Filed 2026-03-31 · Period ending 2025-12-31 · 39,821 words · SEC EDGAR
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# ESG Inc. (ESGH) — 10-K
**Filed:** 2026-03-31
**Period ending:** 2025-12-31
**Accession:** 0001520138-26-000093
**Source:** [SEC EDGAR](https://www.sec.gov/Archives/edgar/data/1883835/000152013826000093/)
**Origin leaf:** ac1d40d69da4ce4a2ec421f5c633ba753f6af795e5e5d4ebbf94cfad2adb7a17
**Words:** 39,821
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UNITED STATES
**SECURITIES AND EXCHANGE COMMISSION**
Washington, D.C. 20549
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**FORM 10-K**
(Mark One)
ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: **December 31, 2025**
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or
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number: **000-56532**
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**ESG INC.**
(Exact name of small business issuer as specified
in its charter)
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Nevada |
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87-1918342 | |
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(State or other jurisdiction of |
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(I.R.S. employer | |
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incorporation or formation) |
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Identification No.) | |
433 East Hillendale Road
Chadds Ford, PA 19317
(Address of principal executive offices)
267-467-5871
(Issuers telephone number)
Securities registered pursuant to Section 12(b)
of the Act:
**None**
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Securities registered pursuant to Section 12(g)
of the Act:
**Common Stock**
****
Indicate by check mark if the registrant is a well-known seasoned issuer,
as defined in Rule 405 of the Securities Act. Yes No
Indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act. Yes No
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 ( 232.405
of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes
No
Indicate by check mark whether the registrant
is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
(Check one):
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Large accelerated filer |
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Accelerated filer |
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Non-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.
If securities are registered pursuant to Section 12(b) of the Act,
indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to
previously issued financial statements.
Indicate by check mark whether any of those error corrections are restatements
that required a recovery analysis of incentive-based compensation received by any of the registrants executive officers during
the relevant recovery period pursuant to 240.10D-1(b).
Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act). Yes No
The aggregate market value of the registrants common equity
held by non-affiliates of the registrant, based on the closing price of $6.00 per share as quoted on OTC Markets on June 30, 2025, was
approximately $45,753,348.
State the number of shares outstanding of each of the issuers
classes of common equity, as of the latest practicable date: 25,902,268 common shares issued and outstanding as of March 27, 2026.
**Table of Contents**
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PAGE | |
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PART I |
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Item 1. |
Business |
3 | |
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Item 1A. |
Risk Factors |
8 | |
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Item 1B. |
Unresolved Staff Comments |
23 | |
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Item 1C. |
Cybersecurity |
23 | |
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Item 2. |
Properties |
23 | |
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Item 3. |
Legal Proceedings |
23 | |
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Item 4. |
Mine Safety Disclosures |
23 | |
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PART II |
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Item 5. |
Market for Common Equity, Related Stockholder
Matters and Issuer Purchases of Equity Securities |
23 | |
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Item 6 |
[Reserved] |
23 | |
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Item 7. |
Managements Discussion and Analysis
of Financial Condition and Results of Operations |
24 | |
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Item 7A. |
Quantitative and Qualitative Disclosures
About Market Risk |
28 | |
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Item 8. |
Financial Statements |
F-1 | |
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Item 9. |
Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure |
29 | |
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Item 9A. |
Controls and Procedures |
29 | |
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Item 9B. |
Other Information |
30 | |
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Item 9C. |
Disclosure Regarding Foreign Jurisdictions
that Prevent Inspections. |
30 | |
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PART III |
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Item 10. |
Directors, Executive Officers
and Corporate Governance |
30 | |
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Item 11. |
Executive Compensation |
34 | |
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Item 12. |
Security Ownership of Certain Beneficial
Owners and Management and Related Stockholder Matters |
35 | |
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Item 13. |
Certain Relationships and Related Transactions,
and Director Independence |
35 | |
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Item 14. |
Principal Accountant Fees and Services |
36 | |
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Item 15. |
Exhibits |
37 | |
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SIGNATURES |
39 | |
2
PART I
**FORWARD-LOOKING STATEMENTS**
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Certain statements made in this Annual Report
on Form 10-K are forward-looking statements (within the meaning of the Private Securities Litigation Reform Act of 1995)
regarding the plans and objectives of management for future operations. Such statements involve known and unknown risks, uncertainties
and other factors that may cause actual results, performance or achievements of the Registrant to be materially different from any future
results, performance or achievements expressed or implied by such forward- looking statements. The forward-looking statements included
herein are based on current expectations that involve numerous risks and uncertainties. The Registrants plans and objectives are
based, in part, on assumptions involving the continued expansion of business. Assumptions relating to the foregoing involve judgments
with respect to, among other things, future economic, competitive and market conditions and future business decisions, all of which are
difficult or impossible to predict accurately and many of which are beyond the control of the Registrant. Although the Registrant believes
its assumptions underlying the forward-looking statements are reasonable, any of the assumptions could prove inaccurate and, therefore,
there can be no assurance the forward-looking statements included in this Report will prove to be accurate. In light of the significant
uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as
a representation by the Registrant or any other person that the objectives and plans of the Registrant will be achieved.
Unless stated otherwise, the words we,
us, our, the Company or ESG in this Annual Report collectively refers to ESG Inc.,
a Nevada corporation.
**Item 1. Business**
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DESCRIPTION OF BUSINESS
Company Overview
We were incorporated under the name Plasma Innovative
Inc. on July 22, 2021 an emerging cold plasma application company. We intended to use our proprietary, cold plasma technology to treat
crops and plant seeds for agriculture. However, we have decided that it is in the best interest of our shareholders to cease operations
in the plasma application in the agriculture sector.
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 the Company issued to the ESGI Shareholders. The transaction has been accounted
for as a recapitalization of the Company, whereby ESGI is the accounting acquirer.
Immediately after completion of such share exchange, the Company has
65,000,000 authorized shares of common stock and a total of 25,899,468 issued and outstanding shares of common stock.
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.
Effective February 23, 2024 upon approval from FINRA, the Companys
name was changed from Plasma Innovative Inc. to ESG Inc., and its trading symbol was changed from PMIN to ESGH.
Business Overview
ESG Inc. (ESGI) was incorporated
in October 2022 as a Nevada holding corporation and is headquartered at Chadds Ford, PA and develops and operates sustainable plant-based
ingredients and food production and distribution with the planned expansion into the food related business with the substantial experience
of its management team, including experience and relationships in the industry of mushroom, agriculture and food in the world and the
capital markets in the States.
On September 28, 2023, ESG Inc. (ESGI)
entered into a share exchange agreement with Funan Allied United Farmer Products Co., Ltd., a China corporation (AUFP),
the shareholders of AUFP, (each a Shareholder, and collectively, the Shareholders), and Hainan ESG Technology
Co., Ltd., a China corporation (Hainan ESG). Pursuant to such agreement, the Shareholders exchanged their equity of AUFP
to Hainan ESG for shares of common stock of ESGI, and ESGI has agreed to offer the ESGI shares. Following this transaction, AUFP became
a 74.52% subsidiary of ESGI through Hainan ESG.
Neither the Company nor ESGI are Chinese operating
companies. They are Nevada holding companies that operate business through Funan Allied United Farmer Products Co., Ltd., which owns Anhui
Allied United Mushroom Technology Co., Ltd. and Anhui Allied United Mushroom Co., Ltd., all of whom are Chinese operating companies.
The Company exercises control over the operations
of its subsidiaries. On February 17, 2023, the China Securities Regulatory Commission, or CSRC, issued the Trial Administrative Measures
of Overseas Securities Offering and Listing by Domestic Companies, or the Trial Measures, which became effective on March 31, 2023. Pursuant
to the Trial Measures, domestic companies that seek to offer or list securities overseas, both directly and indirectly, should fulfill
the filing procedure and report relevant information to the CSRC. Based on the advice of PRC counsel, the Company believes that, as of
the date of this Annual Report, neither the Company nor its PRC subsidiaries is required to obtain approval from the CSRC, CAC or any
other PRC authority solely in connection with the Companys existing OTC quotation and Exchange Act reporting status in the United
States.
Our subsidiaries are formed and operating in the
Peoples Republic of China (together, the Material PRC Company) and have been duly established and is validly existing
as a company under the laws of the Peoples Republic of China (PRC Laws) and has received all authorizations required
by the Peoples Republic of China (the Governmental Authorizations) for its establishment to the extent such Governmental
Authorizations are required under applicable PRC Laws, and its business license is in full force and effect. The Material PRC Company
has the capacity and authority to own assets, to conduct business, and to sue and be sued in its own name under PRC Laws. The articles
of association, business license and other constitutional documents (if any) of the Material PRC Company complies with the requirements
of applicable PRC Laws and are in full force and effect. The Material PRC Company has not taken any corporate action, nor has any legal
proceedings commenced against it, for its liquidation, winding up, dissolution, or bankruptcy, for the appointment of a liquidation committee,
team of receivers or similar officers in respect of its assets or for any adverse suspension, withdrawal, revocation or cancellation of
its business license.
3
All of the equity interests of the Material PRC
Company are owned by ESG, through ESG China Limited, a Hong Kong company, and Hainan ESG Technology Co., Ltd, a PRC company, and we believe
the Material PRC Company has obtained all necessary Governmental Authorizations. The equity interests of the Material PRC Company are
owned by ESG, through its subsidiaries, free and clear of any pledge or other encumbrance under PRC Laws, and there are no outstanding
rights, warrants or options to acquire, or instruments convertible into or exchangeable for, any equity interest in the Material PRC Company
under PRC Laws.
All of our operations are conducted by our
subsidiaries and through our wholly-foreign-owned entity (WFOE) based in China which involves unique risks to investors.
The legal and operational risks associated with
being based in or having the majority of the Companys operations in China could result in a material change in the value of the
securities we are registering for sale or could significantly limit or completely hinder our ability to offer or continue to offer securities
to investors and cause the value of such securities to significantly decline or be worthless. Please see the Risk Factor titled We
are faced with risks and uncertainties as a foreign enterprise under PRC laws.
Regulatory Permission
As substantially all of our operations are conducted through PRC subsidiaries,
we are subject to PRC legal and regulatory requirements applicable to those operations. Based on advice of PRC counsel, we believe that,
as of the date of this Annual Report, our PRC subsidiaries have obtained the licenses and approvals required for the business they currently
conduct, and that neither the Company nor its PRC subsidiaries is currently required to obtain approval from the CSRC, CAC or other PRC
authority solely to continue the Companys existing OTC quotation and reporting status in the United States. However, PRC laws and
regulations in this area are evolving, and if future approvals, filings or permissions are required and are not obtained on a timely basis,
our business, financial condition, results of operations and the value of our common stock could be materially adversely affected.
Business Strategy and Operating Focus
The
Companys business strategy is to develop and operate sustainable food and food-related businesses, with an emphasis on operational
efficiency, product quality, food safety, and regulatory compliance. Management believes that consumer demand for sustainable and plant-based
food products, together with increasing food-safety and regulatory standards, may create opportunities for businesses that can operate
efficiently and meet applicable quality and compliance requirements.
The
Company seeks to focus its operations on areas where management believes it has relevant experience, including mushroom cultivation,
composting, food processing, and related distribution activities. Management also believes that the food industry may continue to experience
consolidation and increased regulatory scrutiny, which may affect both competitive conditions and operating costs across the industry.
The Companys objective is to position its operations to respond to these market conditions while maintaining appropriate oversight,
internal controls, and operating discipline.
4
Our Operating Subsidiary Companies
ESG is a holding company engaged in sustainable
food production and distribution directly or indirectly through our subsidiaries and currently owns operating subsidiaries in China. Our
operating subsidiaries are involved in direct mushroom composting, growing, food production, distribution as well as import and export
of food. We believe that the growing global demand for sustainable high-quality food presents a unique opportunity for companies engaged
in this critical area that is being paid increasing attention by global investors.
Funan Allied United Farmer Product Co., Ltd. (AUFP)
was created in 2017 in China by US mushroom industry participants with the support of strategic investors to revolutionize Chinas
mushroom industry and create enhanced standards for food safety, sustainability, greenness, and resulting high-quality food products to
serve Chinese consumers and regional Asian export markets. AUFP engages in the research and development, composting, cultivation, processing,
packaging, and distribution of high-quality white button mushrooms from Fuyang, China. As a bio-sustainable and resources-recyclable company,
with wheat straw and animal manure as the major raw materials, kinds of agricultural waste, AUFP is dedicated to building Fuyang into
the hub to supply high-quality mushroom, compost and organic fertilizer in Asia with the support of industrial experts and capital.
Currently, AUFP owns approximately 56 acres of
industrial land use rights and built bunkers, tunnels and growing facilities, totaling approximately 300,000 square feet, with fresh white
button mushrooms capacity of 7,300 tons per year and production capacity to 90,000 tons of Phase III compost per year, of which two-thirds
are planned to be sold to third partys farms.
As an AUFPs subsidiary, Anhui Allied United
Mushroom Technology Co., Ltd. (AUMT) operates a Phase III compost manufacturing facility to distribute to its own and third-party
growing facilities in China and east and southeast Asia while Anhui Allied United Mushroom Co. Ltd. (AUM), an AUFP subsidiary,
is a company engaged in growing, packing and distributing fresh white button mushrooms in China.
Anhui Allied United Mushroom Technology Co., Ltd.
Anhui Allied United Mushroom Technology Co., Ltd.
(AUMT) was created in China in March 2018, to manufacture white button mushroom compost.
5
White button mushroom compost is a unique living
organism. It varies according to the environment where it is produced. Making mushroom compost is a complex process that AUMT has been
perfecting. AUMT uses the art of the state phase III composting process to make compost under the supervision of a team of specialists,
taking raw materials from the local area, for our own farms and other mushroom growers.
Phase III composting process is composed of:
Phase I: Bales of straw are
mixed with animal manure, water and gypsum. When mixed, the material is filled into large aerated concrete vessels, called bunkers. During
this phase the compost reaches temperatures of 80 degrees Celsius. After 1013 days the Phase I process is completed, ready for
the Phase II process to begin.
Phase II: The material is
removed from the bunkers and filled into closed tunnels, where we monitor and control a series of temperature changes the most
important of which is pasteurization. Pasteurization helps remove any unwanted organisms from the compost. The next and most important
stage of Phase II is the conditioning of the compost. This means that microbes convert ammonia and amines into protein. Phase II takes
approximately 10 days. The climate controlled tunnel heats the compost to 58 degrees Celsius for pasteurization and then
conditions it at 48 degrees Celsius.
Phase III: Once the Phase
II process is completed, the compost is cooled and removed from the Phase 2 tunnels. Mushroom spawn is added and the compost is then refilled
into Phase III tunnels. Spawn is usually made with rye or millet grain that has been sterilized and inoculated with mushroom tissue (mycelium).
This Phase III incubation process takes 17-19 days. During this time mycelium grows throughout the substrate. After the 17-19 days incubation
period, the Phase III compost is loaded into specially designed trucks for transport to the growing facility.
Currently AUMT owns 9 bunkers, 31 tunnels and related auxiliary facilities
and equipment with the capacity of 90,000 tons annually of Phase III compost to supply.
Anhui Allied United Mushroom Co., Ltd.
Anhui Allied United Mushroom Co., Ltd. (AUM)
was created in China in April 2018, to grow fresh white button mushroom and provide white button mushroom growing management services.
AUM produces high quality fresh white button mushrooms.
