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ESG Inc. (NASDAQ: ESGH) details Q1 loss and China split-off plan

Filing Impact
(High)
Filing Sentiment
(Neutral)
Form Type
10-Q

Rhea-AI Filing Summary

ESG Inc. reported a much weaker quarter as its PRC mushroom operations remained suspended. Revenue for the three months ended March 31, 2026 was $0, down from $1,587,144 a year earlier, and net loss widened to $884,050 versus $276,153.

Operating expenses rose sharply as depreciation shifted into selling, general and administrative costs, and other income fell with lower government grants. Cash was only $206,391 with a working capital deficit of about $6.9 million, and management disclosed substantial doubt about continuing as a going concern.

The company added $200,000 of new convertible debt and modest equity from note conversions. After quarter-end it signed a Split-Off and Share Exchange Agreement to divest China operations in exchange for cancelling 10,432,800 shares, a move expected to significantly change its assets, liabilities and future revenue mix if completed.

Positive

  • None.

Negative

  • Going concern risk: As of March 31, 2026, limited cash, recurring losses and a working capital deficiency of about $6.9 million led management to conclude there is substantial doubt about ESG Inc.’s ability to continue as a going concern.
  • Collapse in revenue: The company reported no revenue for the quarter ended March 31, 2026, versus $1,587,144 a year earlier, due to suspension of PRC mushroom operations, driving a wider net loss of $884,050.
  • Weak liquidity and high short-term obligations: Cash was only $206,391 at March 31, 2026, against $6.2 million of short-term bank loans, $475,000 of convertible notes and $5.3 million of accrued and other current liabilities.
  • Strategic uncertainty around China exit: The proposed split-off of ESG China Limited would significantly reduce historical operating assets, liabilities and revenue-generating activities tied to PRC operations, leaving the company substantially dependent on early-stage North America activities and additional financing if the transaction is completed.

Insights

Zero revenue, deep losses and going concern risk dominate ESG Inc.’s quarter.

ESG Inc. generated no revenue in Q1 2026 while reporting a net loss of $884,050, compared with $276,153 a year earlier. Liquidity is tight, with cash of only $206,391 and a working capital deficit of about $6.9M, against short-term bank loans of $6.24M and convertible notes of $475,000.

Management explicitly states that limited cash, recurring losses and the working capital deficiency raise substantial doubt about the company’s ability to continue as a going concern. At the same time, supplier disputes in China and heavy other payables, including loans from local investment entities and private funds, underscore reliance on cooperative creditors and new financing.

The planned split-off of ESG China Limited, in exchange for cancelling 10,432,800 shares, would remove most PRC operating assets and liabilities and leave ESG Inc. focused on early-stage North America food products. Actual impact on leverage, liquidity and future losses will depend on whether this split-off closes and how new operations scale in subsequent periods.

Q1 2026 Revenue $0 For the three months ended March 31, 2026
Q1 2025 Revenue $1,587,144 For the three months ended March 31, 2025
Q1 2026 Net Loss $884,050 Loss before attribution for the three months ended March 31, 2026
Cash Balance $206,391 Cash as of March 31, 2026
Working Capital Deficiency ≈$6.9 million Deficit as of March 31, 2026
Short-term Bank Loans $6,236,675 Outstanding as of March 31, 2026
Convertible Notes Payable $475,000 Balance as of March 31, 2026
Shares Outstanding 25,908,268 shares Common shares issued and outstanding as of May 14, 2026
going concern financial
"These conditions raise substantial doubt about the Company’s ability to continue as a going concern."
A going concern is a business that is expected to continue its operations and meet its obligations for the foreseeable future, rather than shutting down or selling off assets. This assumption matters to investors because it indicates stability and ongoing profitability, making the business a more reliable investment. Think of it as believing a restaurant will stay open and serve customers, rather than closing down suddenly.
Split-Off and Share Exchange Agreement financial
"the Company entered into a Split-Off and Share Exchange Agreement providing for the proposed split-off of ESG China Limited"
convertible promissory note financial
"the Company issued a convertible promissory note in the principal amount of $275,000 to Labrys Fund II, L.P."
A convertible promissory note is a loan a company takes now that can later be turned into shares instead of being repaid in cash. Think of it as lending money with the option to accept ownership in the business down the road; that matters to investors because it affects who gets paid first, how much ownership existing shareholders keep, and the company’s future valuation and cash needs. Terms such as conversion price, interest and maturity determine the financial impact.
valuation allowance financial
"The Company continues to maintain a valuation allowance against deferred tax assets where realization is uncertain due to the losses incurred."
A valuation allowance is a reserve set aside to reduce the value of certain assets on a company's financial records when there is uncertainty about whether they will generate the expected benefits. It acts like a caution sign, indicating that some assets might not be fully recoverable or worth their recorded amount. This matters to investors because it provides a more realistic picture of a company's financial health and potential risks.
smaller reporting company regulatory
"As a smaller reporting company, the Company is not required to provide the information required by this Item."
A smaller reporting company is a publicly traded firm that meets regulatory size tests allowing it to provide abbreviated financial disclosures and compliance filings compared with larger companies. For investors, that means financial statements and notes may be less detailed, which can make it harder to compare performance or spot risks—think of reading a short summary instead of a full report when deciding whether to buy or hold a stock.
Rule 506(b) of Regulation D regulatory
"These securities were issued in reliance on an exemption from registration under Section 4(a)(2) of the Securities Act and/or Rule 506(b) of Regulation D."
Rule 506(b) of Regulation D is a set of rules that allows companies to raise money from investors without having to register with the government, as long as they follow certain guidelines. It lets companies offer securities to a limited number of investors, often trusted or experienced ones, making it easier and quicker to raise funds compared to traditional methods. This rule matters to investors because it provides access to private investment opportunities that are generally less regulated but still require careful consideration.
Revenue $0 -$1,587,144 vs Q1 2025
Net loss $884,050 vs $276,153 in Q1 2025
Net loss attributable to ESG Inc. $682,214 vs $212,664 in Q1 2025
EPS (basic and diluted) ($0.03) vs ($0.01) in Q1 2025
SG&A expenses $787,081 +172.0% vs $289,330 in Q1 2025
Other income $26,043 -79.8% vs $128,970 in Q1 2025
10-Q Quarterly Reports: What Changes Quarter to Quarter →
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UNITED STATES

