |
(
|
) | ||||||||||||||||
| Other income (loss) — net |
|
|
|
|
||||||||||||||||||||
| Income before income taxes | $ |
|
$ |
(
|
) | $ |
(
|
) | $ |
(
|
) | $ | $ |
(
|
) | |||||||||
| White button mushroom | Compost III | Mushroom powder seasonings | Corporate | Eliminations | Total | |||||||||||||||||||
| Three Months Ended September 30, 2024 | ||||||||||||||||||||||||
| Net operating revenues: | ||||||||||||||||||||||||
| Third party |
|
|
$ |
|
||||||||||||||||||||
| Intersegment |
|
|
(
|
) | ||||||||||||||||||||
| Total net operating revenues |
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|||||||||||||||||||||
| Cost of goods sold |
(
|
) |
(
|
) |
(
|
) | ||||||||||||||||||
| Intersegment cost of goods sold * |
(
|
) |
(
|
) |
|
|||||||||||||||||||
| Total net operating cost |
(
|
) |
(
|
) |
(
|
) | ||||||||||||||||||
| Selling, general administrative expenses |
(
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) |
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(
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) |
(
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) |
(
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) | |||||||||||||||
| Research and development |
(
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) |
(
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) |
(
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) |
(
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) | ||||||||||||||||
| Operating income (loss) |
|
|
(
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) |
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| Interest income (expense) |
(
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) |
(
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) |
(
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(
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) | ||||||||||||||||
| Other income (loss) — net |
(
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) |
|
|
(
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) | ||||||||||||||||||
| Income before income taxes | $ |
|
$ |
(
|
) | $ |
(
|
) | $ |
(
|
) | $ | $ |
(
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) | |||||||||
| White button mushroom | Compost III | Mushroom powder seasonings | Corporate | Eliminations | Total | |||||||||||||||||||
| Nine Months Ended September 30, 2024 | ||||||||||||||||||||||||
| Net operating revenues: | ||||||||||||||||||||||||
| Third party | $ |
|
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- | $ |
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| Intersegment |
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(
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) | ||||||||||||||||||||
| Total net operating revenues |
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| Cost of goods sold |
(
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) |
(
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) |
(
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) |
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| Intersegment cost of goods sold * |
(
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) |
(
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) | $ |
|
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| Total net operating cost |
(
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) |
(
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) |
(
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) |
(
|
) | ||||||||||||||||
| Selling, general administrative expenses |
(
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) |
(
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) |
(
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) |
(
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) |
(
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) | ||||||||||||||
| Research and development |
(
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) |
(
|
) |
(
|
) |
(
|
) | ||||||||||||||||
| Operating income (loss) |
|
|
(
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) |
(
|
) |
(
|
) | ||||||||||||||||
| Interest income (expense) |
(
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) |
(
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) |
(
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) |
|
(
|
) | |||||||||||||||
| Other income (loss) — net |
|
(
|
) |
|
(
|
) | ||||||||||||||||||
| Income before income taxes | $ |
|
$ |
|
$ |
(
|
) | $ |
(
|
) | $ | $ |
(
|
) | ||||||||||
| * |
|
10
Note 13 – Related-Party Transactions
The Company did not engage in any related-party transactions during the quarter ended September 30, 2025. There were no material transactions or arrangements with related parties, including any directors, executive officers, or 5% shareholders.
Note 14 - 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 September 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; |
11
| · | 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 quoted on the OTCQB Market Tier 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 |
12
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.
13
Financial Condition
The third quarter of 2025 was marked by significant operational disruptions related to the Company’s ongoing environmental compliance and capacity expansion initiatives. In particular, the Company undertook the construction and installation of a new Environmental Protection Agency (“EPA”) compliance facility and related integration equipment at its primary production site. This project stems from an approved Environmental Impact Assessment (EIA) and associated local regulatory obligations, requiring the Company to upgrade its facilities to meet enhanced environmental standards. The construction activities during the quarter adversely impacted the Company’s normal production process – most notably the mushroom composting conditions in August 2025 – which in turn had a material negative effect on our financial results for the period.