The growing process is composed of the following steps:
As the mushroom compost is
filled into the growing rooms, a layer of peat is applied to the surface of the Phase III compost. The layer is called the casing layer
and is essential for the formation of the mushrooms. Over a 3-4 days period, the mushroom tissue grows throughout the compost and up through
the casing layer.
The environment is then altered
to simulate an autumn day, which promotes the formation of mushrooms. As a result, tiny mushroom heads (pins) begin to appear. During
the next two weeks the levels of moisture, temperature, humidity, carbon dioxide and air movement are carefully monitored.
The pins eventually grow into
mushrooms. The mushrooms are picked by hand to maintain the highest possible quality. All our mushrooms are cooled quickly after harvesting
and are packed and transported in refrigerated trucks to wholesale markets or supermarkets.
Currently, AUM owns approximately 335,000 square
feet of growing area, with annual production of fresh white button mushroom of approximately 20,000,000 LBS.
From the fourth quarter of 2024, AUFP began its
processing business by drying, milling, mixing and packing of off-grade mushroom and mushroom stems into mushroom seasoning powder. All
of processed mushroom seasoning powder is exclusively for export according to the signed sale contract.
6
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**Market Overview**
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Health Diet Trend
We believe that people are searching for vegan
and plant-based options for every aspect of their lifestyle. Mushrooms are a nutritious vegetarian delicacy and contain many vitamins
and minerals but are low on sugar and fat. We believe that they are becoming a preferable and quality ingredient source for plant-based
food. As an innovative food company with the whole production chain of mushrooms, we are committed to innovating and providing sustainable
mushroom-based food and its ingredients.
Mushrooms are popular in most of the developed
countries and are becoming accepted in many developing countries. The market for mushrooms is growing rapidly because of their rich nutritional
value and special taste aroma, and flavor. The global plant-based food market is expected to reach 77.8 billion U.S. dollars in 2025.
The forecast projects that by 2030 the market will have more than doubled. (https://www.statista.com/statistics/1280394/global-plant-based-food-market-value/).
Quality Phase III Compost and Strong Demand
We believe that the key factor for the successful
growing of white button mushrooms is composting. Composting is a delicate and difficult business, especially in large-scale and commercial
indoor growing. ESG believes it is positioning itself as the compost provider in the Asian Pacific area with its management expertise
and experience in composting and advantages of being near a raw material supply.
**Our Competitive Strengths**
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Experienced Management
ESGs management is composed of professionals
in mushroom composting, growing, food processing and marketing, and the food industry, as well as in capital markets and public companies.
We have experienced experts in white button mushroom production and, especially, composting, on our management team. Experienced and senior
experts are the most important asset to ESG. ESG is designing and executing a comprehensive training system to continue to build up the
management team for our operations and the provisions of management service.
Focusing Key Stages of Food Production
ESG is focusing on the composting business and food processing business,
especially mushroom related, which is two ends of the most value added.
ESG is focusing on research and development in connection with the
improvement of mushroom composting production and of the production of mushroom based food and its ingredients. We concentrate ESGs
capital and efforts on key stages.
Production Location in the raw material base
A location near the supply of excellent raw materials
such as wheat straw and animal manure are very important in order to control the cost of production and the quality of mushroom. ESGs
current and planned production facilities are located in excellent places of raw materials to be collected such as Funan in China.
Employees
We currently have around 20 full-time management
employees and 60 full-time operating workers along with around 145 part time harvesters and runners.
Intellectual Property
ESG has 1 invention Patent, 14 Utility Model Patents, registered and
17 Utility Model Patents with pending effectiveness.
Reports to Security Holders
We file reports and other information with the SEC. The
SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that
file electronically with the SEC at http://www.sec.gov.
7
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Item 1A. Risk Factors
**Risk Factors**
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*An investment in our common stock involves a high degree of risk.
You should carefully consider the risks described below and the other information contained in this report before deciding to invest in
our common stock.*
**
**Risks Related to our Business**
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We face risks related to health epidemics that could impact
our sales and operating results.
Our business could be adversely affected by the
effects of a widespread outbreak of contagious disease, including COVID-19. Although the impact of COVID-19 was temporary on our business
and operations in 2021 due to some shutdowns in China, any outbreak of contagious diseases in the future, and other adverse public health
developments, particularly in China, could have a material and adverse effect on our business operations. These could include disruptions
or restrictions on our ability to conduct our operations, as well as temporary closures of our facilities and ports or the facilities
of our customers and third-party service providers. Any disruption or delay of our customers or third-party service providers would likely
impact our operating results and the ability of the Company to continue as a going concern. In addition, a significant outbreak of contagious
diseases in the human population could result in a widespread health crisis that could adversely affect the economies and financial markets
of China and many other countries, resulting in an economic downturn that could affect demand for our products and significantly impact
our operating results.
The loss of any of our key customers could reduce our revenues
and our profitability.
Our key customers in fiscal year 2024 were distributor
in Hefei China and processor in Fujian province China. If we cannot maintain long-term relationships with these major customers, the loss
of our sales to them could have an adverse effect on our business, financial condition and results of operations. There can be no assurance
that we will maintain or improve the relationships with these customers, or that we will be able to continue to supply these customers
at current levels or at all. In addition, having a relatively small number of customers/distributors may cause our quarterly results to
be inconsistent, depending upon these customers daily capacity to sell.
Our failure to comply with PRC food safety laws may require
us to incur significant costs.
Manufacturers in the Chinese food industry are
subject to compliance with PRC food safety laws and regulations. Such laws require manufacturers to comply with regulations with respect
to food, food additives, packaging, and food production sites, facilities and equipment. Failure to comply with PRC food safety laws may
result in fines, suspension of operations and, in more extreme cases, criminal proceedings against an enterprise and its management. The
Chinese government may also change the existing laws or regulations or impose additional or stricter laws or regulations, compliance with
which may cause us to incur significant capital expenditures, which we may be unable to pass on to our customers through higher prices
for our products.
We lack product and business diversification.
Accordingly, our future revenues and earnings are more susceptible to fluctuations than a more diversified company.
Our primary business activities have historically
focused on fresh white button mushrooms products although we began a fresh mushroom processing business in the fourth quarter of 2024.
Because our focus has historically been limited in this way, any risk affecting the fresh mushrooms industry or consumers desire
for fresh mushrooms products could disproportionately affect our business. To enhance our ability to continue to operate, we are dedicating
resources to generate recurring revenues and sustainable operating cash flows. On December 31, 2022, AUM, a subsidiary of ESG acquired
12 mushroom houses by assuming debt. The new operations further increase the production of mushrooms and reduce fixed cost per unit to
reach the scale effect of economics. On January 5, 2022, Funan Agricultural Reclining Investment Co. Ltd signed an agreement to fund $18.09
million by 10-year debt financing for the expansion of composting facilities, which will further generate revenue on compost sales with
a higher profit margin. In 2024, we improved efficiency with current facilities, the revenue of fresh mushroom reached USD 5.86 million
and the processing revenue of fresh mushroom reached USD 3.94 million, respectfully; on the other side, we were expanding our composting
facilities to generate compost sale revenue of USD 2.88 million in 2024. In 2025, the revenue was USD 4.58 million due to the suspension
of production in the fourth quarter.
Governmental support to the agriculture industry and/or
our business may decrease or disappear.
Currently the Chinese government is supporting
agriculture with tax exemption, especially e-commerce in agriculture. In addition, our local government has been supporting our company
by providing subsidies from time to time. These beneficial policies may change, so the support we receive from the government may decrease
or disappear, which may impact our development.
8
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Beneficial tax incentives may disappear.
We operate our business through our Chinese subsidiaries.
Currently the agriculture industry is highly supported by the Chinese government. For example, to further strengthen and standardize the
support of comprehensive agricultural development to the characteristic industries with agricultural advantages, the Chinese National
Office of Comprehensive Agricultural Development has decided to carry out the compilation of *The Plan for Comprehensive Agricultural
Development to Support the Agricultural Advantage and Characteristic Industries (2019-2021)*(the New Plan). Mushrooms
are emphasized and classified as a dominant and characteristic industry, which may become the objects of policy-support
issue in the future. However, the New Plan has not yet been formally approved and the final result remains to be further observed.
As an agricultural production enterprise, we are
enjoying certain tax benefits, including a tax waiver of VAT and income tax. If the tax policies change in a way that some or all of the
tax benefits we presently receive are cancelled, we may need to pay much higher taxes which will reduce or eliminate our profit margin.
We are subject to extensive regulations by the Chinese
government.
The food industry is subject to extensive regulations
by Chinese government agencies. Among other things, these regulations govern the manufacturing, importation, processing, packaging, storage,
exportation, distribution and labelling of our products. New or amended statutes and regulations, increased production at our existing
facilities, and our expansion into new operations and jurisdictions may require us to obtain new licenses and permits and could require
us to change our methods of operations at costs that could be substantial.
Failure to make adequate contributions
to the Housing Provident Fund for certain employees of our PRC subsidiaries could subject us to labor disputes or complaints and adversely
affect our financial condition.
Pursuant to the Regulations on Management of Housing
Provident Fund (HPF), promulgated by the State Council on April 3, 1999 and amended on March 24, 2002, PRC enterprises must
register with relevant HPF management center, open special HPF accounts at a designated bank and make timely HPF contributions for their
employees. In accordance with the Regulations on Management of Housing Provident Fund and the Rules for Administrative Enforcement of
Housing Provident Fund in Anhui Province, an enterprise that fails to register with HPF management center or open accounts for its employees
shall be ordered to do so within the prescribed time; if a PRC company fails to comply within the prescribed time, it could be fined between
RMB10,000 and RMB50,000.
Furthermore, if such enterprise fails to pay in
full or in part its HPF contributions, such enterprise will be ordered by the HPF enforcement authorities to make such contributions,
and may be compelled by the peoples court that has jurisdiction over the matter to make such contributions. Pursuant to the relevant
HPF laws and regulations, HPF contributions are only required for employees with urban housing registration. For employees with rural
housing registration, contributions are voluntary and are not required. In addition, there are discrepancies in the interpretation and
enforcement of such regulations at the national and local level. Local and national enforcement practices at times vary significantly.
Our PRC subsidiaries have not opened HPF accounts
for their employees (almost all of them are with rural housing registration). With respect to employees for whom our PRC subsidiaries do not make HPF
contributions, our PRC subsidiaries have entered into employment arrangements intended to clarify that compensation includes an amount
in lieu of such contributions and that the employees are responsible for their own related housing arrangements. However, these arrangements
may not be sufficient to eliminate the risk that the PRC subsidiaries could be required by the relevant authorities to make full HPF contributions
and could face employee claims or other proceedings relating to such contributions. As of
the date of this report, our PRC subsidiaries have not received any demand or order from the competent authorities with respect to their
HPF contribution. To the extent the PRC subsidiaries are required to make such payments, our financial condition will likely be adversely
affected.
Mushrooms are subject to risks related to diseases, pests,
and system malfunction.
Mushrooms are exposed to diseases and pests. Pests
and diseases during the cultivation process may significantly decrease the quantity of quality mushrooms, which may impact our revenue.
Temperature can have a significant impact on
the growth and the quality of mushrooms. Although our growing facilities are indoors and operated under monitored environmental
controls, we may still experience malfunctions in cooling, airflow, or heating
system.
9
****
Our farms may fail to comply with
the legal requirements and our quality standards and be negatively impacted by the quality of our raw materials.
Our
farms are required to comply with applicable legal and regulatory requirements. If we fail to comply with PRC laws relating to food safety,
composting, cultivation or related operations, the relevant governmental authorities could require us to suspend or modify operations.
In addition, the quality of our raw materials may affect our ability to meet our internal quality standards and applicable regulatory
requirements.
Increases in our raw materials costs may negatively affect
our operating results.
The price of the raw materials we use may be inelastic
when we wish to purchase supplies. We cannot guarantee that we will be able to control our material expenses. In addition, as we are competing
based upon low cost, we will risk losing customers by increasing our selling prices. To the extent our costs increase beyond the price
we can charge our customers, our operating results could be harmed.
We may require additional financing
in the future and our operations could be curtailed if we are unable to obtain required additional financing when needed.
While we do not anticipate seeking additional
financing in the immediate future, any additional equity may result in dilution to the holders of our outstanding shares of capital stock.
Additional debt financing may include conditions that would restrict our freedom to operate our business, such as conditions that:
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| increase our vulnerability to general adverse economic and industry conditions; | |
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| require us to dedicate a portion of our cash flow from operations to payments on our debt, thereby reducing the availability of our
cash flow to fund capital expenditures, working capital and other general corporate purposes; and | |
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| limit our flexibility in planning for, or reacting to, changes in our business and our industry. | |
We cannot guarantee that we will be able to obtain any additional financing
on terms that are acceptable to us, or at all.
We are substantially dependent upon our senior management.
We are highly dependent on our senior management
to manage our business and operations. In particular, we rely substantially on our Chief Executive Officer Zhi Yang on current stage.
Failure to manage our growth could
strain our management, operational and other resources, which could materially and adversely affect our business and prospects.
Our growth strategy includes building a food processing
facility, developing export customers of our existing fresh mushroom and Phase III compost, and increasing varieties of agricultural and
food products. Pursuing these strategies has resulted in and will continue to result in substantial demands on management resources. In
particular, the management of our growth will require, among other things:
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| stringent cost controls and sufficient liquidity; | |
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| strengthening of financial and management controls; | |
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| increased marketing, sales and support activities; and | |
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| hiring and training of new personnel. | |
If we are not able to manage our growth successfully, our business
and prospects would be materially and adversely affected.
Insufficient insurance coverage could expose us to significant costs and
business disruption.
While we have purchased insurance to cover certain
events, the amounts and scope of coverage could leave our business inadequately protected from loss. If we were to incur substantial losses
or liabilities due to fire, explosions, floods, other natural disasters or accidents or business interruption, our results of operations
could be materially and adversely affected.
If we fail to protect our intellectual property rights,
it could harm our business and competitive position.
We rely on a combination of patents, trademark,
domain name laws and non-disclosure agreements and other methods to protect our intellectual property rights.
Implementation of PRC intellectual property-related
laws have historically been lacking, primarily because of ambiguities in the PRC laws and enforcement difficulties. Accordingly, intellectual
property rights and confidentiality protections in China may not be as effective as in the United States or other western countries. Furthermore,
policing unauthorized use of proprietary technology is difficult and expensive, and we may need to resort to litigation to enforce or
defend patents issued to us or to determine the enforceability, scope and validity of our proprietary rights or those of others. Such
litigation and an adverse determination in any such litigation, if any, could result in substantial costs and diversion of resources and
management attention, which could harm our business and competitive position.
10
We may be exposed to trademark infringement
and other claims by third parties which, if successful, could disrupt our business and have a material adverse effect on our financial
condition and results of operations.
If we sell our branded products internationally,
and as litigation becomes more common in China, we face a higher risk of being the subject of claims for trademark infringement, invalidity
or indemnification relating to other parties proprietary rights. The defense of trademark suits, including trademark infringement
suits, and related legal and administrative proceedings can be both costly and time consuming and may significantly divert the efforts
and resources of our management personnel. Furthermore, an adverse determination in any such litigation or proceedings to which we may
become a party could cause us to:
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| pay damage awards; | |
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| seek licenses from third parties; | |
|
| pay ongoing royalties; | |
|
| redesign our branded products; or | |
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| be restricted by injunctions, | |
each of which could effectively prevent us from
pursuing some or all of our business and result in our customers or potential customers deferring or limiting their purchase or use of
our products. This could have a material adverse effect on our financial condition and results of operations.
There are implications of being an
emerging growth company.