 

SECURITIES AND EXCHANGE COMMISSION

 

Washington, D.C. 20549

 

FORM 10-Q

 

☒Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For the quarterly period ended March 31, 2026

 

☐Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For the transition period from __________ to __________

 

Commission File Number: 000-56532

 

ESG INC.

(Exact name of registrant as specified in its charter)

 

Nevada 87-1918342
(State or Other Jurisdiction of Incorporation or Organization) (I.R.S. Employer Identification No.)

 

433 East Hillendale Road, Chadds Ford, PA 19317

(Address of Principal Executive Offices) (Zip Code)

267-467-5871

(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. Yes ☒ No ☐

 

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 during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

 

Large accelerated filer ☐ Accelerated filer ☐ Non-accelerated filer ☒ Smaller reporting company ☒ Emerging growth company ☒

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

 

State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date: 25,908,268 common shares issued and outstanding as of May 14, 2026.

 

 

 

 

ESG INC.

 

QUARTERLY REPORT ON FORM 10-Q

 

TABLE OF CONTENTS

 

    Page
PART I FINANCIAL INFORMATION  
Item 1. Financial Statements (Unaudited) F-1
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 3
Item 3. Quantitative and Qualitative Disclosures About Market Risk 4
Item 4. Controls and Procedures 4
PART II OTHER INFORMATION 5
Item 1. Legal Proceedings 5
Item 1A. Risk Factors 5
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 5
Item 3. Defaults Upon Senior Securities 5
Item 4. Mine Safety Disclosures 5
Item 5. Other Information 5
Item 6. Exhibits 5
  Signatures 6

 

2

 

 

PART I. FINANCIAL INFORMATION

 

Item 1. Financial Statements.

 

ESG INC.

Consolidated Balance Sheet

 

           
   March 31,   December 31, 
  

2026

(Unaudited)

   2025
(Audited)		 
Assets          
Current Assets          
Cash  $168,479   $42,978 
Restricted cash   37,912    36,892 
Accounts receivable   3,089,551    3,223,334 
Inventories   113,891    112,250 
Other receivable   438,781    432,458 
Advance to suppliers   849,392    837,152 
Value added tax receivable, current   2,104,253    2,104,253 
Total Current Assets   6,802,259    6,789,318 
           
Property, plant and equipment, net   16,072,133    16,313,411 
Intangible assets, net   3,018,625    2,992,157 
Value added tax receivable   880,901    838,274 
Total Non-current Assets   19,971,659    20,143,842 
           
Total Assets  $26,773,918   $26,933,159 
           
Liabilities and Shareholders' Equity          
Current Liabilities          
Short-term bank loans  $6,236,675   $6,146,809 
Convertible notes payable   475,000   $275,000 
Accounts payable   1,561,724    1,534,421 
Accrued expenses and other current liabilities   5,291,184    5,030,921 
Deferred income, current   110,590    110,590 
Total Current liabilities   13,675,173    13,097,741 
           
Deferred income   1,012,878    1,022,465 
Long-term payable   931,513    960,836 
Total Noncurrent liabilities   1,944,391    1,983,301 
           
Total Liabilities   15,619,564    15,081,041 
           
Commitments and Contingencies          
           
Shareholders' Equity          
Common stock ($0.001 par value; 65,000,000 shares authorized; 25,902,268 shares issued and outstanding as of March 31, 2026 and 25,899,468 issued and outstanding as of December 31, 2025, respectively)   25,903    25,900 
Additional paid in capital   11,164,106    11,152,388 
Accumulated comprehensive income (loss)   (180,791)   (310,877)
Accumulated deficit   (2,798,132)   (2,115,918)
Total Company stockholders' Equity   8,211,086    8,751,493 
Noncontrolling interest   2,943,268    3,100,625 
Total Equity   11,154,354    11,852,118 
           
Total Liabilities and Stockholders' Equity  $26,773,918   $26,933,159 

 

The accompanying notes are an integral part of these unaudited consolidated financial statements.