As a direct consequence of the disruption, the Company experienced a substantial decline in revenue and incurred an operating loss for the three months ended September 30, 2025. The adverse impact on composting in August rendered certain production batches unusable, leaving insufficient usable compost to sustain the cultivation of mushrooms in the latter part of the quarter. Notably, the Company did not record any fresh mushroom sales in September 2025, as the harvest that would normally have occurred in that month was lost due to the compromised compost. This absence of September sales, combined with lower production volumes in August, significantly reduced the Company’s quarterly revenue relative to prior periods. In contrast, the Company’s operating costs – including fixed overhead and ongoing expenses continued to be incurred, which resulted in a negative impact on profitability for the quarter.
Management took decisive action in response to these challenges. Subsequent to the end of the quarter, in late October 2025, the Company temporarily suspended production operations at its primary facility to facilitate the swift completion of the EPA compliance facility installation and to prevent further losses. This decision was made after careful consultation with internal management and external experts, reflecting management’s determination that a short-term halt in production was the most prudent course to expedite project completion and ensure full compliance with environmental requirements. While this production suspension occurred after September 30, 2025 (and therefore did not affect third quarter output beyond what is discussed above), it is an important development that will influence the Company’s near-term operations and is discussed further in the Outlook section below.
Revenue and Operating Results
Revenue: For the quarter ended September 30, 2025, the Company’s revenue was $491,339, declined significantly compared to $2,234,549, the same period in the prior year. The decrease was primarily attributable to the operational disruption caused by the EPA compliance project construction. During August 2025, construction activities interfered with the climate and conditions required for proper composting of mushrooms. Consequently, the compost produced in that month did not meet the necessary standards for cultivation and had to be discarded. This disruption in our growing cycle meant that no fresh mushroom sales were generated in September 2025, since there was no viable mushroom crop to harvest in that month. By contrast, in a typical third quarter, September contributes a meaningful portion of our fresh mushroom sales. The loss of essentially an entire month of product sales, combined with reduced output in late August, resulted in a sharp drop in quarterly revenue. Additionally, sales of compost to third parties were lower in the quarter due to the temporary shortage of quality compost – a direct result of the production batches that were rendered unusable.
Operating Results: The shortfall in revenue had a direct adverse effect on the Company’s profitability for the quarter. The Company incurred an operating loss of $1,679,682 for the three months ended September 30, 2025, as opposed to operating income of $122,040 in the comparable period of the prior year. The operating loss was driven predominantly by the significant revenue decline, while the Company’s cost structure includes fixed costs that could not be fully reduced in line with lower production. Although management took steps to contain variable costs where possible, core expenses such as labor, facility overhead, and depreciation continued to accrue during the disruption. Furthermore, the disposal of unusable compost in August led to wasted raw materials and additional costs that negatively impacted gross margins. These factors collectively contributed to the operating loss in the quarter.
For the nine months ended September 30, 2025, preliminary results also reflect a decline in revenue and profitability on a year-to-date basis, largely due to the third-quarter shortfall. The revenue was $4,568,519 for the nine months ended September 30, 2025 compared to $7,122,611 for the nine months ended September 30, 2024. Management notes that absent the extraordinary impact of the compliance project disruption, underlying demand for the Company’s products remained stable. There were no significant changes in pricing or market conditions negatively affecting sales outside of the production constraints described above. The Company did not incur any asset impairment charges in the quarter related to these events, and inventory on hand (apart from the unusable compost that was discarded) remained saleable.
During the quarter ended September 30, 2025, the Company had no related-party transactions, as defined under SEC rules. All transactions with parties outside of the Company were conducted at arm's length, and no material financial arrangements or investments were made with entities owned or controlled by officers, directors, or other related parties. As of the date of this filing, the Company is not aware of any pending or potential related-party transactions.
Liquidity and Capital Resources
Cash Position and Cash Flows: Despite the quarter’s operational setback, the Company’s liquidity remains adequate. The Company has deliberately avoided taking on new loans or liabilities for this project, thereby maintaining its conservative leverage profile. The Company’s debt-to-equity ratio continues to be 1.1. Working capital is sufficient to support current needs, and the Company’s trade payables and other obligations are being managed in the ordinary course.