As a company with less than $2.0 billion in revenue
during its last fiscal year, we qualify as an emerging growth company as defined in the JOBS Act. For as long as a company
is deemed to be an emerging growth company, it may take advantage of specified reduced reporting and other regulatory requirements that
are generally unavailable to other public companies. These provisions include:
|
- | a requirement to have only two years of audited financial statements and only two years of related Managements Discussion and
Analysis included in an initial public offering registration statement; | |
|
- | an exemption to provide less than five years of selected financial data in an initial public offering registration statement; | |
|
- | an exemption from the auditor attestation requirement in the assessment of our internal controls over financial reporting; | |
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- | an exemption from the adoption of new or revised financial accounting standards until they would apply to private companies; | |
|
- | an exemption from compliance with any new requirements adopted by the Public Company Accounting Oversight Board requiring mandatory
audit firm rotation or a supplement to the auditors report in which the auditor would be required to provide additional information
about the audit and the financial statements of the issuer; and | |
|
- | reduced disclosure about our executive compensation arrangements. | |
An emerging growth company is also exempt from
Section 404(b) of the Sarbanes-Oxley Act, which requires that the registered accounting firm shall, in the same report, attest to and
report on the assessment on the effectiveness of the internal control structure and procedures for financial reporting. Similarly, as
a Smaller Reporting Company we are exempt from Section 404(b) of the Sarbanes- Oxley Act and our independent registered public accounting
firm will not be required to formally attest to the effectiveness of our internal control over financial reporting until such time as
we cease being a Smaller Reporting Company.
As an emerging growth company, we are exempt from
Section 14A (a) and (b) of the Exchange Act which require stockholder approval of executive compensation and golden parachutes.
Section 107 of the JOBS Act provides that an emerging
growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying
with new or revised accounting standards. In other words, an emerging growth company can delay the adoption of certain accounting standards
until those standards would otherwise apply to private companies. We have elected to take advantage of the benefits of this extended transition
period. Our financial statements may therefore not be comparable to those of companies that comply with such new or revised accounting
standards.
11
We
will cease to be an emerging growth company upon the earliest of:
|
| the
last day of the fiscal year following the fifth anniversary of the date of the first sale of our common equity securities pursuant to
an effective registration statement under the Securities Act; |
|
|
| the
last day of the fiscal year in which our annual gross revenues equal or exceed $1.235 billion; |
|
|
| the
date on which we have, during the previous three-year period, issued more than $1.0 billion in non-convertible debt securities; or |
|
|
| the
date on which we become a large accelerated filer, meaning the market value of our common equity held by non-affiliates exceeds $700
million as of the end of our most recently completed second fiscal quarter, we have been subject to the reporting requirements of the
Exchange Act for at least twelve calendar months, and we have filed at least one annual report. |
|
**Risks Related to Doing Business in China**
****
Because all of our operations are
in China currently, our business is subject to the complex and rapidly evolving laws and regulations there. The PRC government may exercise
significant oversight and discretion over the conduct of our business and may intervene in or influence our operations at any time, which
could result in a material change in our operations and/or the value of our common stock.
Although substantially all of our operations are conducted in China
through our subsidiaries, we are a Nevada corporation and our current independent registered public accounting firm is Tang Qian &
Associates, PLLC, a Texas-based PCAOB-registered accounting firm engaged on February 18, 2026. Nevertheless, changes in U.S. or PRC law,
regulation, inspection access, data-transfer restrictions, or the cross-border audit environment could adversely affect our reporting
obligations, financing activities, and the market for our securities.
As a business operating in the PRC, we are subject to the laws and
regulations of the PRC, which can be complex and evolve rapidly. The PRC government has the power to exercise significant oversight and
discretion over the conduct of our business, and the regulations to which we are subject may change rapidly and with little notice to
us or our shareholders. As a result, the application, interpretation, and enforcement of new and existing laws and regulations in the
PRC are often uncertain. In addition, these laws and regulations may be interpreted and applied inconsistently by different agencies or
authorities, and inconsistently with our current policies and practices. New laws, regulations, and other government directives in the
PRC may also be costly to comply with, and such compliance or any associated inquiries or investigations or any other government actions
may:
|
| Delay or impede our development, | |
|
| Result in negative publicity or increase our operating costs, | |
|
| Require significant management time and attention, and | |
|
| Subject us to remedies, administrative penalties and even criminal liabilities that may harm our business, including fines assessed
for our current or historical operations, or demands or orders that we modify or even cease our business practices. | |
The promulgation of new laws or regulations, or the new interpretation
of existing laws and regulations, in each case that restrict or otherwise unfavorably impact the ability or manner in which we conduct
our business and could require us to change certain aspects of our business to ensure compliance, which could decrease demand for our
products, reduce revenues, increase costs, require us to obtain more licenses, permits, approvals or certificates, or subject us to additional
liabilities. To the extent any new or more stringent measures are required to be implemented, our business, financial condition and results
of operations could be adversely affected as well as materially decrease the value of our common stock.
The Chinese government has exercised and continues to exercise substantial
control over virtually every sector of the Chinese economy. Our ability to operate in China may be harmed by changes in its laws and regulations,
including those relating to customer rights, taxation, employment, property and other matters. The central or local governments of China
may impose new, stricter regulations or interpretations of existing regulations that would require additional expenditures and efforts
on our part to ensure our compliance with such regulations or interpretations. Accordingly, government actions in the future, including
any decision not to continue to support recent economic reforms and to return to a more centrally planned economy or regional or local
variations in the implementation of economic policies, could have a significant effect on economic conditions in China or particular regions
thereof, and could require us to divest ourselves of any interest we then hold in Chinese properties. Given recent statements by the Chinese
government indicating an intent to exert more oversight and control over offerings that are conducted overseas and/or foreign investment
in China-based issuers, any such action could significantly limit or completely hinder our ability to offer or continue to offer securities
to investors and cause the value of such securities to significantly decline or become worthless.
Recently, the General Office of the Central Committee of the Communist
Party of China and the General Office of the State Council jointly issued the Opinions on Severely Cracking Down on Illegal Securities
Activities According to Law, or the Opinions, which was made available to the public on July 6, 2021. The Opinions emphasized the need
to strengthen the administration over illegal securities activities, and the need to strengthen the supervision over overseas listings
by Chinese companies. Effective measures, such as promoting the construction of relevant regulatory systems, will be taken to deal with
the risks and incidents of China-concept overseas listed companies. Such future administrative measure or actions may have material adverse
effects on the offering of our securities to investors, our proposed listing in the U.S. or our business operation, for example in the
event that it is required that we should obtain permission from the Chinese government to offer our securities to investors or list on
U.S. exchanges, it is unpredictable whether such permission can be obtained by us, as the case may be, or, if permission is obtained,
whether it could be later denied or rescinded. If we, including our subsidiaries, do not receive or maintain such permissions or approvals,
or inadvertently conclude that such permissions or approvals are not required, it could significantly limit or completely hinder our ability
to offer or continue to offer our securities to investors, list in the U.S. and cause the value of our securities to significantly decline
or become worthless. As of the date hereof, we have not received any inquiry, notice, warning, or sanctions from PRC government authorities
in connection with the Opinions.
12
On June 10, 2021, the Standing Committee of the National Peoples
Congress of China (the SCNPC), promulgated the PRC Data Security Law, which took effect in September 2021. The PRC Data
Security Law imposes data security and privacy obligations on entities and individuals carrying out data activities, and introduces a
data classification and hierarchical protection system based on the importance of data in economic and social development, and the degree
of harm it will cause to national security, public interests, or legitimate rights and interests of individuals or organizations when
such data is tampered with, destroyed, leaked, illegally acquired or used. The PRC Data Security Law also provides for a national security
review procedure for data activities that may affect national security and imposes export restrictions on certain data and information.
In early July 2021, regulatory authorities in China launched cybersecurity
investigations with regard to several China-based companies that are listed in the United States. In July 2021, the Chinese cybersecurity
regulator launched the investigation on three Internet platforms.
On November 14, 2021, the CAC released the Regulations on the Network
Data Security Management (Draft for Comments) (the Data Security Management Regulations Draft), to solicit public opinion
and comments. Pursuant to the Data Security Management Regulations Draft, data processors holding more than one million users individual
information shall be subject to cybersecurity review before listing abroad. Data processing activities refers to activities such as the
collection, retention, use, processing, transmission, provision, disclosure, or deletion of data. According to the latest amended Cybersecurity
Review Measures, which was promulgated on December 28, 2021 and became effective on February 15, 2022, and replaced the Cybersecurity
Review Measures promulgated on April 13, 2020, online platform operator holding more than one million users individual information
shall be subject to cybersecurity review before listing abroad. Since the Cybersecurity Review Measures is new, the implementation and
interpretation thereof is not yet clear.
On July 30, 2021, the State Council promulgated the Regulations on
the Protection of the Security of Critical Information Infrastructure, or the Regulations, which took effect on September 1, 2021. The
Regulations supplement and specify the provisions on the security of critical information infrastructure as stated in the Cybersecurity
Review Measures. The Regulations provide, among others, that protection department of certain industry or sector shall notify the operator
of the critical information infrastructure in time after the identification of certain critical information infrastructure. On September
20, 2021, the SCNPC promulgated the Personal Information Protection Law of the PRC, or the Personal Information Protection Law, which
took effect in November 2021. As the first systematic and comprehensive law specifically for the protection of personal information in
the PRC, the Personal Information Protection Law provides, among others, that (i) an individuals consent shall be obtained to use
sensitive personal information, such as biometric characteristics and individual location tracking, (ii) personal information operators
using sensitive personal information shall notify individuals of the necessity of such use and impact on the individuals rights,
and (iii) where personal information operators reject an individuals request to exercise his or her rights, the individual may
file a lawsuit with a Peoples Court.
On February 17, 2023, the CSRC issued the New Administrative Rules
Regarding Overseas Listings, which became effective on March 31, 2023. According to the new administrative rules, among other things,
a domestic company in the PRC that seeks to offer and list securities in overseas markets shall fulfill the filing procedure with the
CSRC as per requirements thereof. Initial public offerings or listings in overseas markets shall be filed with the CSRC within 3 working
days after the relevant application is submitted overseas. If an issuer offers securities in the same overseas market where it has previously
offered and listed securities subsequently, filings shall be made with the CSRC within 3 working days after the offering is completed.
Upon occurrence of any material event, such as change of control, investigations or sanctions imposed by overseas securities regulatory
agencies or other relevant competent authorities, change of listing status or transfer of listing segment, or voluntary or mandatory delisting,
after an issuer has offered and listed securities in an overseas market, the issuer shall submit a report thereof to CSRC within 3 working
days after the occurrence and public disclosure of such event. Further, an overseas securities company that serves as a sponsor or lead
underwriter for overseas securities offering and listing by domestic companies shall file with the CSRC within 10 working days after signing
its first engagement agreement for such business, and submit to the CSRC, no later than January 31 each year, an annual report on its
business activities in the previous year associated with overseas securities offering and listing by domestic companies. If an overseas
securities company has entered into engagement agreements before the effectuation of the Trial Administrative Measures and is serving
in practice as a sponsor or lead underwriter for overseas securities offering and listing by domestic companies, it shall file with the
CSRC within 30 working days after the Trial Administrative Measures take effect.
On February 24, 2023, the CSRC promulgated the Provisions on Strengthening
Confidentiality and Archives Administration of Overseas Securities Offering and Listing by Domestic Companies (the Confidentiality
and Archives Administration Provisions), which will also become effective on March 31, 2023. The Confidentiality and Archives Administration
Provisions set out rules, requirements and procedures relating to provision of documents, materials and accounting archives for securities
companies, securities service providers, overseas regulators and other entities and individuals in connection with overseas offering and
listing, including without limitation to, domestic companies that carry out overseas offering and listing (either in direct or indirect
means) and the securities companies and securities service providers (either incorporated domestically or overseas) that undertake relevant
businesses shall not leak any state secret and working secret of government agencies, or harm national security and public interest, and
a domestic company shall first obtain approval from competent authorities according to law, and file with the secrecy administrative department
at the same level, if it plans to, either directly or through its overseas listed entity, publicly disclose or provide any documents and
materials that contain state secrets or working secrets of government agencies. Working papers produced in the Chinese mainland by securities
companies and securities service providers in the process of undertaking businesses related to overseas offering and listing by domestic
companies shall be retained in the Chinese mainland. Where such documents need to be transferred or transmitted to outside the Chinese
mainland, relevant approval procedures stipulated by regulations shall be followed.
13
Our business may be subject to a variety of PRC laws and other obligations
regarding cybersecurity and data protection.
Our business may be subject to PRC laws relating to the collection,
use, sharing, retention, security, and transfer of confidential and private information, such as personal information and other data.
These laws continue to develop, and the PRC government may adopt other rules and restrictions in the future. Non-compliance could result
in penalties or other significant legal liabilities.
Pursuant to the PRC Cybersecurity Law, which was promulgated by the
Standing Committee of the National Peoples Congress on November 7, 2016 and took effect on June 1, 2017, personal information and
important data collected and generated by a critical information infrastructure operator in the course of its operations in China must
be stored in China, and if a critical information infrastructure operator purchases internet products and services that affects or may
affect national security, it should be subject to cybersecurity review by the Cyberspace Administration of China (CAC).
Due to the lack of further interpretations, the exact scope of critical information infrastructure operator remains unclear.
On April 13, 2020, twelve Chinese government agencies jointly promulgated
the Measures for Cybersecurity Review, which became effective on June 1, 2020, set forth the cybersecurity review mechanism for critical
information infrastructure operators, and provided that critical information infrastructure operators who intend to purchase internet
products and services that affect or may affect national security shall be subject to a cybersecurity review. On June 10, 2021, the Standing
Committee of the National Peoples Congress promulgated the PRC Data Security Law, which will take effect in September 2021. The
Data Security Law provides for a security review procedure for data activities that may affect national security. Moreover, the State
Internet Information Office issued the Measures of Cybersecurity Review (Revised Draft for Comments, not yet effective) on July 10, 2021,
which requires operators with personal information of more than 1 million users who want to list abroad to file a cybersecurity review
with the CAC. Furthermore, the General Office of the Central Committee of the Communist Party of China and the General Office of the State
Council jointly issued the Opinions on Severe and Lawful Crackdown on Illegal Securities Activities, which was available to the public
on July 6, 2021. These opinions emphasized the need to strengthen the administration over illegal securities activities and the supervision
on overseas listings by China-based companies. These opinions proposed to take effective measures, such as promoting the construction
of relevant regulatory systems, to deal with the risks and incidents facing China-based overseas-listed companies and the demand for cybersecurity
and data privacy protection. As these laws, opinions and the draft measures were recently issued, official guidance and interpretation
of these remain unclear in several respects at this time, and the PRC government authorities may have wide discretion in the interpretation
and enforcement of these laws, opinions and the draft measures. Therefore, it is uncertain whether the future regulatory changes would
impose additional restrictions on our business.
The Data Security Law also sets forth the data security protection
obligations for entities and individuals handling personal data, including that no entity or individual may acquire such data by stealing
or other illegal means, and the collection and use of such data should not exceed the necessary limits The costs of compliance with, and
other burdens imposed by, PRC Cybersecurity Law and any other cybersecurity and related laws may limit the use and adoption of our products
and services and could have an adverse impact on our business. Further, if the enacted version of the Measures for Cybersecurity Review
mandates clearance of cybersecurity review and other specific actions to be completed by companies like us, we face uncertainties as to
whether such clearance can be timely obtained, or at all.