 

F-1

 

 

ESG INC.

 

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

 

(Unaudited)

 

           
   For the three months ended 
   March 31, 2026   March 31, 2025 
         
Revenues  $-    1,587,144 
Cost of goods sold        1,506,212 
           
Gross profit   -    80,932 
           
Operating expenses          
Selling, General and administrative expense   787,081    289,330 
Research and development cost   -    66,323 
Total operating expenses   787,081    355,653 
           
Income (Loss) from operations   (787,081)   (274,721)
           
Non-operating income (expense)          
Interest expense   (123,011)   (130,402)
Other Income   26,043    128,970 
Total non-operating income (expenses), net   (96,969)   (1,432)
           
Income (Loss) before income taxes   (884,050)   (276,153)
           
Income taxes   -      
         - 
Net income (loss)   (884,050)   (276,153)
Less: income (loss) attributable to noncontrolling interest   (201,836)   (63,489)
Net income (loss) to ESG Inc.  $(682,214)   (212,664)
           
Other comprehensive item          
Foreign currency translation gain (loss) attributable to the Company   130,086    291,886 
Foreign currency translation gain (loss) attributable to noncontrolling interest   44,479    99,802 
           
Comprehensive income (loss) attributable to the Company   (552,128)   79,222 
Comprehensive income (loss) attributable to noncontrolling interest   (157,357)   36,313 
           
Net income (loss) per share - basic and diluted  $(0.03)  $(0.01)
           
Weighted average shares outstanding - basic and diluted   25,902,268    25,899,468 

 

The accompanying notes are an integral part of these unaudited consolidated financial statements.

 

F-2

 

 

ESG INC.

 

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

 

                                         
   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   25,899,468   $25,900   $11,152,388   $(168,600)  $(711,270)   10,298,418   $3,519,577   $13,817,995 
Net income   -    -    -    (212,664)   -    (212,664)   (63,489)   (276,153)
Foreign currency translation adjustment   -    -    -    -    291,886    291,886    99,802    391,688 
Balance at March 31, 2025   25,899,468   $25,900   $11,152,388   $(381,264)  $(419,384)   10,377,640   $3,555,890   $13,933,530 
                                         
Balance at December 31, 2025   25,899,468   $25,900   $11,152,388   $(2,115,918)  $(310,877)   8,751,493   $3,100,625   $11,852,118 
Net income   -    -    -    (682,214)   -    (682,214)   (201,836)   (884,050)
Foreign currency translation adjustment   -    -    -    -    130,086    130,086    44,479    174,565 
issue new shares (2,800 common shares)   2,800    3    11,718    -    -    11,721    -    - 
Balance at March 31, 2026   25,902,268   $25,903   $11,164,106   $(2,798,132)  $(180,791)   8,211,086   $2,943,268   $11,154,354 

 

The accompanying notes are an integral part of these unaudited consolidated financial statements.

 

F-3

 

 

ESG INC.

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

           
   For the three months ended 
   March 31, 2026   March 31, 2025 
         
Cash flows from operating activities:          
Net income (loss)  $(884,050)  $(276,153)
Adjustments to reconcile loss to net cash used in operating activities:          
Depreciation and amortization   494,998    456,938 
Changes in assets and liabilities:          
Accounts receivable   (133,783)   450,976 
Other receivable   6,323      
Advance to suppliers   12,240      
Inventories   1,641    520,144 
Value added tax receivable   42,626      
Notes receivable   -      
Accounts payables   (27,303)   (2,849,351)
Other payables   -      
Paybel to related party   -      
Accrued expenses and other current liabilities   (230,940)   72,021 
Deferred income   9,587      
Net cash used in operating activities   (708,659)   (1,625,425)
           
           
Cash flows from investing activities:          
Acquisition of fixed assets   -    (88,321)
           
Net cash used in investing activities   -    (88,321)
           
Cash flows from financing activities:          
Proceeds of convertible notes   200,000    - 
Repayment of bank loans   -    (194,627)
Proceeds of non-bank loans   -    1,611,350 
Net cash used in financing activities   200,000    1,416,723 
           
Effect of exchange rate changes on cash   635,180    307,851 
           
Net increase (decrease) in cash   126,521    10,828 
           
Cash, beginning of year   79,870    166,741 
           
Cash, end of year  $206,391   $177,569 
           
Supplemental disclosures of cash flow information:          
Cash paid for interest   -   $76,639 
Cash paid for income tax   -    - 

 

The accompanying notes are an integral part of these unaudited consolidated financial statements.

 

F-4

 

 

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

Note 1 - Basis of Presentation

 

The accompanying unaudited consolidated financial statements include the accounts of ESG Inc. and its subsidiaries (collectively, the “Company,” “ESG,” “we,” “us” or “our”). In the opinion of management, the unaudited consolidated financial statements include all normal recurring adjustments necessary for a fair presentation of the Company’s financial position and results of operations for the periods presented. These unaudited consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and related notes included in its Annual Report on Form 10-K for the year ended December 31, 2025.