14
VAT Refund: The Company also expects a significant inflow of cash in the coming months from a government tax refund. In particular, the Company has filed for a refund of accumulated Value Added Tax (VAT) credits, in accordance with applicable tax regulations. (Refer to Note 7 – Value Added Tax Receivables ) (The Company received an administrative notice from the Fuyang Municipal Taxation Bureau confirming approval of its VAT-credit refund application. The notice constitutes a routine governmental confirmation and is not filed as an exhibit, as it does not represent a material contract within the meaning of Item 601(b)(10) of Regulation S-K.)The refund anticipated is approximately RMB 14.7 million. This amount was confirmed as receivable following the completion of the relevant tax filings and is expected to be received in the fourth quarter of 2025 or early 2026. The VAT credit refund will supplement the Company’s existing cash resources and bolster liquidity during the production hiatus. Management plans to deploy this refund toward general working capital needs and to support the remaining costs associated with completing the EPA compliance facility. Notably, this VAT refund is a one-time cash inflow derived from the Company’s capital investments and procurement related to the compliance project, and it reflects a recovery of input taxes rather than operational income.
Capital Resources and Outlook: As described in the Notes to the Consolidated Financial Statements, the Company issued on August 5, 2025 a convertible promissory note in the principal amount of $275,000, as disclosed in the Form 8-K filed August 8, 2025. Proceeds from this financing are being used to fund working-capital needs. The Company believes that its current cash on hand in combination with the expected VAT refund, will be sufficient to meet its financial obligations and operational requirements for at least the next twelve months. This assessment includes consideration of the ongoing expenses during the temporary production suspension and the expenditures required to finish the compliance facility. Company has also reviewed its budget and cash flow projections in light of the production pause. Management has identified areas to conserve cash during the suspension period, such as deferring non-critical capital expenditures and optimizing working capital (e.g., reducing discretionary spending and carefully managing inventory purchases until production resumes). Based on these measures and current projections, the Company does not anticipate any need for external financing in the near term. The Company remains in compliance with all existing debt covenants and continues to have access to credit lines, should additional liquidity be required. Overall, management is confident that the Company’s liquidity and capital resources are sufficient to support operations and planned initiatives for the foreseeable future, including at least the next twelve months from the date of this report.
Outlook
Looking forward, management’s priority is to complete the EPA compliance project and restore full production operations, with a focus on stabilizing and then improving the Company’s operational and financial performance. As mentioned, in October 2025 (subsequent to quarter-end) the Company temporarily suspended production at its main facility to expedite the final construction and integration of the new environmental compliance equipment. This suspension is expected to last for approximately three months, with production anticipated to resume at normal capacity by late January 2026. During this downtime, management and technical teams are concentrating on installing and testing the remaining equipment, training staff on the new systems, and ensuring that all environmental control mechanisms are functioning as designed. The goal is to emerge from this pause with a fully operational EPA-compliant facility that meets or exceeds regulatory standards, thereby enabling the Company to operate without further interruption related to environmental issues.
In the near term, the production suspension will continue to pose challenges. The Company expects that the lack of production in November and December 2025 will result in significantly reduced revenues for the fourth quarter of 2025, and potentially an operating loss for that period as well. The Company has communicated with its customers and stakeholders regarding the temporary halt in production, and we are exploring ways to mitigate the impact – for example, by drawing down existing inventory of certain processed or stored products (if any) and maintaining customer relationships through regular updates on our status. Operating expenses will be carefully managed during the suspension. Management has implemented cost containment measures, including reducing variable costs where possible (such as scaling back purchasing of raw materials and reducing energy usage during the shutdown) and negotiating temporary adjustments with suppliers and service providers. These actions are aimed at preserving cash without compromising the integrity of the facility upgrade or the Company’s ability to ramp up quickly once production recommences.