There remains uncertainty as to how the Draft Measures will be interpreted
or implemented and whether the PRC regulatory agencies, including the CAC, may adopt new laws, regulations, rules, or detailed implementation
and interpretation related to the Draft Measures. If any such new laws, regulations, rules, or implementation and interpretation comes
into effect, we will take all reasonable measures and actions to comply and to minimize the adverse effect of such laws on us.
We cannot assure you that PRC regulatory agencies, including the CAC,
would take the same view as we do, and there is no assurance that we can fully or timely comply with such laws. In the event that we are
subject to any mandatory cybersecurity review and other specific actions required by the CAC, we face uncertainty as to whether any clearance
or other required actions can be timely completed, or at all. Given such uncertainty, we may be further required to suspend our relevant
business, shut down our website, or face other penalties, which could materially and adversely affect our business, financial condition,
and results of operations.
14
PRC laws and regulations governing our current business operations
are sometimes vague and uncertain. Uncertainties with respect to the PRC legal system, including uncertainties regarding the enforcement
of laws, and sudden or unexpected changes in laws and regulations in China with little advance notice could have a material adverse effect
on us and limit the legal protections available to you and us.
There are substantial uncertainties regarding the interpretation and
application of PRC laws and regulations including, but not limited to, the laws and regulations governing our business and the enforcement
and performance of our arrangements with clients in certain circumstances. The laws and regulations are sometimes vague and may be subject
to future changes, and their official interpretation and enforcement could be unpredictable, with little advance notice. The effectiveness
and interpretation of newly enacted laws or regulations, including amendments to existing laws and regulations, may be delayed, and our
business may be affected if we rely on laws and regulations which are subsequently adopted or interpreted in a manner different from our
current understanding of these laws and regulations. New laws and regulations that affect existing and proposed future businesses may
also be applied retroactively. We cannot predict what effect the interpretation of existing or new PRC laws or regulations may have on
our business.
The PRC legal system is based on written statutes. Prior court decisions
are encouraged to be used for reference but it remains unclear to what extent the prior court decisions may impact the current court ruling
as the encouragement policy is new and there is limited judicial practice in this regard. We conduct our business primarily through our
subsidiaries established in China.
These subsidiaries are generally subject to laws and regulations applicable
to foreign investment in China. However, since these laws and regulations are relatively new and the PRC legal system continues to rapidly
evolve, the interpretations of many laws, regulations and rules are not always uniform and enforcement of these laws, regulations and
rules involves uncertainties, which may limit legal protections available to us. In addition, any new or changes in PRC laws and regulations
related to foreign investment in China could affect the business environment and our ability to operate our business in China. Recently,
the General Office of the Central Committee of the Communist Party of China and the General Office of the State Council jointly issued
the Opinions on Severely Cracking Down on Illegal Securities Activities According to Law, or the Opinions, which was made
available to the public on July 6, 2021. The Opinions emphasized the need to strengthen the administration over illegal securities activities,
and the need to strengthen the supervision over overseas listings by Chinese companies. Effective measures, such as promoting the construction
of relevant regulatory systems will be taken to deal with the risks and incidents of China-concept overseas listed companies, and cybersecurity
and data privacy protection requirements, etc. The Opinions and any related implementing rules to be enacted may subject us to compliance
requirement in the future. In addition, some regulatory requirements issued by certain PRC government authorities may not be consistently
applied by other government authorities (including local government authorities), thus making strict compliance with all regulatory requirements
impractical, or in some circumstances impossible. For example, we may have to resort to administrative and court proceedings to enforce
the legal protection that we enjoy either by law or contract. However, since PRC administrative and court authorities have discretion
in interpreting and implementing statutory and contractual terms, it may be more difficult to predict the outcome of administrative and
court proceedings and the level of legal protection we enjoy than in more developed legal systems. These uncertainties may impede our
ability to enforce the contracts we have entered into with our business partners, clients and suppliers. In addition, such uncertainties,
including any inability to enforce our contracts, together with any development or interpretation of PRC law that is adverse to us, could
materially and adversely affect our business and operations. Furthermore, intellectual property rights and confidentiality protections
in China may not be as effective as in the United States or other more developed countries and the PRC legal system is based in part on
government policies and internal rules, some of which are not published on a timely basis or at all and may have retroactive effects.
As a result, we may not be aware of our violation of any of these policies and rules until sometime after the violation. Such unpredictability
towards our contractual, property, and procedural rights could adversely affect our business and impede our ability to continue our operations.
We cannot predict the effect of future developments in the PRC legal system, including the promulgation of new laws, changes to existing
laws or the interpretation or enforcement thereof, or the pre-emption of local regulations by national laws. These uncertainties could
limit the legal protections available to us and other foreign investors, including you. In addition, any litigation in China may be protracted
and result in substantial costs and diversion of our resources and management attention.
The PRC government has significant oversight and discretion over the
conduct of our business and may intervene or influence our operations as the government deems appropriate to further regulatory, political
and societal goals. The PRC government has recently published new policies that significantly affected certain industries such as the
education and internet industries, and we cannot rule out the possibility that it will in the future release regulations or policies regarding
our industry that could adversely affect our business, financial condition and results of operations.
Furthermore, if China adopts more stringent standards with respect
to certain areas such as corporate social responsibilities, we may incur increased compliance costs or become subject to additional restrictions
in our operations. We cannot predict the effects of future developments in the PRC legal system on our business operations, including
the promulgation of new laws, or changes to existing laws or the interpretation or enforcement thereof. These uncertainties could limit
the legal protections available to us and our investors, including you.
15
Changes in Chinas economic, political or social conditions or
government policies, which could occur quickly with little advance notice, could have a material adverse effect on our business and operations.
Substantially all of our assets and operations are located in the PRC.
Accordingly, our business, financial condition, results of operations and prospects may be influenced to a significant degree by political,
economic and social conditions in the PRC generally. The Chinese economy differs from the economies of most developed countries in many
respects, including the level of government involvement, development, growth rate, control of foreign exchange, monetary and tax policies,
allocation of resources, and regulation of the growth of the general or specific market and a host of other government policies such as
those that encourage or restrict investment in certain industries by foreign investors. Although the PRC government has implemented measures
emphasizing the utilization of market forces for economic reform, the reduction of state ownership of productive assets, and the establishment
of improved corporate governance in business enterprises, a substantial portion of productive assets in the PRC is still owned by the
government. In addition, the PRC government continues to play a significant role in regulating industry development by imposing industrial
policies. The PRC government also exercises significant control over the PRCs economic growth through allocating resources, controlling
payment of foreign currency-denominated obligations, setting monetary policy and providing preferential treatment to particular industries
or companies.
While the Chinese economy has experienced significant growth over past
decades, growth has been uneven, both geographically and among various sectors of the economy. Any adverse changes in economic conditions
in the PRC, in the policies of the PRC government or in the laws and regulations in the PRC, which may occur quickly with little advance
notice, could have a material adverse effect on the overall economic growth of the PRC. Such developments could adversely affect our business
and operating results, lead to a reduction in demand for our products and adversely affect our competitive position. The PRC government
has implemented various measures to encourage economic growth and guide the allocation of resources. Some of these measures may benefit
the overall Chinese economy, but may have a negative effect on us. For example, our financial condition and results of operations may
be adversely affected by government control over capital investments or changes in tax regulations. In addition, in the past the PRC government
has implemented certain measures, including interest rate adjustment, to control the pace of economic growth. These measures may cause
decreased economic activity in the PRC, which may adversely affect our business and operating results. In addition, although these government
involvements have been instrumental in Chinas significant growth, if the PRC governments current or future policies fail
to help the Chinese economy achieve further growth, our growth rate or strategy, our results of operations could also be adversely affected
as a result.
Our profitability may be seriously affected by fluctuations in exchange
rates between the Renminbi and the U.S. dollar.
All of our revenue is denominated in Renminbi while our financial reporting
is in U.S. dollars. As a result, any significant fluctuation in exchange rates may cause us to incur currency exchange translation and
harm our financial condition and results of operations.
Movements in Renminbi exchange rates are affected by, among other things,
changes in political and economic conditions and Chinas foreign exchange regime and policy. Although the Peoples Bank of
China regularly intervenes in the foreign exchange market to limit fluctuations in Renminbi exchange rates, the Renminbi may appreciate
or depreciate significantly in value against the U.S. dollar in the medium to long term. Moreover, it is possible that the PRC authorities
may lift restrictions on fluctuations in Renminbi exchange rates and lessen intervention in the foreign exchange market in the future.
To date, we have not entered into any hedging transactions in an effort
to reduce our exposure to foreign currency exchange risk. While we may decide to enter into hedging transactions in the future, the availability
and effectiveness of these hedges may be limited and we may not be able to adequately hedge our exposure at all.
Governmental control of currency conversion may limit our ability to
use our revenues effectively and the ability of our WFOE to obtain financing.
The PRC government imposes control on the convertibility of the Renminbi
into foreign currencies and, in certain cases, the remittance of currency out of China. We receive all our revenues in Renminbi, which
currently is not a freely convertible currency. Restrictions on currency conversion imposed by the PRC government may limit our ability
to use revenues generated in Renminbi to fund our expenditures denominated in foreign currencies or our business activities outside China.
Under Chinas existing foreign exchange regulations, Renminbi may be freely converted into foreign currency for payments relating
to current account transactions, which include among other things dividend payments and payments for the import of goods and services,
by complying with certain procedural requirements. Our WFOE is able to pay dividends in foreign currencies to us without prior approval
from SAFE, by complying with certain procedural requirements Our WFOE may also retain foreign currency in its current account bank accounts
for use in payment of international current account transactions. However, we cannot assure you that the PRC government will not take
measures in the future to restrict access to foreign currencies for current account transactions.
16
Conversion of Renminbi into foreign currencies, and of foreign currencies
into Renminbi, for payments relating to capital account transactions, which principally includes investments and loans, generally requires
the approval of SAFE and other relevant PRC governmental authorities. Restrictions on the convertibility of the Renminbi for capital account
transactions could affect the ability of WFOE to make investments overseas or to obtain foreign currency through debt or equity financing,
including by means of loans or capital contributions from us. We cannot assure you that the registration process will not delay or prevent
our conversion of Renminbi for use outside of China.
You may experience difficulties in effecting service of legal process,
enforcing foreign judgments or bringing actions in China against us or our management.
We conduct substantially all of our operations in China, and substantially
all of our assets are located in China, which is an emerging market. As a result, it may be difficult for our shareholders to affect service
of process upon us.
It may also be difficult for you to enforce the U.S. courts judgments
obtained in U.S. courts, including judgments based on the civil liability provisions of the U.S. federal securities laws against us with
a significant part of our assets are located outside of the United States. In addition, there is uncertainty as to whether the courts
of the PRC would recognize or enforce judgments of U.S. courts against us, or such persons predicated upon the civil liability provisions
of the securities laws of the United States or any state. In addition, it is uncertain whether such PRC courts would entertain original
actions brought in the courts of the PRC against us or such persons predicated upon the securities laws of the United States or any state.
Specifically, regarding judgment enforcement in the PRC, the recognition
and enforcement of foreign judgments are provided for under the PRC Civil Procedures Law. PRC courts may recognize and enforce foreign
judgments in accordance with the requirements of the PRC Civil Procedures Law based either on treaties between China and the country where
the judgment is made or on principles of reciprocity between jurisdictions. China does not have any treaties or other forms of reciprocal
arrangement with the United States that provide for the reciprocal recognition and enforcement of foreign judgments. In addition, according
to the PRC Civil Procedures Law, the PRC courts will not enforce a foreign judgment against us if they decide that the judgment violates
the basic principles of PRC laws or national sovereignty, security or public interest of the PRC. As a result, it is uncertain whether
and on what basis a PRC court would enforce a judgment rendered by a court in the U.S.
We face uncertainty regarding the
PRC tax reporting obligations and consequences for certain indirect transfers of the stock of our operating company.
Under the current PRC tax regulations, indirect
transfers of equity interests and other properties of PRC tax resident enterprises by non- PRC holding companies may be subject to PRC
tax. In accordance with the Announcement of the State Administration of Taxation on Several Issues concerning the Enterprise Income Tax
on the Indirect Transfers of Properties by Non-Resident Enterprises (Announcement 7) issued by the SAT on February 3, 2015,
if a non-PRC tax resident enterprise indirectly transfers equities and other properties of a PRC tax resident enterprise and such indirect
transfer will produce a result identical or substantially similar to direct transfer of equity interests and other properties of the PRC
tax resident enterprise, the non-PRC tax resident enterprise may be subject to PRC withholding tax at a rate up to 10%. The Announcement
of the State Administration of Taxation on Matters Concerning Withholding of Income Tax of Non-resident Enterprises at Source (Announcement
37), which was issued by SAT on October 17, 2017, and became effective on December 1, 2017, renovates the principles and procedures
concerning the indirect equity transfer tax withholding for a non-PRC tax resident enterprise. Failure to comply with the tax payment
obligations by a non-PRC tax resident will result in penalties, including full payment of tax owed, fines and default interest on those
tax.
According to Announcement 7, where a non-resident
enterprise indirectly transfers equity interests or other properties of PRC tax resident enterprises (PRC Taxable Property)
to avoid its tax liabilities by implementing arrangements without reasonable commercial purpose, such indirect transfer shall be recharacterized
and recognized as a direct transfer of PRC Taxable Property. As a result, gains derived from such indirect transfer and attributable to
PRC Taxable Property may be subject to PRC withholding tax at a rate of up to 10%. In respect of an indirect offshore transfer of property
of a PRC establishment or place of business of a foreign enterprise, the resulting gain is to be included with the annual enterprise filing
of the PRC establishment or place of business being transferred and would consequently be subject to PRC enterprise income tax at a rate
of 25%. Announcement 7 further sets forth certain safe harbors which would be deemed to have a reasonable commercial purpose.
As a general principle, the SAT also issued the Administration of General Anti-Tax Avoidance (Trial Implementation) (GATA),
which became effective on February 1, 2015, and empowers the PRC tax authorities to apply special tax adjustments for tax avoidance
arrangements.
We face uncertainties as to the reporting and
other implications of certain past and future transactions where PRC Taxable Property are involved, such as offshore restructuring, sale
of the shares in our offshore subsidiaries and investments. Our Company may be subject to withholding obligations if our Company is considered
as a transferee in such transactions, under Announcement 7 and Announcement 37. For transfer of shares in our Company by investors who
are non-PRC resident enterprises, our PRC subsidiaries may be required to expend valuable resources to comply with Announcement 7 and
Announcement 37 or to request the relevant transferors from whom we purchase taxable assets to comply with these circulars, or to establish
that our company should not be taxed under these circulars, which may have an adverse effect on our financial condition and results of
operations.
17
PRC regulations relating to the establishment
of offshore special purpose companies by PRC residents may subject our PRC resident shareholders to personal liability and limit our ability
to acquire PRC companies or to inject capital into WFOE, limit WFOEs ability to distribute profits to us, or otherwise materially
and adversely affect us.
Under the Circular of the State Administration
of Foreign Exchange on Issues concerning Foreign Exchange Administration over the Overseas Investment and Financing and Round-trip Investment
by Domestic Residents via Special Purpose Vehicles, or Circular 37, issued by SAFE, prior registration with the local SAFE branch is required
for PRC residents to contribute domestic assets or interests to offshore companies, known as SPVs. Moreover, Circular 37 applies retroactively.