 

Proposed Split-Off of China Operations

 

On April 10, 2026, after the balance sheet date, the Company entered into a Split-Off and Share Exchange Agreement relating to the proposed split-off of ESG China Limited and the Company’s China operations. Because the agreement was entered into after March 31, 2026 and the proposed transaction had not closed as of March 31, 2026, the Company has not classified the China operations as held for sale or discontinued operations in these unaudited consolidated financial statements. The proposed split-off is disclosed as a subsequent event. The Company will continue to evaluate the accounting presentation in future reporting periods.

 

Correction of Immaterial Error in Previously Issued Financial Statements

 

During the preparation of the Company’s consolidated financial statements, management identified certain intercompany revenue and corresponding cost of revenue for the year ended December 31, 2025 that were not eliminated in consolidation. The correction reduced consolidated revenue and cost of revenue by approximately $1,749,093 for the year ended December 31, 2025, with no impact on gross profit, loss from operations, net loss, loss per share, total assets, total liabilities, stockholders’ equity, or cash flows. Management evaluated the correction under SAB 99 and SAB 108 and concluded that the correction was not material to the previously issued consolidated financial statements. Accordingly, the Company has not restated its previously issued consolidated financial statements.

 

Note 2 - Going Concern

 

The accompanying unaudited consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As of March 31, 2026, the Company had limited cash, recurring losses and a working capital deficiency. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management is pursuing additional financing and business development activities, including North America product commercialization initiatives, but there can be no assurance that such efforts will be successful. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

Note 3 - Revenue

 

The Company generated no revenue during the three months ended March 31, 2026, compared to $1,587,144 during the three months ended March 31, 2025. The absence of revenue in 2026 was primarily due to the suspension of the Company’s PRC mushroom operations during the period.

 

                       
      Three Months Ended   % of Total Revenue 
Geographic  Products  March 31,
2026		   March 31,
2025		   March 31,
2026		   March 31,
2025		 
China, mainland  Compost III  $-   $111,778    -    7.0%
China, mainland  White Button Mushroom   -    393,648    -    24.8%
Hong Kong, China  Mushroom powder seasonings   -    1,081,718    -    68.2%
Total  Total net sales  $-   $1,587,144    -    100%

 

Note 4 - Concentrations

 

For the three months ended March 31, 2025, three customers individually represented 10% or more of total sales, accounting for approximately 11.0%, 12.6% and 68.2% of total sales. The Company had no sales during the three months ended March 31, 2026. As of March 31, 2026 and March 31, 2025, one customer accounted for approximately 80.9% and 93.9%, respectively, of accounts receivable.

 

Note 5 – Inventories

 

          
   March 31, 2026   December 31, 2025 
raw materials  $11,206   $11,044 
Consumable supplies   102,685    101,206 
finished goods   -    - 
work in progress   -    - 
Total inventories  $113,891   $112,250 

 

F-5

 

 

Note 6 - Property, Plant and Equipment, Net

 

The following tables show the Company’s consolidated financial statement details as of March 31, 2026 and December 31, 2025:

 

          
   March 31, 2026   December 31, 2025 
Gross property, plant and equipment  $26,548,100   $26,165,580 
Accumulated depreciation   (10,475,967)   (9,852,169)
Total property, plant and equipment, net  $16,072,133   $16,313,411 

 

As of March 31, 2026 and December 31, 2025, certain buildings and improvements were pledged as collateral for bank loans, respectively.

 

Note 7 - Accounts Receivable

 

Accounts receivable were $3,089,551 and $3,223,334 as of March 31, 2026 and December 31, 2025, respectively. Most accounts receivable related to mushroom powder seasoning sales. The collectability and timing of collection remain subject to customer payment performance and the operating and liquidity conditions of the PRC business.

 

Note 8 - Accrued expenses and other current liabilities

 

          
   March 31, 2026   December 31, 2025 
Advances from customers  $217,887   $214,747 
Salary payable   95,160    93,789 
Interest payable   228,885    149,183 
Tax payable   43,834    27,966 
Other payables   4,534,269    4,366,441 
Long-term payable, current portion   171,148    178,793 
Total  $5,291,184   $5,030,921 

 

F-6

 

 

As of March 31, 2026, the Company had $4,534,269 of other payables, including $1,740,467 of loans and related interest from Funan Agricultural Investment Co., Ltd. and Funan Business Financing Service Center, $1,256,327 of loans from private funds, and $1,451,840 of amounts payable to the owner of Funan Zhihua Mushroom Co., Ltd.

 

As of December 31, 2025, the Company has $4,366,441 of other payables, including $1,970,940 of loans and related interest from Funan Agricultural Investment Co. Ltd and Funan Business Financing Service Center, $1,788,786 of loans from private funds and $555,882 of payable to the owner of Funan Zhihua Mushroom Co., Ltd.