Despite the current difficulties, the Company remains optimistic that the completion of the EPA compliance facility will provide substantial long-term benefits. The new facility and expanded production capacity are expected to improve operational efficiency and throughput once online. By upgrading our environmental control systems and infrastructure, we anticipate fewer disruptions to the composting and growing process going forward, even as production volumes increase. In addition to supporting higher mushroom output, the expanded and improved composting facilities will enable the Company to produce excess compost for sale to third parties in greater quantities. The ability to sell more Phase III compost (fully cultivated compost) to external mushroom growers or other agricultural users could become an incremental revenue stream for the Company over time. Moreover, with enhanced environmental compliance and increased capacity, the Company will be better positioned to pursue export opportunities for its products. Many export markets have stringent environmental and quality standards; by investing in this compliance project, the Company aims to meet those standards, which in turn supports the potential for exporting its fresh mushrooms or compost products to new markets. These strategic benefits, while not immediate, are viewed as critical to the Company’s growth plans.
Management cautions that the next few quarters will reflect the continuing impact of the production halt and recovery period. Even after operations resume (expected in early 2026), there may be a ramp-up phase as the Company calibrates the new equipment and gradually returns to full production capacity. The first harvest after resumption may occur several weeks after production restarts, which could affect the timing of revenue recognition in early 2026. The Company will monitor the implementation closely and will provide updates on any material developments. Importantly, at this time management does not anticipate any permanent damage or impairment to the Company’s assets or long-term earning capacity as a result of the temporary suspension. The equipment installation is proceeding as planned, and all facilities are being maintained in ready-to-restart condition. The composting process will be relaunched using fresh raw materials once the environmental systems are fully operational, and there is no indication of lasting adverse effects on our mushroom culture or genetics.
15
In conclusion, while the operational and financial results in the short term are under pressure due to the necessary EPA compliance work, the Company views these actions as an investment in its future. By adhering to environmental regulations and upgrading our production capabilities, we are building a foundation for sustainable and scalable growth. Management remains focused on executing the compliance project to completion, resuming production on the projected timetable, and returning the Company to a trajectory of revenue growth and improved margins. We believe that our prudent approach to liquidity – including maintaining a conservative leverage position and securing the VAT refund – has positioned the Company to weather this interim period. We will continue to evaluate our outlook and assumptions in light of evolving conditions and will update stakeholders in our next quarterly report or as material developments occur. The Company appreciates the patience and support of its shareholders, employees, and customers as we work through this transition, and we are confident that these efforts will enhance the Company’s operational resilience and long-term value in the quarters and years ahead.
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.
Off-Balance Sheet Arrangements
There were no off-balance sheet arrangements as of September 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 September 30, 2025 were $998,554. $165,794 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.
16
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 nine months ended September 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.
As part of the Company's internal controls over financial reporting, we have procedures to identify any related-party transactions, including transactions with officers, directors, and significant shareholders. During the quarter ended September 30, 2025, no related-party transactions were identified. We continue to maintain a robust system to ensure compliance with applicable SEC rules regarding related-party transactions.
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 September 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.
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 to allow timely decisions regarding required disclosures. Management is developing and implementing enhanced accounting-review and consolidation procedures to remediate this deficiency during fiscal 2026.
Change in Internal Control over Financial Reporting
During the nine months ended September 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.
17
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.
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.
18
Item 6. Exhibits
| * | The Amended and Restated Bylaws of ESG Inc. were approved by the Board of Directors on February 20, 2025 and adopted effective February 24, 2025. They are filed herewith for the first time as an exhibit to this Quarterly Report on Form 10-Q for the period ended September 30, 2025, in accordance with Item 601(b)(3) of Regulation S-K. |
19
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| ESG Inc. | ||
| (Registrant) | ||
| By: | /s/ Zhi (Thomas) Yang | |
| Name: | Zhi (Thomas) Yang | |
| Title: | Chief Executive Officer | |
| (Principal Executive Officer) | ||
| Date: | November 14, 2025 | |
| By: | /s/ Edward Gobora | |
| Name: | Edward Gobora | |
| Title: | Chief Financial Officer | |
| (Principal Financial Officer) | ||
| Date: | November 14, 2025 | |
20