As a result, PRC residents who have contributed domestic assets or interest to a SPV but failed to complete foreign exchange registration
of overseas investments as required before July 4, 2014, shall send a letter to SAFE and its branches for explanation. SAFE and its branches
shall, under the principle of legality and legitimacy, conduct supplementary registration, and impose administrative punishment on those
in violation of the administrative provisions on the foreign exchange pursuant to the law.
We have requested our shareholders who are PRC
residents to make the necessary applications, filings and amendments as required under Circular 37 and other related rules. We attempt
to comply and attempt to ensure that our shareholders who are subject to these rules comply with the relevant requirements. However, we
cannot provide any assurances that all of our shareholders who are PRC residents will comply with our request to make or obtain any application
registrations or comply with other requirements required by Circular 37 or other related rules. The failure or inability of our PRC resident
shareholders to make any required registrations or comply with other requirements may subject such shareholders to fines and legal sanctions
and may also limit our ability to contribute additional capital into or provide loans to our subsidiaries, limiting the ability of our
subsidiaries to pay dividends or otherwise distribute profits to us.
Failure to comply with the Individual
Foreign Exchange Rules relating to the overseas direct investment or our PRC resident shareholders engaging in the issuance or
trading of securities overseas may subject them to fines or other liabilities.
Other than Circular 37, our ability to conduct
foreign exchange activities in China may be subject to interpretation and enforcement of the Implementation Rules of the Administrative
Measures for Individual Foreign Exchange promulgated by SAFE in January 2007 (as amended and supplemented, the Individual Foreign
Exchange Rules). Under the Individual Foreign Exchange Rules, any PRC individual seeking to make a direct investment overseas or
engage in the issuance or trading of negotiable securities or derivatives overseas must make the appropriate registrations in accordance
with SAFE provisions. PRC individuals who fail to make such registrations may be subject to warnings, fines or other liabilities.
We may not be fully informed of the identities
of all our beneficial owners who are PRC residents. For example, because the investment in or trading of our shares will happen in an
overseas public or secondary market where shares are often held with brokers in brokerage accounts, it is unlikely that we will know the
identity of all of our beneficial owners who are PRC residents. Furthermore, we have no control over any of our future beneficial owners
and we cannot assure you that such PRC residents will be able to complete the necessary approval and registration procedures required
by the Individual Foreign Exchange Rules.
It is uncertain how the Individual Foreign Exchange
Rules will be interpreted or enforced and whether such interpretation or enforcement will affect our ability to conduct foreign exchange
transactions.
PRC regulation of loans and direct
investment by offshore holding companies to or in PRC entities may delay or prevent us from making loans or additional capital contributions
to WFOE, which could materially and adversely affect our liquidity and our ability to fund and expand our business.
We may make loans to the WFOE. Any loans to either
are subject to PRC regulations and approvals. For example, loans by us to our WFOE in China cannot exceed statutory limits and must be
registered with SAFE or its local counterpart. We may also decide to finance our WFOE through capital contributions. These capital contributions
must be approved by the Ministry of Commerce in China or its local counterpart. We cannot assure you that we will be able to obtain these
government registrations or approvals on a timely basis, if at all.
The SAFEs Circular on Reforming the Administration
Approach Regarding the Foreign Exchange Capital Settlement of Foreign- invested Enterprises (Circular 19) provides that
the conversion from foreign currency registered capital of foreign-invested enterprises into the Renminbi capital may be at foreign-invested
enterprises discretion, which means that the foreign currency registered capital of foreign-invested enterprises for which the
rights and interests of monetary contribution has been confirmed by the local foreign exchange bureau (or the book-entry of monetary contribution
has been registered) can be settled at the banks based on the actual operational needs of the enterprises.
18
Further, according to Circular 19, the flow and
use of the RMB capital converted from foreign currency-denominated registered capital of a foreign-invested company is regulated such
that RMB capital may not be used for the issuance of RMB entrusted loans, the repayment of inter-enterprise loans or the repayment of
banks loans that have been transferred to a third party. Although Circular 19 allows RMB capital converted from foreign currency-denominated
registered capital of a foreign-invested enterprise to be used for equity investments within China, it also reiterates the principle that
RMB converted from the foreign currency-denominated capital of a foreign-invested company may not be directly or indirectly used for purposes
beyond its business scope. Thus, it is unclear whether SAFE will permit such capital to be used for equity investments in China in actual
practice.
In July 2016, the SAFE promulgated the Circular
on Reforming and Standardizing the Administrative Provisions on Capital Account Foreign Exchange (Circular 16), which applies
to all domestic enterprises in China. Circular 16 reiterates some of the rules set forth in Circular 19 but changes the prohibition against
using RMB capital converted from foreign currency-denominated registered capital of a foreign-invested company to issue RMB entrusted
loans to a prohibition against using such capital to issue loans to non-associated enterprises.
Circular 19 and Circular 16 may significantly
limit the ability of our WFOE to transfer and use Renminbi funds from its foreign currency denominated capital, which may adversely affect
our business, financial condition and results of operations.
In light of the various requirements imposed by
PRC regulations on loans to and direct investment in PRC entities by offshore holding companies, we cannot assure you that we will be
able to complete the necessary government registrations or obtain the necessary government approvals on a timely basis, if at all, with
respect to future loans by us to our PRC subsidiaries or with respect to future capital contributions by us to our PRC subsidiaries.
To the extent any funds or assets
in the business is in mainland China or a mainland China entity, the funds or assets may not be available to fund operations or for other
use outside of mainland China.
To the extent funds are generated in our PRC operating
subsidiaries and may need to be used to fund operations outside of mainland China, such funds may not be available due to limitations
placed by the PRC government. Furthermore, to the extent assets (other than cash) in our business are located in mainland China or held
by a mainland China entity, the assets may not be available to fund operations or for other use outside of mainland China due to interventions
in or the imposition of restrictions and limitations on the ability of us and our subsidiaries to transfer assets by the PRC government.
We may be classified as a resident
enterprise for PRC enterprise income tax purposes; such classification could result in unfavorable tax consequences to us and our
non-PRC shareholders.
The PRC enterprise income tax law and its implementing
rules provide those enterprises established outside of China whose de facto management bodies are located in China are considered
resident enterprises under PRC tax laws. The implementing rules define the term de facto management bodies
as a management body which substantially manages, or has control over the business, personnel, finance and assets of an enterprise. Circular
82, issued by the State Administration of Taxation, provides that a foreign enterprise controlled by a PRC company or a group of PRC companies
will be classified as a resident enterprise with its de facto management body located within China if all
of the following requirements are satisfied: (1) the senior management and core management departments in charge of its daily operations
function are mainly in China; (2) its financial and human resources decisions are subject to determination or approval by persons or bodies
in China; (3) its major assets, accounting books, company seals, and minutes and files of its board and shareholders meetings are
located or kept in China; and (4) at least half of the enterprises directors with voting right or senior management reside in China.
To provide more guidance on the implementation of Circular 82, the State Administration of Taxation issued Bulletin 45, which clarifies
certain matters relating to resident status determination, post-determination administration and competent tax authorities.
The State Administration of Taxation has since
issued a bulletin to provide more guidance on the implementation of Circular 82. This bulletin further provides that, among other things,
an entity that is classified as a resident enterprise in accordance with the circular shall file the application for classifying
its status of residential enterprise with the local tax authorities where its main domestic investors are registered. From the year in
which the entity is determined to be a resident enterprise, any dividend, profit and other equity investment gain shall
be taxed in accordance with the enterprise income tax law and its implementing rules.
19
Currently, there are no detailed rules or precedents
governing the procedures and specific criteria for determining de facto management bodies which are applicable to our company or our overseas
subsidiaries. If our company or any of our overseas subsidiaries is considered a PRC tax resident enterprise for PRC enterprise income
tax purposes, a number of unfavorable PRC tax consequences could follow. First, our company or our overseas subsidiaries will be subject
to the uniform 25% enterprise income tax rate as to our global income as well as PRC enterprise income tax reporting obligations. Second,
although under the Enterprise Income Tax Law and its implementing rules dividends paid to us from our PRC subsidiaries would qualify as
tax-exempted income, we cannot assure you that such dividends will not be subject to a 10% withholding tax, as the PRC foreign exchange
control authorities, which enforce the withholding tax, have not yet issued guidance with respect to the processing of outbound remittances
to entities that are treated as resident enterprises for PRC enterprise income tax purposes. Finally, dividends payable by us to our shareholders
and gain on the sale of our shares may become subject to PRC withholding tax. It is possible that future guidance issued with respect
to the new resident enterprise classification could result in a situation in which a withholding tax of 10% for our non-PRC enterprise
shareholders or a potential withholding tax of 20% for individual investors is imposed on dividends we pay to them and with respect to
gains derived by such investors from transferring our shares. In addition to the uncertainty in how the new resident enterprise classification
could apply, it is also possible that the rules may change in the future, possibly with retroactive effect. If we are required under the
Enterprise Income Tax law to withhold PRC income tax on our dividends payable to our foreign shareholders, or if we are required to pay
PRC income tax on the transfer of our shares under the circumstances mentioned above, the value of your investment in our shares may be
materially and adversely affected. It is unclear whether, if we are considered a PRC resident enterprise, holders of our shares would
be able to claim the benefit of income tax treaties or agreements entered into between China and other countries or areas.
Our current employment practices may
be restricted under the PRC Labor Contract Law and our labor costs may increase as a result.
The PRC Labor Contract Law and its implementing
rules impose requirements concerning contracts entered into between an employer and its employees and establishes time limits for probationary
periods and for how long an employee can be placed in a fixed-term labor contract. Because the Labor Contract Law and its implementing
rules have not been in effect very long and because there is lack of clarity with respect to their implementation and potential penalties
and fines, it is uncertain how it will impact our current employment policies and practices. We cannot assure you that our employment
policies and practices do not, or will not, violate the Labor Contract Law or its implementing rules and that we will not be subject to
related penalties, fines or legal fees. If we are subject to large penalties or fees related to the Labor Contract Law or its implementing
rules, our business, financial condition and results of operations may be materially and adversely affected. In addition, according to
the Labor Contract Law and its implementing rules, if we intend to enforce the non-compete provision with an employee in a labor contract
or non-competition agreement, we have to compensate the employee on a monthly basis during the term of the restriction period after the
termination or ending of the labor contract, which may cause extra expenses to us. Moreover, the Labor Contract Law and its implementation
rules require certain terminations to be based upon seniority rather than merit, which significantly affects the cost of reducing workforce
for employers. In the event we decide to significantly change or decrease our workforce in the PRC, the Labor Contract Law could adversely
affect our ability to enact such changes in a manner that is most advantageous to our circumstances or in a timely and cost effective
manner, thus our results of operations could be adversely affected.
Furthermore, the economy in China has experienced
increases in inflation and labor costs in recent years. As a result, average wages in the PRC are expected to continue to increase. In
addition, we are required by PRC laws and regulations to pay various statutory employee benefits, including pension, housing fund, medical
insurance, on-the-job injury insurance, unemployment insurance and maternity insurance to designated government agencies for the benefit
of our employees. We expect that our labor costs, including wages and employee benefits, will continue to increase. Unless we are able
to control our labor costs or pass on these increased labor costs to our users by increasing the fees of our products, our financial condition
and results of operations may be adversely affected.
We face uncertainties with respect
to our business operations and direct and indirect transfers of equity interests in PRC resident enterprises by their non-PRC holding
companies.
We face uncertainties with respect to our business
operations and direct and indirect transfers of equity interests in PRC resident enterprises by their non-PRC holding companies. PRC Governmental
Agencies may intervene or influence the Companys operations at any time, which could result in a material change in the Companys
operations and/or the value of the Common shares. Given recent statements by the Chinese government indicating an intent to exert more
oversight and control over offerings that are conducted overseas and/or foreign investment in China-based issuers, any such action could
significantly limit or completely hinder our ability to offer or continue to offer securities to investors and cause the value of such
securities to significantly decline or become worthless.
Adverse changes in economic and political policies
of the PRC government could have a material and adverse effect on overall economic growth in China, which could materially and adversely
affect our business. General macroeconomic conditions may materially and adversely affect our business, prospects, results of operations
and financial position. The PRC governments control over foreign currency conversion may adversely affect our business and results
of operations and our ability to remit dividends.
20
The M&A Rules and certain other PRC regulations
may make it more difficult for us to pursue growth through acquisitions. Under the Enterprise Income Tax Law, we may be classified as
a Resident Enterprise of China. Such classification will likely result in unfavorable tax consequences to us and our non-PRC
shareholders and have a material adverse effect on our results of operations and the value of your investment. The M&A Rules, among
other things, purport to require CSRC approval prior to the listing and trading on an overseas stock exchange of the securities of an
offshore special purpose vehicle established or controlled directly or indirectly by Material PRC Companies or individuals and formed
for the purpose of overseas listing through the acquisition of PRC domestic interests held by such Material PRC Companies or individuals.
Risks Related to the Market f or our Stock The OTC
and share value
Our Common Stock trades over the counter, which
may deprive stockholders of the full value of their shares. Our stock is quoted via the Over-The-Counter (OTC) Pink Sheets
under the ticker symbol ESGH. Therefore, our Common Stock is expected to have fewer market makers, lower trading volumes,
and larger spreads between bid and asked prices than securities listed on an exchange such as the New York Stock Exchange or the NASDAQ
Stock Market. These factors may result in higher price volatility and less market liquidity for our Common Stock.
Low market price
A low market price would severely limit the potential
market for our Common Stock. Our Common Stock is expected to trade at a price substantially below $5.00 per share, subjecting trading
in the stock to certain Commission rules requiring additional disclosures by broker-dealers. These rules generally apply to any non-NASDAQ
equity security that has a market price share of less than $5.00 per share, subject to certain exceptions (a penny stock).
Such rules require the delivery, prior to any penny stock transaction, of a disclosure schedule explaining the penny stock market and
the risks associated therewith and impose various sales practice requirements on broker-dealers who sell penny stocks to persons other
than established customers and institutional or wealthy investors. For these types of transactions, the broker-dealer must make a special
suitability determination for the purchaser and have received the purchasers written consent to the transaction prior to the sale.
The broker-dealer also must disclose the commissions payable to the broker-dealer, current bid and offer quotations for the penny stock
and, if the broker-dealer is the sole market maker, the broker-dealer must disclose this fact and the broker-dealers presumed control
over the market. Such information must be provided to the customer orally or in writing before or with the written confirmation of trade
sent to the customer. Monthly statements must be sent disclosing recent price information for the penny stock held in the account and
information on the limited market in penny stocks. The additional burdens imposed upon broker-dealers by such requirements could discourage
broker-dealers from effecting transactions in our Common Stock.
Lack of market and state blue sky laws
Investors may have difficulty in reselling their
shares due to the lack of market or state Blue Sky laws. The holders of our shares of Common Stock and persons who desire to purchase
them in any trading market that might develop in the future should be aware that there may be significant state law restrictions upon
the ability of investors to resell our shares. Accordingly, even if we are successful in having the shares available for trading on the
OTC, investors should consider any secondary market for our securities to be a limited one. We intend to seek coverage and publication
of information regarding our Company in an accepted publication which permits a manual exemption. This manual exemption
permits a security to be distributed in a particular state without being registered if the company issuing the security has a listing
for that security in a securities manual recognized by the state. However, it is not enough for the security to be listed in a recognized
manual. The listing entry must contain (1) the names of issuers, officers, and directors, (2) an issuers balance sheet, and (3)
a profit and loss statement for either the fiscal year preceding the balance sheet or for the most recent fiscal year of operations. We
may not be able to secure a listing containing all of this information. Furthermore, the manual exemption is a non-issuer exemption restricted
to secondary trading transactions, making it unavailable for issuers selling newly issued securities. Most of the accepted manuals are
those published in Standard and Poors, Moodys Investor Service, Fitchs Investment Service, and Bests Insurance
Reports, and many states expressly recognize these manuals. A smaller number of states declare that they recognize securities manuals
but do not specify the recognized manuals. The following states do not have any provisions and therefore do not expressly recognize the
manual exemption: Alabama, Georgia, Illinois, Kentucky, Louisiana, Montana, South Dakota, Tennessee, Vermont, and Wisconsin.