 

Note 9 - Bank Loans

 

Short-term bank loans consisted of the following:

 

                          
   03/31/2026   Interest rate   Due date  12/312025   Interest rate   Due date
Agricultural Bank of China Funan Branch (1)   725,195    4.65%  04/01/26   714,746    4.65%  04/02/26
Anhui Funan Rural Commercial Bank (2)   2,030,545    5.60%  12/19/26   2,001,287    5.60%  12/20/26
Anhui Funan Rural Commercial Bank (3)   1,450,389    5.60%  03/23/27   1,429,490    5.60%  03/24/26
Anhui Funan Rural Commercial Bank (4)   870,234    5.60%  01/14/27   857,694    5.60%  01/15/26
Bank of China Funan Branch (5)   1,160,312    3.60%  03/12/27   1,143,592    3.60%  03/13/26
Total  $6,236,675           $6,146,809         

 

(1)Loans are guaranteed by the founder of AUFP and SME Guarantee Corporation.

 

(2)Loans are guaranteed by legal representative, the founder, and one shareholder of AUFP, ESG Hainan and SME Guarantee Corporation.

 

(3)Loans are guaranteed by legal representative, and the founder of AUFP, AUFP and SME Guarantee Corporation.

 

(4)Loans were guaranteed by legal representative and the founder of AUFP, AUFP and SME Guarantee Corporation.

 

(5)$1,160,312 and $1,143,592 of loans from Bank of China were pledged by buildings as of March 31, 2026, and December 31, 2025, respectively.

 

F-7

 

 

Note 10 - Income Taxes

 

The income tax provision of the Company was zero for the three months ended March 31, 2026 and 2025. Certain PRC agricultural products, including Compost III and white button mushrooms, are eligible for income tax or value-added tax exemptions. The Company continues to maintain a valuation allowance against deferred tax assets where realization is uncertain due to the losses incurred.

 

Note 11 - Segment Information

 

The following table shows information by reportable segment for the three months ended March 31, 2026 and March 31, 2025:

 

                              
   White button
mushroom		   Compost III   Mushroom
powder
seasonings		   Corporate   Eliminations   Total 
March 31, 2026                              
Net operating revenues:                              
Third party   -    -    -   $-   $-    - 
Intersegment   -    -    -    -    -    - 
Total net operating revenues   -    -    -    -    -    - 
Cost of goods sold   -    -    -    -    -    - 
Selling, general administrative expenses   62,978    25,509    606,679    91,915    -    787,081 
Research and  development   -         -    -    -    - 
Operating income (loss)   (62,978)   (25,509)   (606,679)   (91,915)   -    (787,081)
Interest income (expense)   (64,993)   (8,858)   (49,160)   -    -    (123,011)
Other income (loss) — net   14,443    1,264    10,336    -    -    26,043 
Income before income taxes  $(113,528)  $(33,104)  $(645,503)  $(91,915)   -   $(884,050)

 

F-8

 

 

                               
   White button
mushroom		   Compost III   Mushroom
powder
seasonings		   Corporate   Eliminations   Total 
March 31, 2025                    
Net operating revenues:                              
Third party  $393,648   $111,778   $1,081,718   $-   $-   $1,587,144 
Intersegment   993,081    207,498    -    -    (1,200,579)   - 
Total net operating revenues   1,386,729    319,276    1,081,718    -    -    2,787,723 
Cost of goods sold   (200,137)   (146,568)   (1,159,507)   -    -    (1,506,212)
Intersegment cost of goods sold   (207,498)   -    (228,978)   -    436,476    - 
Total net operating cost   (407,635)   (146,568)   (1,388,485)   -    -    (1,942,688)
Selling, general administrative expenses   (44,758)   (6,468)   (211,123)   (26,981)   -    (289,330)
Research and development   (36,755)   (29,568)   -    -    -    (66,323)
Operating income (loss)   111,998    (70,826)   (288,912)   (26,981)   -    (274,721)
Interest income (expense)   (89,930)   (10,084)   (30,388)             (130,402)
Other income (loss) — net   31,194    83,727    14,049              128,970 
Income before income taxes  $53,262   $2,817   $(305,251)  $(26,981)  $-   $(276,153)

 

F-9

 

 

Note 12 - Convertible Notes, Warrants and Potential Dilution

 

Convertible notes payable were $475,000 and $275,000 as of March 31, 2026 and December 31, 2025, respectively. On August 5, 2025, the Company issued a convertible promissory note in the principal amount of $275,000 to Labrys Fund II, L.P. for an aggregate cash purchase price of $250,000 and issued a warrant to purchase 45,833 shares at an initial exercise price of $6.00 per share.

 

On February 6, 2026, the holder of the Labrys note converted $11,720.52 of accrued interest and fees into 2,800 shares of the Company’s common stock at a conversion price of $4.1859 per share. The conversion reduced the Company’s accrued liabilities and increased common stock and additional paid-in capital.

 

On March 6, 2026 and March 9, 2026, the Company issued convertible promissory notes in the principal amount of $110,000 each to Monroe Street Capital Partners, LP and Crom Structured Opportunities Fund I, LP, respectively. In connection with the issuance of the notes, the Company also issued warrants to each investor to purchase 18,333 shares of common stock at an exercise price of $6.00 per share.