Accordingly, our shares of Common Stock should be considered totally
illiquid, which inhibits investors ability to resell their shares.
21
Penny stock regulations
We will be subject to penny stock regulations
and restrictions and you may have difficulty selling shares of our Common Stock. The Commission has adopted regulations which generally
define so-called penny stocks to be an equity security that has a market price less than $5.00 per share or an exercise
price of less than $5.00 per share, subject to certain exemptions. We anticipate that our Common Stock will become a penny stock,
and we will become subject to Rule 15g-9 under the Exchange Act, or the Penny Stock Rule. This rule imposes additional sales
practice requirements on broker-dealers that sell such securities to persons other than established customers. For transactions covered
by Rule 15g-9, a broker-dealer must make a special suitability determination for the purchaser and have received the purchasers
written consent to the transaction prior to sale. As a result, this rule may affect the ability of broker-dealers to sell our securities
and may affect the ability of purchasers to sell any of our securities in the secondary market.
For any transaction involving a penny stock, unless
exempt, the rules require delivery, prior to any transaction in a penny stock, of a disclosure schedule prepared by the Commission relating
to the penny stock market. Disclosure is also required to be made about sales commissions payable to both the broker-dealer and the registered
representative and current quotations for the securities. Finally, monthly statements are required to be sent disclosing recent price
information for the penny stock held in the account and information on the limited market in penny stock.
We do not anticipate that our Common Stock will
qualify for exemption from the Penny Stock Rule. In any event, even if our Common Stock were exempt from the Penny Stock Rule, we would
remain subject to Section 15(b)(6) of the Exchange Act, which gives the Commission the authority to restrict any person from participating
in a distribution of penny stock, if the Commission finds that such a restriction would be in the public interest.
Rule 144 Risks
Sales of our Common Stock under Rule 144 could
reduce the price of our stock. There are 18,273,910 issued and outstanding shares of our Common Stock held by affiliates that Rule 144
of the Securities Act defines as restricted securities.
These shares will be subject to the resale restrictions
of Rule 144, since we are not deemed a shell company. In general, persons holding restricted securities, including affiliates,
must hold their shares for a period of at least six month. Affiliates may not sell more than 1.0% of the total issued and outstanding
shares in any 90-day period, and must resell the shares in an unsolicited brokerage transaction at the market price. The availability
for sale of substantial amounts of Common Stock under Rule 144 could reduce prevailing market prices for our securities.
Security laws exposure
We are subject to compliance with securities laws,
which expose us to potential liabilities, including potential rescission rights. We may offer to sell shares of our Common Stock to investors
pursuant to certain exemptions from the registration requirements of the Securities Act, as well as those of various state securities
laws. The basis for relying on such exemptions is factual; that is, the applicability of such exemptions depends upon our conduct and
that of those persons contacting prospective investors and making the offering. We may not seek any legal opinion to the effect that any
such offering would be exempt from registration under any federal or state law. Instead, we may elect to relay upon the operative facts
as the basis for such exemption, including information provided by investor themselves.
If any such offering did not qualify for such
exemptions, an investor would have the right to rescind its purchase of the securities if it so desired. It is possible that if an investor
should seek rescission, such investor would succeed. A similar situation prevails under state law in those states where the securities
may be offered without registration in reliance on the partial pre-emption from the registration or qualification provisions of such state
statutes under the National Securities Markets Improvement Act of 1996. If investors were successful in seeking rescission, we would face
severe financial demands that could adversely affect our business and operations. Additionally, if we did not in fact qualify for the
exemptions upon which we have relied, we may become subject to significant fines and penalties imposed by the Commission and state securities
agencies.
No cash dividends
Because we do not intend to pay any cash dividends
on our Common Stock, our stockholders will not be able to receive a return on their shares unless they sell them. We intend to retain
any future earnings to finance the development and expansion of our business. We do not anticipate paying any cash dividends on shares
of our Common Stock in the foreseeable future. Unless we pay dividends, our stockholders will not be able to receive a return on their
shares unless they sell them. There is no assurance that stockholders will be able to sell shares of our Common Stock when desired.
22
Delayed adoption of accounting standards
We have delayed the adoption of certain accounting
standards through an opt-in right for emerging growth companies. We have elected to use the extended transition period for complying with
new or revised accounting standards under Section 102(b)(2) of the Jobs Act, which allows us to delay the adoption of new or revised accounting
standards that have different effective dates for public and private companies until those standards apply to private companies. As a
result of this election, our financial statements may not be comparable to companies that comply with public company effective dates.
Item 1B. Unresolved Staff Comments
None.
Item 1C. Cybersecurity
We maintain processes for assessing, identifying and managing material
risks from cybersecurity threats. These processes are integrated into our overall risk-management activities and include administrative,
technical and physical safeguards, user-access controls, periodic review of information systems, third-party service-provider oversight,
and internal reporting procedures for potential incidents.
Management is responsible for day-to-day oversight of cybersecurity
risk, including the evaluation of potential incidents and escalation of material matters to senior management and the Board of Directors,
or the appropriate committee thereof, as applicable.
As of the date of this Annual Report, we are not aware of any cybersecurity
incident that has materially affected or is reasonably likely to materially affect the Company, including our business strategy, results
of operations or financial condition.
Item 2. Properties
The Company does not own any real property. Our
corporate offices are located at 433 East Hillendale Road, Chadds Ford, Pennsylvania, 19317. The lease began on January 1, 2025, is month
to month and is rent free. The principal of the lessor is a business associate of Mr. Yang, our CEO. The Companys Chinese subsidiaries,
AUFP, AUM, and AUMT, operate from a 407,119 square foot facility in Anhui, China that consists of 17,990 square feet of dormitory and
cafeteria space, with the balance divided into production and auxiliary facilities for button mushroom composting, growing, and processing.
Item 3. Legal Proceedings
We are currently not involved in any litigation
that we believe could have a material adverse effect on our financial condition or results of operations. There is no action, suit, proceeding,
inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to
the knowledge of the executive officers of our company or any of our subsidiaries, threatened against or affecting our company, our common
stock, any of our subsidiaries or of our companies or our subsidiaries officers or directors in their capacities as such, in which
an adverse decision could have a material adverse effect.
Item 4. Mine Safety Disclosures
None.
PART II
Item 5. Market for Registrants
Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
*Market Information*
**
Our common stock is quoted on OTC Markets under
the ticker symbol ESGH. However, trading in our common stock has beenlimited, and may be characterized bylow
trading volumes, wide bid-ask spreads, and price volatility.No assurance can be given that a liquid or active public market will
develop or be sustained, and investors may have difficulty selling shares at desired times or prices.
Authorized Capital Stock
Our authorized capital stock consists of 65,000,000
shares of common stock, $0.001 par value per share and 10,000,000 shares of preferred stock, $0.001 par value per share. As of the date
of this annual report, there are 25,899,468 shares of our common stock issued and outstanding and no shares of preferred stock issued
and outstanding.
23
Dividend Policy
The Company has not declared or paid any cash
dividends on its Common Stock and does not intend to declare or pay any cash dividend in the foreseeable future. The payment of dividends,
if any, is within the discretion of the Board of Directors and will depend on the Companys earnings, if any, its capital requirements
and financial condition and such other factors as the Board of Directors may consider.
Securities Authorized for Issuance under Equity Compensation
Plans
The
Company does not maintain any equity compensation plans, and it has not adopted any individual compensation arrangements providing for
the issuance of common stock or preferred stock. Accordingly, no securities are authorized for issuance under any equity compensation
plan.
Recent Sales of Unregistered Securities
None.
Issuer Purchases of Equity Securities
None.
Item 6.
Smaller reporting companies are not required to provide the information
required by this Item 6.
Item 7. Managements
Discussion and Analysis of Financial Condition and Results of Operations
Cautionary Note Regarding Forward-Looking Statements
This report contains forward-looking statements
within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. All statements other than statements of historical
fact are forward-looking statements for purposes of federal and state securities laws, including, but not limited to, any
projections of earnings, revenue or other financial items; any statements of the plans, strategies and objectives of management for future
operations; any statements concerning proposed new business or developments; any statements regarding future economic conditions of performance;
and statements of belief; and any statements of assumptions underlying any of the foregoing. Such forward-looking statements involve known
and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different
from any future results, performance or achievements expressed or implied by such forward-looking statements.
In some cases, you can identify forward looking
statements by terms such as may, intend, might, will, should, could,
would, expect, believe, anticipate, estimate, predict,
potential, or the negative of these terms. These terms and similar expressions are intended to identify forward-looking
statements. The forward-looking statements in this report are based upon managements current expectations and belief, which management
believes are reasonable. However, we cannot assess the impact of each factor on our business or the extent to which any factor or combination
of factors, or factors we are aware of, may cause actual results to differ materially from those contained in any forward-looking statements.
You are cautioned not to place undue reliance on any forward-looking statements. These statements represent our estimates and assumptions
only as of the date of this report. Except to the extent required by federal securities laws, we undertake no obligation to update any
forward-looking statement to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.
24
You should be aware that our actual results could
differ materially from those contained in the forward-looking statements due to a number of factors, including:
|
| uncertainties relating to our ability to establish and operate our business and generate revenue; | |
|
| uncertainties relating to general economic, political and business conditions in China; | |
|
| industry trends and changes in demand for our products; | |
|
| uncertainties relating to customer plans and commitments and the timing of orders received from customers; | |
|
| announcements or changes in our advertising model and related pricing policies or that of our competitors; | |
|
| unanticipated delays in the development, market acceptance of our products; | |
|
| changes in Chinese government regulations; | |
|
| availability, terms and deployment of capital, relationships with third-party equipment suppliers; and | |
|
| influences of COVID-19 on Chinas economy and society. | |
Overview
ESG Inc. (ESG) was incorporated
in July 2021, a Nevada corporation and headquartered at Chadds Ford, Pennsylvania, USA, and is a holding company to develop and operate
sustainable plant based ingredients and food production and distribution with the planned expansion into the food related business with
the substantial experience of its management team, the board of directors including expertise and relationships in the industry of mushroom,
agriculture and food in the world and the capital markets in the States.
With the core business philosophy to develop and
operate sustainable and technology driving food related businesses consistent with the principles of Environmental, Sustainable and Governance
investing, ESG is devoting to contribute on feeding the world by growing, processing and distributing plant-based food ingredients mainly
from all kinds of mushrooms.
As a holding company with no material operations,
ESG currently conducts a majority of business through the operating entities incorporated in the Peoples Republic of China, or
the PRC, with the plan to expand in Asia Pacific and the rest world. Through legally 100% owned by ESG Inc. (a Nevada company) of ESG
China Limited (a HK company) and Hainan ESG Technology Co., Ltd. (a PRC company), ESG Inc. currently owns 74.52% of operating subsidiaries
in China including Funan Allied United Farmer Products Co., Ltd., Anhui Allied United Mushroom Technology Co., Ltd. and Anhui Allied United
Mushroom Co., Ltd.
The primary operational goals are to feed the
world by providing quality and safe food. Specifically, ESG currently has capacity to produce 90,000 tons of Phase III compost yearly
and more than 7300 tons of fresh white button mushroom yearly separately by operating composting facility including 9 bunkers and 31 tunnels
and growing facility of 36 rooms.
Processing mushrooms including but not limited
to button mushroom is a brand-new product line by cooperating with trade houses in and out of China. The class of processed mushroom is
mushroom seasoning powder from white button off-grade mushroom and mushroom stem currently. The middle class of processed mushroom is
instant mushroom and vegetable snacks, which are being manufactured with sample by working with third party manufacturers. Advanced class
of processed mushroom is mushroom supplement and mushroom mycelium based meat alternative, animal leather alternative and industrial materials,
which is still at the early stage of discussion with research institutions.
As a holding entity, ESG will continue to work
with gourmet food experts in the United States and Europe to pick up other plant-based food and ingredients to standardize and franchise
its production and distribution in Asian and Pacific area.
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. We base our estimates on historical
experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis
for making judgments about carrying value of assets and liabilities that are not readily apparent from other sources. Actual results could
differ from those estimates. We do not consider any of our policies or estimates to be critical.
25
Management believes its application of accounting
policies, and the estimates inherently required therein, are reasonable. These accounting policies and estimates are periodically reevaluated,
and adjustments are made when facts and circumstances dictate a change.
Revenue Recognition
Revenue is generated by selling fresh mushroom,
phase III compost and mushroom powder seasoning. We recognize product revenues from customers following a five-step model, which requires
us to exercise judgment when considering the terms of contracts and includes (1) identifying the contracts or agreements with a customer,
(2) identifying our performance obligations in the contract or agreement, (3) determining the transaction price, (4) allocating the transaction
price to the separate performance obligations, and (5) recognizing revenue as each performance obligation is satisfied, which occurs when
our products are delivered to customers. We do not allow sales returns or exchanges.
Recent Accounting Standards
From time to time, new accounting pronouncements
are issued by the FASB or other standard-setting bodies and adopted by the Company as of the specified effective date. The Company believes
that the impact of recently issued standards will not have a material impact on its financial position or results of operations upon adoption.
Financial Condition
The third quarter of 2025 was marked by significant
operational disruptions related to the Companys 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 Companys 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 Companys quarterly revenue relative to prior
periods. In contrast, the Companys 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 managements 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 it is an important development that influenced negatively the Companys near-term operations
and the results of operation.
Results of Operations
**Comparison of the years ending December 31, 2025 and 2024**
****
Net Operating Revenues
Revenues decreased to $6,122,633 for the year
ended December 31, 2025 from $12,682,330 for the year ended December 31, 2024, a decrease of $6,559,697, or 51.7%. The decrease was primarily
attributable to the suspension and disruption of production during 2025, including production losses associated with the construction
and implementation of environmental protection and EPA-compliance related facilities, which adversely affected compost quality and output
and caused the Company to decide the suspension of production. As a result, the Company experienced reduced availability of compost, reduced
fresh mushroom production, and reduced processed mushroom powder available for sale. Cost of goods sold decreased to $5,605,113 in 2025
from $9,134,997 in 2024; however, gross profit decreased to $517,520 from $3,547,333 primarily due to the significant decline in production
and sales volume and the under-absorption of fixed operating costs during the production disruption.
26
Cost of goods sold
Cost of goods sold was $5,605,113 for the year
ended December 31, 2025, compared to $9,134,997 of cost of goods sold for the year ended December 31, 2024, a decrease of $3,529,884 or
38.6%.
Gross Profit Margin
Gross profit margin is a ratio calculated by dividing
gross profit by net operating revenues. Our gross profit margin decreased to 8.5% for the year ended December 31, 2025, compared to 28.0%
for the year ended December 31, 2024. The decrease was primarily due to the decrease of scale margin.
Research and Development expenses
During the year ended December 31, 2025, Research and development expenses
decreased $346,242, or 48.9% versus the prior year.