 

The convertible notes and warrants may result in the issuance of additional shares of common stock upon conversion or exercise and therefore may have a dilutive effect on the Company’s existing stockholders. For the period ended March 31, 2026, the Company incurred a net loss; accordingly, the effect of the convertible notes, warrants and other potentially dilutive securities was anti-dilutive and excluded from the calculation of diluted loss per share. Therefore, basic and diluted loss per share were the same for the period presented.

 

Note 13 - Commitments and Contingencies

 

The Company’s PRC operating subsidiaries and affiliates have been involved in several supplier and contract payment disputes arising after the suspension of PRC mushroom operations and related liquidity constraints. These matters primarily relate to raw material, straw, construction, deposit refund and similar operating payables, several of which have been resolved by court-mediated settlements, judgments or staged payment arrangements. Management believes the liabilities related to these matters have been accrued, continues to monitor compliance with applicable settlements and judgments, and is evaluating any further enforcement exposure.

 

Note 14 - Subsequent Events

 

On April 10, 2026, the Company entered into a Split-Off and Share Exchange Agreement providing for the proposed split-off of ESG China Limited and the Company’s China operations in exchange for the surrender, redemption, retirement and cancellation of 10,432,800 shares of the Company’s common stock, subject to the terms and closing conditions described therein, including completion of the applicable Schedule 14C process and waiting period. Because the proposed transaction occurred after March 31, 2026 and had not closed as of the date of these unaudited consolidated financial statements, the Company has not reflected the China operations as discontinued operations as of March 31, 2026. If consummated, the transaction is expected to materially change the Company’s asset base, liabilities, historical operations, revenue sources and liquidity profile. The Company will evaluate discontinued operations presentation and related pro forma or other disclosure requirements in the reporting period in which the applicable criteria are met.

 

The Company’s consolidated financial statements as of March 31, 2026 continue to include the assets, liabilities and operating results of the China operations because the proposed split-off had not been completed as of the balance sheet date or the date of issuance of these unaudited consolidated financial statements. If consummated, the proposed split-off would significantly reduce the Company’s historical operating assets, liabilities and revenue-generating activities associated with the PRC operations and the Company would become substantially dependent on its North America operations and its ability to obtain additional financing. The proposed transaction may also materially affect the Company’s future liquidity, cash flows and going concern evaluation. There can be no assurance that the proposed split-off or related strategic repositioning efforts will be completed successfully.

 

On April 13, 2026, the holder of the Labrys note converted $10,080 of accrued interest and fees into 6,000 shares of the Company’s common stock at a conversion price of $1.68 per share.

 

F-10

 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

You should read the following discussion and analysis together with the unaudited consolidated financial statements and related notes included in this Quarterly Report on Form 10-Q and the audited consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2025.

 

Forward-Looking Statements

 

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include statements regarding our plans, expectations, financing needs, operating strategy, possible split-off of China operations, North America product development and commercialization, and other future events. These statements are based on current expectations and assumptions and involve risks and uncertainties. Actual results may differ materially from those expressed or implied by forward-looking statements. We undertake no obligation to update forward-looking statements except as required by law.

 

Overview

 

ESG Inc. is a Nevada holding company. Historically, the Company conducted substantially all operations through PRC subsidiaries engaged in mushroom composting, cultivation and processing. During the three months ended March 31, 2026, the PRC mushroom operations remained suspended and generated no revenue. The suspension, together with liquidity constraints and supplier payable matters, materially affected the Company’s results of operations and cash flows.

 

The Company is pursuing a strategic repositioning toward North America food operations, including mushroom-based snacks and alternative protein products through ESG Provisions, Inc. In the first quarter of 2026, the Company entered into financing transactions with Monroe Street Capital Partners, LP and Crom Structured Opportunities Fund I, LP and completed a limited conversion of accrued interest and fees under the Labrys note.

 

After quarter-end, the Company entered into a Split-Off and Share Exchange Agreement relating to its China operations, as described in Note 14. As of March 31, 2026, the Company continued to consolidate the China operations. Because the proposed split-off was entered into after quarter-end and had not closed as of March 31, 2026, the China operations are not presented as held for sale or discontinued operations in this Quarterly Report. The Company expects to reassess the presentation in future reporting periods if and when the transaction satisfies the applicable accounting criteria.

 

Results of Operations

 

Comparison of the three months ended March 31, 2026 and 2025

 

Revenue

 

For the three months ended March 31, 2026, the Company generated no revenue, compared to revenue of $1,587,144 for the three months ended March 31, 2025. The decrease was primarily due to the suspension of the PRC mushroom operations during the 2026 period.

 

Cost of Goods Sold and Gross Profit

 

Cost of goods sold was $0 for the three months ended March 31, 2026, compared to $1,506,212 for the three months ended March 31, 2025. Gross profit was $0 for the three months ended March 31, 2026, compared to $80,932 for the 2025 period. The decrease was consistent with the absence of revenue during the 2026 period.

 

Selling, General and Administrative Expenses

 

Selling, general and administrative expenses increased by $497,751 or 172.0%, to 787,081 for the three months ended March 31, 2026 from $289,330 for the three months ended March 31, 2025. The increase was primarily attributable to the classification of depreciation expense related to property, plant and equipment as selling, general and administrative expense during the suspension of production operations, together with public company and administrative costs.

 

Research and Development Expenses

 

Research and development expenses were $0 for the three months ended March 31, 2026, compared to $66,323 for the comparable 2025 period, due to the suspension of research and testing activities related to the PRC operations.

 

Interest Expense

 

Interest expense decreased by $7,391, or 5.7%, to $123,011 for the three months ended March 31, 2026 from $130,402 for the three months ended March 31, 2025.

 

Other Income

 

Other income decreased by $102,927, or 79.8%, to $26,043 for the three months ended March 31, 2026 from $128,970 for the three months ended March 31, 2025, primarily due to reduced government grant and subsidy income.

 

3

 

 

Net Loss

 

Net loss was $884,050 for the three months ended March 31, 2026, compared to $276,153 for the three months ended March 31, 2025. Net loss attributable to ESG Inc. was $682,214 for the three months ended March 31, 2026, compared to $212,664 for the three months ended March 31, 2025.

 

Liquidity and Capital Resources

 

As of March 31, 2026, the Company had cash of $206,391 and a working capital deficiency of approximately $6.9 million. Current liabilities included $6.2 million of short-term bank loans, $475,000 of convertible notes payable, $1.6 million of accounts payable, $110,590 of current deferred income and $5.3 million of accrued expenses and other current liabilities. These conditions raise substantial doubt about the Company’s ability to continue as a going concern.

 

The Company does not believe that its existing cash will be sufficient to fund operations and obligations for the next twelve months. The Company will need additional financing through debt, equity or strategic transactions. Financing may not be available on acceptable terms, or at all, and may involve dilution, restrictive covenants or other limitations.

 

Cash Flows from Operating Activities

 

Net cash used in operating activities was $708,659 for the three months ended March 31, 2026, compared to $1,625,425 for the three months ended March 31, 2025. The decrease in cash used was primarily attributable to lower accounts payable reductions for the three months ended March 31, 2026.

 

Cash Flows from Investing Activities

 

Net cash used in investing activities was $0 for the three months ended March 31, 2026, compared to $88,321 for the three months ended March 31, 2025. The decrease was due to no purchases of property, plant and equipment during the 2026 period.

 

Cash Flows from Financing Activities

 

Net cash provided by financing activities was $200,000 for the three months ended March 31, 2026, compared to $1,416,723 for the three months ended March 31, 2025. During the 2026 period, the Company received $200,000 in aggregate gross proceeds from convertible note financings.

 

Off-Balance Sheet Arrangements

 

The Company had no off-balance sheet arrangements as of March 31, 2026 that management believes are reasonably likely to have a current or future material effect on the Company’s financial condition or results of operations.

 

Recently Issued Accounting Pronouncements

 

Management continues to evaluate recently issued accounting standards, including ASU 2024-03 relating to disaggregation of income statement expenses and ASU 2023-09 relating to income tax disclosures. The Company does not expect these standards to have a material impact on its financial statements upon adoption, although they may require additional disclosures.

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

 

As a smaller reporting company, the Company is not required to provide the 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, management, with the participation of the Company’s principal executive officer and principal financial and accounting officer, evaluated the effectiveness of the Company’s disclosure controls and procedures as of March 31, 2026. Based on that evaluation, management concluded that the Company’s disclosure controls and procedures were not effective as of March 31, 2026.

 

Changes in Internal Control over Financial Reporting

 

During the three months ended March 31, 2026, there were no changes in the Company’s internal control over financial reporting that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

Limitations on Effectiveness of Controls

 

A control system can provide only reasonable, not absolute, assurance that its objectives are met. Because of inherent limitations, no evaluation of controls can provide absolute assurance that all control issues, errors or fraud, if any, have been detected.

 

4

 

 

PART II. OTHER INFORMATION

 

Item 1. Legal Proceedings

 

The Company’s PRC operating subsidiaries and affiliates have been involved in supplier and contract payment disputes arising from unpaid amounts owed to vendors following the suspension of PRC mushroom operations and related liquidity constraints. These matters are summarized in Note 13 to the unaudited consolidated financial statements and in the Company’s Annual Report on Form 10-K for the year ended December 31, 2025. Management believes the related liabilities have been accrued and continues to monitor settlement, judgment and enforcement exposure.

 

Item 1A. Risk Factors

 

As a smaller reporting company, the Company is not required to provide the information required by this Item. There have been no material changes from the risk factors disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2025, except that investors should consider the Company’s continuing liquidity constraints, suspension of PRC operations, proposed split-off of China operations and early-stage North America product commercialization plans.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

On February 6, 2026, the holder of the Labrys note converted $11,720.52 of accrued interest and fees into 2,800 shares of common stock at a conversion price of $4.1859 per share. On March 6, 2026 and March 9, 2026, the Company issued convertible promissory notes in the principal amount of $110,000 each to Monroe Street Capital Partners, LP and Crom Structured Opportunities Fund I, LP, respectively, and issued warrants to purchase 18,333 shares to each investor at an exercise price of $6.00 per share. These securities were issued in reliance on an exemption from registration under Section 4(a)(2) of the Securities Act and/or Rule 506(b) of Regulation D.