Selling, General and Administrative Expenses
For the year ended December 31, 2025,
selling, general and administrative expenses increased $1,253,605, from $1,150,927 to $2,404,532, or 102% versus the prior year. The
increase in administrative expenses was mainly due to the write-ff of the scrap of raw materials.
Interest Expense
For the year ended December 31, 2025, interest
expense was $524,722, compared to $653,114 for the year ended December 31, 2024, a decrease of $128,392, or 19.7%. The decreases were
primarily due to the impact of fluctuation of currency exchange rate.
Other Income and Loss
Other income was $271,073 for the year ended December
31, 2025 compared to $213,315 for the year ended December 31, 2024, an increase of $57,758, or 27.1%. The decrease in other income was
primarily due to the decrease of government grants.
Income Taxes
The Company recorded no income taxes for the year ended December 31,
2025, and 2024, respectively.
LIQUIDITY, CAPITAL RESOURCES AND FINANCIAL
POSITION
Cash Flows from Operating Activities
Net cash provided by operating activities for
the year ended December 31, 2025 and 2024 was $101,246 and $1,546,524, respectively, a decrease of $1,445,278 or 93.5%. This decrease
was primarily due to the decrease of revenue.
Cash Flows from Investing Activities
Net cash used in investing activities for the
year ended December 31, 2025 and 2024 were $178,227 and $685,056, respectively. The Company purchased machinery equipment for the year
ended December 31, 2025 and 2024.
Cash Flows from Financing Activities
Net cash provided (used) in financing activities
were $888,777 and $1,031,380, respectively for the year ended December 31, 2025 and 2024. The Company paid off $97,394 and $134,854 of
loan, and borrowed $1,121,025 for the year ended December 31, 2025. The Company made payments of debts of $8,010,030 and long-term payable
of $293,064, borrowed $7,271,714 of loans for the year ended December 31, 2024.
27
Off-Balance Sheet Arrangements
There were no off-balance sheet arrangements as
of December 31, 2025 and December 31, 2024, 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 December
31, 2025 and 2024 were $960,836 and $1,095,690, respectively. Our long-term debt obligation are related to assets acquisition. See Note
11, Assets Acquisition and Note 12, Long-term Payable, to the consolidated financial statements included in Part II, Item 8, Financial
Statements.
Subsequent to year-end, the Company also completed
additional financing transactions and entered into strategic licensing arrangements, which management believes may assist liquidity and
support future business development; however, there can be no assurance that such actions will be sufficient to address the Companys
near-term capital requirements.
Item 7A. Quantitative and Qualitative Disclosures
About Market Risk
Not applicable to smaller reporting companies.
28
**Items 8. Financial Statements**
*
|
|
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
To the Stockholders and Board of Directors of
ESG Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated
balance sheet of ESG Inc. (the Company) as of December 31, 2024, and the related consolidated statements of comprehensive
income (loss), changes in stockholders equity and cash flows for the year ended December 31, 2024, and related notes (collectively
referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial
position of the Company as of December 31, 2024, and the results of its operations and its cash flows the year ended December 31, 2024,
in conformity with accounting principles generally accepted in the United States of America.
Going Concern
The accompanying 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. The Company had limited cash and had working capital deficiency of $6,835,342 as of December
31, 2024. These factors, among others, raise the substantial doubt about the Companys ability to continue as a going concern. Managements
plans in regard to these matters are described in Note 3 to the financial statements.These financial statements do not include any
adjustments that may result from the outcome of these uncertainties.
Basis for Opinion
These financial statements are the responsibility
of the Companys management. Our responsibility is to express an opinion on the Companys financial statements based on our
audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required
to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations
of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the
standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged
to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding
of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Companys
internal control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures to assess
the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond
to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.
Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating
the overall presentation of the financial statements. We believe that our audit provide a reasonable basis for our opinion.
/s/ Prager Metis CPAs, LLC
We served as the Companys auditor in 2025.
Hackensack, New Jersey
April 15, 2025
PCAOB ID Number 273 |
|
F-1
**Report of Independent Registered Public Accounting
Firm**
To the shareholders and the board of directors of ESG Inc.
**Opinion on the Financial Statements**
We have audited the accompanying consolidated balance
sheet of ESG Inc. and its subsidiaries (collectively, the Group) as of December 31, 2025, and the related consolidated statements
of operations and comprehensive income, changes in shareholders equity, and cash flows for the year ended December 31, 2025, and
the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present
fairly, in all material respects, the financial position of the Group as of December 31, 2025, and the results of its operations and its
cash flows for the year ended December 31, 2025, in conformity with accounting principles generally accepted in the United States of America.
**Basis for Opinion**
These financial statements are the responsibility
of the Groups management. Our responsibility is to express an opinion on the Groups financial statements based on our audits.
We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and
are required to be independent with respect to the Group in accordance with the U.S. federal securities laws and the applicable rules
and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the
standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement, whether due to error or fraud. The Group is not required to have, nor were we engaged to
perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding
of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Groups
internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess
the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond
to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.
Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating
the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
|
/s/ Tang Qian & Associates, PLLC |
| |
|
We have served as the Companys auditor since 2026 |
| |
|
USA |
| |
|
March 30, 2026 |
| |
|
PCAOB ID: 7080 |
| |
F-2
**ESG INC.**
**Consolidated Balance Sheet**
|
| |
| | | |
| | | |
|
| |
December 31, | | |
December 31, | | |
|
| |
2025 | | |
2024 | | |
|
Assets | |
| | | |
| | | |
|
Current Assets | |
| | | |
| | | |
|
Cash | |
$ | 42,978 | | |
$ | 110,343 | | |
|
Restricted cash | |
| 36,892 | | |
| 56,398 | | |
|
Accounts receivable, net | |
| 3,223,334 | | |
| 2,917,093 | | |
|
Inventories | |
| 112,250 | | |
| 2,906,383 | | |
|
Other receivable | |
| 432,458 | | |
| 245,232 | | |
|
Advance to suppliers | |
| 837,152 | | |
| 736,094 | | |
|
Value added tax receivable, current | |
| 2,104,253 | | |
| - | | |
|
Total Current Assets | |
| 6,789,317 | | |
| 6,971,543 | | |
|
| |
| | | |
| | | |
|
Property, plant and equipment, net | |
| 16,313,411 | | |
| 17,184,192 | | |
|
Intangible assets, net | |
| 2,992,157 | | |
| 2,934,213 | | |
|
Value added tax receivable | |
| 838,274 | | |
| 2,704,109 | | |
|
Total Non-current Assets | |
| 20,143,842 | | |
| 22,822,514 | | |
|
| |
| | | |
| | | |
|
Total Assets | |
$ | 26,933,159 | | |
$ | 29,794,057 | | |
|
| |
| | | |
| | | |
|
Liabilities and Shareholders' Equity | |
| | | |
| | | |
|
Current Liabilities | |
| | | |
| | | |
|
Short-term bank loans | |
$ | 6,146,809 | | |
$ | 5,988,024 | | |
|
Convertible notes payable | |
| 275,000 | | |
| - | | |
|
Account payable | |
| 1,534,421 | | |
| 4,604,011 | | |
|
Accrued expenses and other current liabilities | |
| 5,030,921 | | |
| 3,092,953 | | |
|
Deferred income, current | |
| 110,590 | | |
| 121,897 | | |
|
Total Currentliabilities | |
| 13,097,741 | | |
| 13,806,885 | | |
|
| |
| | | |
| | | |
|
Deferred income | |
| 1,022,465 | | |
| 1,073,487 | | |
|
Long-term payable | |
| 960,835 | | |
| 1,095,690 | | |
|
Total Non-current liabilities | |
| 1,983,300 | | |
| 2,169,177 | | |
|
| |
| | | |
| | | |
|
Total Liabilities | |
| 15,081,041 | | |
| 15,976,062 | | |
|
| |
| | | |
| | | |
|
Commitments and Contingencies | |
| | | |
| | | |
|
| |
| | | |
| | | |
|
Shareholders' Equity | |
| | | |
| | | |
|
Common stock, $0.001par value,65,000,000shares
authorized,25,899,468shares issued and outstanding, respectively | |
| 25,900 | | |
| 25,900 | | |
|
Additional paid in capital | |
| 11,152,388 | | |
| 11,152,388 | | |
|
Accumulated comprehensive income (loss) | |
| (310,877 | ) | |
| (711,270 | ) | |
|
Accumulated deficit | |
| (2,115,918 | ) | |
| (168,600 | ) | |
|
Total Company stockholders' Equity | |
| 8,751,493 | | |
| 10,298,418 | | |
|
Noncontrolling interest | |
| 3,100,625 | | |
| 3,519,577 | | |
|
Total Equity | |
| 11,852,118 | | |
| 13,817,995 | | |
|
| |
| | | |
| | | |
|
Total Liabilities and Stockholders' Equity | |
$ | 26,933,159 | | |
$ | 29,794,057 | | |
See accompanying notes to the consolidated financial
statements.
F-3
**ESG INC.**
**CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE
LOSS**
|
| |
| | | |
| | | |
|
| |
For the year ended December 31, | | |
|
| |
2025 | | |
2024 | | |
|
| |
| | |
| | |
|
Revenues | |
$ | 6,122,633 | | |
| 12,682,330 | | |
|
Cost of goods sold | |
| 5,605,113 | | |
| 9,134,997 | | |
|
| |
| | | |
| | | |
|
Gross profit | |
| 517,520 | | |
| 3,547,333 | | |
|
| |
| | | |
| | | |
|
Operating expenses | |
| | | |
| - | | |
|
Selling, General and administrative expense | |
| 2,404,532 | | |
| 1,150,927 | | |
|
Research and development cost | |
| 362,512 | | |
| 708,754 | | |
|
Total operating expenses | |
| 2,767,044 | | |
| 1,859,681 | | |
|
| |
| | | |
| | | |
|
Income (Loss) from operations | |
| (2,249,524 | ) | |
| 1,687,652 | | |
|
| |
| | | |
| | | |
|
Non-operating income (expense) | |
| | | |
| | | |
|
Interest expense | |
| (524,722 | ) | |
| (653,114 | ) | |
|
Other Income | |
| 271,073 | | |
| 213,315 | | |
|
Total non-operating income (expenses), net | |
| (253,649 | ) | |
| (439,799 | ) | |
|
| |
| | | |
| | | |
|
Income (Loss) before income taxes | |
| (2,503,173 | ) | |
| 1,247,853 | | |
|
| |
| | | |
| | | |
|
Income taxes | |
| - | | |
| - | | |
|
Net income (loss) | |
| (2,503,173 | ) | |
| 1,247,853 | | |
|
Less: income (loss) attributable to noncontrolling interest | |
| (555,855 | ) | |
| 303,220 | | |
|
Net income (loss) to ESG Inc. | |
$ | (1,947,318 | ) | |
| 944,633 | | |
|
| |
| | | |
| | | |
|
Other comprehensive item | |
| | | |
| | | |
|
Foreign currency translation gain (loss) attributable to the Company | |
| 400,393 | | |
| (281,064 | ) | |
|
Foreign currency translation gain (loss) attributable to noncontrolling interest | |
| 136,903 | | |
| (96,102 | ) | |
|
| |
| | | |
| | | |
|
Comprehensive income (loss) attributable to the Company | |
| (1,546,925 | ) | |
| 663,569 | | |
|
Comprehensive income (loss) attributable to noncontrolling interest | |
| (418,952 | ) | |
| 207,118 | | |
|
| |
| | | |
| | | |
|
Net income (loss) per share - basic and diluted | |
$ | (0.02 | ) | |
$ | 0.04 | | |
|
| |
| | | |
| | | |
|
Weighted average shares outstanding -basic and diluted | |
| 25,899,468 | | |
| 25,899,468 | | |
See accompanying notes to the consolidated financial
statements.
F-4
**ESG INC.**
**CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS EQUITY**
|
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
|
| |
Common stock | | |
| | |
| | |
| | |
| | |
Noncontrolling | | |
| | |
|
| |
Share | | |
Amount | | |
Additional paid aid-in capital | | |
Accumulated income (deficit) | | |
Accumulated other comprehensive income | | |
Total Company's equity | | |
interest | | |
Total | | |
|
| |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Balance at December 31, 2023 | |
| 25,899,468 | | |
$ | 25,900 | | |
$ | 11,152,388 | | |
$ | (1,113,233 | ) | |
$ | (430,206 | ) | |
| 9,634,849 | | |
$ | 3,312,459 | | |
$ | 12,947,308 | | |
|
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
|
Net income | |
| - | | |
| - | | |
| - | | |
| 944,633 | | |
| - | | |
| 944,633 | | |
| 303,220 | | |
| 1,247,853 | | |
|
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
|
Foreign currency translation adjustment | |
| - | | |
| - | | |
| - | | |
| - | | |
| (281,064 | ) | |
| (281,064 | ) | |
| (96,102 | ) | |
| (377,166 | ) | |
|
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
|
Balance at December, 2024 | |
| 25,899,468 | | |
$ | 25,900 | | |
$ | 11,152,388 | | |
$ | (168,600 | ) | |
$ | (711,270 | ) | |
| 10,298,418 | | |
$ | 3,519,577 | | |
$ | 13,817,995 | | |
|
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
|
Net income | |
| - | | |
| - | | |
| - | | |
| (1,947,318 | ) | |
| - | | |
| (1,947,318 | ) | |
| (555,855 | ) | |
| (2,503,173 | ) | |
|
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
|
Foreign currency translation adjustment | |
| - | | |
| - | | |
| - | | |
| - | | |
| 400,393 | | |
| 400,393 | | |
| 136,903 | | |
| 537,296 | | |
|
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
|
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 | | |
See accompanying notes to the consolidated financial
statements.
F-5
**ESG INC.**
**CONSOLIDATED STATEMENTS OF CASH FLOWS**
|
| |
| | | |
| | | |
|
| |
For the year ended December 31, | | |
|
| |
2025 | | |
2024 | | |
|
Cash flows from operating activities: | |
| | | |
| | | |
|
Net income (loss) | |
$ | (2,503,173 | ) | |
$ | 1,247,853 | | |
|
Adjustments to reconcile loss to net cash used in operating activities: | |
| | | |
| | | |
|
Depreciation and amortization | |
| 1,837,181 | | |
| 1,765,929 | | |
|
Changes in assets and liabilities: | |
| | | |
| | | |
|
Accounts receivable | |
| (306,241 | ) | |
| (2,965,613 | ) | |
|
Other receivable | |
| (187,226 | ) | |
| (170,988 | ) | |
|
Advance to suppliers | |
| (101,058 | ) | |
| (584,210 | ) | |
|
Inventories | |
| 2,794,133 | | |
| (1,322,075 | ) | |
|
Value added tax receivable | |
| (238,417 | ) | |
| (562,189 | ) | |
|
Notes receivable | |
| - | | |
| 41,374 | | |
|
Accounts payables | |
| (3,069,590 | ) | |
| 3,423,166 | | |
|
Other payables | |
| - | | |
| 828,191 | | |
|
Payable to related party | |
| - | | |
| (30,000 | ) | |
|
Accrued expenses and other current liabilities | |
| 1,937,968 | | |
| - | | |
|
Deferred income | |
| (62,329 | ) | |
| (124,914 | ) | |
|
Net cash provided by operating activities | |
| 101,246 | | |
| 1,546,524 | | |
|
| |
| | | |
| | | |
|
Cash flows from investing activities: | |
| | | |
| | | |
|
Acquisition of fixed assets | |
| (178,227 | ) | |
| (685,056 | ) | |
|
| |
| | | |
| | | |
|
Net cash used in investing activities | |
| (178,227 | ) | |
| (685,056 | ) | |
|
| |
| | | |
| | | |
|
Cash flows from financing activities: | |
| | | |
| | | |
|
Proceeds from loans | |
| 1,121,025 | | |
| 7,271,714 | | |
|
Repayment of bank loans | |
| (97,394 | ) | |
| (8,010,030 | ) | |
|
Payment of loans payable | |
| (134,854 | ) | |
| (293,064 | ) | |
|
Net cash used in financing activities | |
| 888,777 | | |
| (1,031,380 | ) | |
|
| |
| | | |
| | | |
|
Effect of exchange rate changes on cash | |
| (898,667 | ) | |
| (5,688 | ) | |
|
| |
| | | |
| | | |
|
Net increase (decrease) in cash | |
| (86,871 | ) | |
| (175,601 | ) | |
|
| |
| | | |
| | | |
|
Cash, beginning of year | |
| 166,741 | | |
| 342,342 | | |
|
| |
| | | |
| | | |
|
Cash, end of year | |
$ | 79,870 | | |
$ | 166,741 | | |
|
| |
| | | |
| | | |
|
Supplemental disclosures of cash flow information: | |
| | | |
| | | |
|
Cash paid for interest | |
$ | (238,706 | ) | |
$ | 331,989 | | |
|
Cash paid for income tax | |
| - | | |
| - | | |
See accompanying notes to the consolidated financial
statements.