 

Item 3. Defaults Upon Senior Securities

 

None.

 

Item 4. Mine Safety Disclosures

 

Not applicable.

 

Item 5. Other Information

 

On February 6, 2026, the Company entered into transactions relating to the Moku brand and continued to evaluate North America mushroom-based snack opportunities. On April 10, 2026, after the quarter-end, the Company entered into a Split-Off and Share Exchange Agreement relating to the proposed split-off of its China operations and disclosed intended continuing North America activities through ESG Provisions, Inc. These matters are summarized in Note 14.

 

Item 6. Exhibits

 

Exhibit Description
3.1 Articles of Incorporation (incorporated by reference to prior filings).
3.2 Agreement and Plan of Merger by and between Plasma Innovative Inc. and ESG Inc. (incorporated by reference).
3.3 Articles of Merger between Plasma Innovative Inc. and ESG Inc. (incorporated by reference).
3.4 Bylaws of the Company (incorporated by reference).
10.1 Technology Assignment Agreement by and between Plasma Innovative Inc. and Hanliang Shao (incorporated by reference).
10.2 Investment and Cooperation Agreement with Funan Agricultural Recycling Investment Co. Ltd. (incorporated by reference).
10.3 Share Exchange Agreement between ESG Inc. and Funan Allied United Farmer Products Co., Ltd. dated September 28, 2023 (incorporated by reference).
10.4 Share Exchange Agreement between Plasma Innovative Inc. and ESG Inc. dated November 6, 2023 (incorporated by reference).
10.5 Securities Purchase Agreement, Convertible Promissory Note and Warrant with Monroe Street Capital Partners, LP (incorporated by reference to the Form 8-K filed March 12, 2026).
10.6 Securities Purchase Agreement, Convertible Promissory Note and Warrant with Crom Structured Opportunities Fund I, LP (incorporated by reference to the Form 8-K filed March 12, 2026).
31.1* Certification of Principal Executive Officer  pursuant to Rule 13a-14(a).
31.2* Certification of Principal Financial and Accounting Officer pursuant to Rule 13a-14(a).
32.1* Certification pursuant to 18 U.S.C. Section 1350.
32.2* Certification pursuant to 18 U.S.C. Section 1350.
101* Inline XBRL documents.
104* Cover Page Interactive Data File.

 

*Filed herewith.

 

5

 

 

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.  
   
Date: May 15, 2026  
   
By:   /s/ Zhi Yang  
Name: Zhi Yang  
Title: Chief Executive Officer  
(Principal Executive Officer)  
   
By: /s/ Edward F. Gobora  
Name: Edward F. Gobora  
Title: Chief Financial Officer  
(Principal Financial and Accounting Officer)  

 

6

 

Source: View Original Filing on SEC EDGAR

FAQ

How did ESGH perform financially in the quarter ended March 31, 2026?

ESG Inc. posted a much larger loss in Q1 2026. The company generated no revenue and reported a net loss of $884,050, compared with a $276,153 loss a year earlier. Net loss attributable to ESG Inc. was $682,214, or $0.03 per basic and diluted share.

Why did ESGH report zero revenue for the three months ended March 31, 2026?

Revenue fell to zero because PRC mushroom operations were suspended. ESG Inc. historically relied on China-based mushroom compost, fresh mushrooms and seasoning products, but those operations remained suspended throughout Q1 2026, eliminating sales that totaled $1,587,144 in the prior-year quarter.

What going concern issues did ESGH disclose in its Q1 2026 10-Q?

Management raised substantial doubt about continuing as a going concern. As of March 31, 2026, ESG Inc. had limited cash of $206,391, recurring losses and a working capital deficiency of about $6.9 million, and does not believe existing cash will fund the next twelve months without additional financing.

What is the proposed China split-off transaction mentioned by ESGH?

ESG Inc. plans to split off its China operations. On April 10, 2026, it signed a Split-Off and Share Exchange Agreement to divest ESG China Limited in exchange for cancelling 10,432,800 common shares. If completed, this would significantly change assets, liabilities, revenue sources and liquidity.

What new financing did ESGH obtain during the quarter ended March 31, 2026?

ESG Inc. raised cash through convertible notes and interest conversion. It issued two $110,000 convertible promissory notes, receiving $200,000 in aggregate gross proceeds, and allowed a Labrys noteholder to convert $11,720.52 of accrued interest and fees into 2,800 common shares at $4.1859 per share.

How much debt and other obligations does ESGH carry in the short term?

Short-term obligations are substantial relative to cash. At March 31, 2026, ESG Inc. reported $6,236,675 of short-term bank loans, $475,000 of convertible notes payable, $1,561,724 of accounts payable and $5,291,184 of accrued expenses and other current liabilities, against cash of $206,391.