F-6
ESG INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2025 AND 2024
NOTE 1- ORGANIZATION AND DESCRIPTION OF BUSINESS
Plasma Innovative Inc., now ESG Inc. (ESG)
was incorporated in July 2021, a Nevada corporation and headquartered at Chadds Ford, Pennsylvania, USA, and is a holding company with
operations through our subsidiaries in China. Our operating subsidiaries are involved in direct white button mushroom, composting, growing,
food production and distribution.
ESG incorporated ESG China Limited as ESGs
wholly owned subsidiary in Hong Kong on November 18, 2022. ESG China Limited incorporated Hainan ESG Technology Co., Ltd., a China corporation
(Hainan ESG) with 100% of ownership on January 16, 2023. ESG China Limited and Hainan ESG have no operations or transactions.
On September 28, 2023, ESG entered into a share
exchange agreement with Funan Allied United Farmer Products Co., Ltd., a China corporation incorporated in May 2017 (AUFP),
and 74.52% of shareholders of AUFP, (each a Shareholder, and collectively, the Shareholders), through Hainan
ESG. Pursuant to such agreement, the Shareholders exchanged their equity of AUFP to Hainan ESG for shares of common stock of ESG, and
ESG has agreed to offer the ESG shares. Following this transaction, AUFP became a 74.52% subsidiary of ESG through Hainan ESG.
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 the Company issued to the ESGI Shareholders. The transaction has been accounted
for as a recapitalization of the Company, whereby ESGI is the accounting acquirer.
Prior to the share exchange, Mr. Zhi Yang owned
30% of AUFP, Fuyang Zhihan Agricultural Information Co. Ltd. (Zhihan) owned 24.52% of AUFP and Mr. Chris Alonzo owned 10%
of AUFP. ESG, after the share exchange agreement described above is completed, owns 74.52% of AUFP and its subsidiaries, AUM and AUMT
in China. Mr. Zhi Yang and Zhihan control 83.53% of ESG through DCG China Limited, and Mr. Christopher Alonzo owns 5.4%
of ESG.
AUFP incorporated Anhui Allied United Mushroom
Technology Co., Ltd. (AUMT) in China in March 2018, to manufacture white button mushroom compost while AUFP incorporated
Anhui Allied United Mushroom Co., Ltd. (AUM) in China in April, 2018, to grow fresh white button mushroom and provide mushroom
growing management services. AUFP, AUMT and AUM are operating entities in China.
Since the Company is effectively controlled by
the same controlling shareholders before and after the share exchange agreement, it is considered under common control. Therefore the
above mentioned transactions were accounted for as recapitalization. The recapitalization has been accounted for at historical cost and
prepared on the basis as if the aforementioned transactions had become effective as of the beginning of the first period presented in
the accompanying financial statements of the Company.
The
Board of Directors approved a change in the Companys fiscal year end to December 31 in order to align it with AUFP. On November
9, 2023, the Company filed a report to reflect the fiscal year change from August 31 to December 31. On November 22, 2023, effective
November 27, 2023, the Company filed Articles of Merger with the Nevada Secretary of State to change its name from Plasma Innovative
Inc. to ESG Inc. The financial statements of Plasma Innovative Inc., now ESG Inc., have been recast to conform to the December 31 fiscal
year end, and share and per share information has been retrospectively adjusted to reflect the recapitalization.
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Basis of presentation and consolidation
The accompanying consolidated financial statements
have been prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP)
and include all adjustments necessary for the fair presentation of the Companys financial position for the periods presented.
The consolidated financial statements of the Company
include the financial statements of the Company, its wholly owned subsidiaries and its 74.52% owned subsidiaries in China. All inter-company
transactions and balances between the Company and its subsidiaries have been eliminated upon consolidation.
Use of estimates
In preparing the consolidated financial statements
in conformity with U.S. GAAP, management makes estimates and assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the dates of consolidated financial statements, as well as the reported amounts of
revenues and expenses during the reporting year. Significant items subject to such estimates and assumptions include allowance for doubtful
accounts, advances to suppliers, valuation of inventories, useful lives of property, plant, and equipment and intangible assets.
Research and development (R&D)
R&D costs may be incurred by performing R&D directly, contracting
with another party to perform R&D activities. R&D costs are accounted for in accordance with ASC 730, Research and Development*.
All R&D costs are recognized as an expense when incurred.
F-7
Cash and restricted cash
Cash includes demand deposits with financial institutions
that are highly liquid in nature with original maturities of three months or less, which are unrestricted as to withdrawal and use. Restricted
cash includes any cash that is legally restricted as to withdrawal or usage.
Account
receivable, net
Accounts receivable are recorded at the invoiced
amount and presented net of an allowance for doubtful accounts. The Company maintains an allowance for doubtful accounts for estimated
losses. The Company reviews its accounts receivable on a periodic basis and makes general and specific allowance when there is doubt as
to the collectability of individual balances. In evaluating the collectability of individual receivable balances, the Company considers
many factors, including the age of the balance, customers payment history, its current creditworthiness and current economic trends.
Accounts are written off after efforts at collection prove unsuccessful.
Allowance for Expected Credit Losses
The Company evaluates accounts receivable for
expected credit losses in accordance with ASC 326. The allowance is based on historical loss experience, current conditions, and reasonable
and supportable forecasts, as well as customer-specific factors such as aging, payment history, and collection trends. As of December
31, 2025, the Company recorded a specific allowance equal to 15% of the accounts receivable due from Jin Shui Limited. No additional material
allowance was recorded for other receivable balances.
As of December 31, 2025 and 2024, allowance for
doubtful accounts was $534,904 and nil 0, respectively.
Advances to suppliers, net
Advances to suppliers represent prepayments made
to suppliers and vendors. These advances are settled upon suppliers delivering raw materials to the Company or services performed. The
Company review its advances to suppliers on a periodic basis and makes general and specific allowances when there is doubt as to the ability
of a supplier to provide supplies to the Company or refund an advance. As of December 31, 2025 and 2024, allowance for doubtful accounts
was nil and nil, respectively.
Inventory
Inventory is comprised primarily of raw materials,
work-in-progress and finished goods. Inventory amounts are stated at the lower of cost or net realizable value and reported in net of
allowances. Inventories are reviewed periodically for obsolescence and slow-moving items. When necessary, a provision is made for obsolete
or slow-moving inventory based on an assessment of the inventory's age and marketability. Write-downs to net realizable value are charged
to cost of goods sold in the period in which the inventory is identified as being impaired.
Cost of goods sold
Cost of goods sold includes all of the costs and expenses directly
related to the production of goods, primarily includes the cost of raw materials, direct labor and overhead. Cost of goods sold excludes
costs such as sales and marketing.
Property, plant and equipment, net
Property, plant and equipment are stated at cost,
less accumulated depreciation. Major repair and improvements that significantly extend original useful lives or improve productivity are
capitalized and depreciated over the period benefited. Repair and maintenance costs are expensed as incurred. Depreciation is recorded
principally by the straight-line method over the estimated useful lives of our property, plant and equipment which generally have the
following ranges: buildings and improvements: 20 years; machinery and equipment: 5-10 years; office equipment: 3-5 years. Construction
in progress is not depreciated until ready for service.
Intangible assets, net
Intangible assets with finite lives are amortized
using the straight-line method over their estimated period of benefit. Evaluation of the recoverability of intangible assets is made to
take into account events or circumstances that warrant revise estimates of useful lives or that indicate that impairment exists. All of
the Companys intangible assets are subject to amortization. No impairment of intangible assets has been identified for the years
ended December 31, 2025 and 2024.
F-8
Intangible assets consist of land use rights,
patent and purchased software. Intangible assets are stated at cost less accumulated amortization. The land use rights purchased for industrial
use has the right of use for 50 years. We amortized the right to use land in 50 years. Patent and software amortized using the straight-line
method with estimated useful lives of 12 years and 5 years, respectively.
Revenue Recognition
The Company follows Accounting Standards Codification Topic 606, Revenue
from Contracts with Customers (ASC 606).
FASB ASC Topic 606 requires the use of a new five-step
model to recognize revenue from customer contracts. The five-step model requires the Company (i) identify the contract with the customer,
(ii) identify the performance obligations in the contract, (iii) determine the transaction price, including variable consideration to
the extent that it is probable that a significant future reversal will not occur, (iv) allocate the transaction price to the respective
performance obligations in the contract, and (v) recognize revenue when (or as) the Company satisfies each performance obligation.
Revenue is generated by selling fresh mushrooms, phase III compost
and mushroom powder seasonings. Contracts were signed after the communication of the price and quantities with main distributers and customers.
Fresh mushrooms are sold to distributes who purchase
all the mushrooms produced daily. The distributers verify the volume and quality of produce when produce delivered to warehouse and take
responsibility for transportation. Control of the products is transferred upon receipt at our warehouse. Control of Compost III is transferred
when loaded in the truck of carriers and control of mushroom powder seasonings is transferred when loaded in ship free of board. Upon
transfer of control to the customer, which completes our performance obligation, revenue is recognized.
F-9
Disaggregation of Revenue
The primary geographical market is Asia.
The table below present disaggregated revenue from three products:
|
Schedule of disaggregation of revenue | |
| |
| | | |
| | | |
| | | |
| | | |
|
| |
| |
Revenue | | |
% of Total Revenue | | |
|
Geographic | |
Products | |
December 31,
2025 | | |
December 31,
2024 | | |
December 31,
2025 | | |
December 31,
2024 | | |
|
China, mainland | |
Compost III | |
$ | 2,667,590 | | |
$ | 2,884,364 | | |
| 43.6 | % | |
| 22.7 | % | |
|
China, mainland | |
White Button Mushroom | |
| 1,242,361 | | |
| 5,858,322 | | |
| 20.3 | % | |
| 46.2 | % | |
|
China, Hongkong | |
Mushroom powder seasonings | |
| 2,212,682 | | |
| 3,939,644 | | |
| 36.1 | % | |
| 31.1 | % | |
|
Total | |
Total net sales | |
$ | 6,122,633 | | |
$ | 12,682,330 | | |
| 100 | % | |
| 100 | % | |
Contract liability
Contract liabilities represents cash payment received
from customers in advance of the Company satisfying performance obligations under contractual arrangements, including those with performance
obligations to be satisfied over a period and point in time. Contract liabilities are derecognized when or as revenue is recognized.
Advances from the fresh mushroom distributers are required, Advances
are deducted when revenue recognized. Deferred income
*Convertible Notes*
**
The Company accounts for convertible notes as
debt instruments and records them at the proceeds received, net of any unamortized discount and issuance costs. Discounts and issuance
costs are amortized to interest expense over the contractual term of the notes. The Company evaluates conversion features and other embedded
terms to determine whether separate accounting is required under applicable accounting guidance.
Deferred income
Deferred income consists primarily of government
grants. Government grants (sometimes referred to as subsidies, subventions, etc.) are as assistance by government in the form of transfers
of resources to an entity in return for past or future compliance with certain conditions relating to the operating activities of the
entity.
Government grants received relating to depreciable
assets are recorded as deferred income and recognized as income using straight line method over the life of the related assets.
Other income
Other income consists primarily of grants and
net gain or loss from lawsuits. The Company recorded income when receiving a grant which constitutes compensation for expenses or losses
already incurred or for the purpose of giving immediate financial support to the entity with no future related costs. When a government
grant received relating to depreciable assets amortized over the life of the related assets. The Company recorded the amortization amount
in other income.
Noncontrolling Interests
The Company follows FASB ASC Topic 810, Consolidation,
governing the accounting for and reporting of noncontrolling interests (NCIs) in partially owned consolidated subsidiaries
and the loss of control of subsidiaries. Certain provisions of this standard indicate, among other things, that NCI (previously referred
to as minority interests) be treated as a separate component of equity, not as a liability, that increases and decreases in the parents
ownership interest that leave control intact be treated as equity transactions rather than as step acquisitions or dilution gains or losses,
and that losses of a partially-owned consolidated subsidiary be allocated to non- controlling interests even when such allocation might
result in a deficit balance.
F-10
The net income (loss) attributed to NCI was separately
designated in the accompanying statements of operations and comprehensive income (loss). Losses attributable to NCI in a subsidiary may
exceed a non-controlling interests interests in the subsidiarys equity. The excess attributable to NCIs is attributed to
those interests. NCIs shall continue to be attributed their share of losses even if that attribution results in a deficit NCI balance.
AUFP and its subsidiaries, AUM and AUMT were 25.48%
owned by noncontrolling interest and $3,100,625 and $3,519,577 of equity were attributable to noncontrolling interest as of December 31,
2025 and 2024, respectively. For the years ended December 31, 2025 and 2024, the Company had net loss of $555,855 and net income of $303,220
attributable to the noncontrolling interest, respectively.
Income taxes
The Company uses the asset and liability method
of accounting for income taxes in accordance with FASB ASC Topic 740, Income Taxes. Under this method, income tax expense
is recognized for the amount of: (i) tax payable or refundable for the current period and (ii)deferred tax consequences of temporary differences
resulting from matters that have been recognized in an entitys financial statements or tax returns. Deferred tax assets also include
the prior years net operating losses carried forward.
The Company accounts for income for income taxes
in accordance with ASC 740, Income Taxes. ASC 740 requires an asset and liability approach for financial accounting and reporting for
income taxes and allows recognition and measurement of deferred tax assets based upon the likelihood of realization of tax benefits in
future years. Under the asset and liability approach, deferred taxes are provided for the net effects of temporary difference between
the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. A valuation
allowance is provided for deferred tax assets if it is more likely than not these items will either expire before the Company is able
to realize their benefits or not be deductible in the future.
Contingencies
Certain conditions may exist as of the date the
consolidated financial statements are issued, which may result in a loss to the Company but which will only be resolved when one or more
future events occur or fail to occur. In accordance with ASC 450, the Companys management and legal counsel assess such contingent
liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings
that are pending against the Company or unasserted claims that may result in such proceedings, the Companys legal counsel evaluates
the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected
to be sought. If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of
the liability can be estimated, the estimated liability would be accrued in the Companys consolidated financial statements.
If the assessment indicates that a potential material
loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, the nature of the contingent liability,
together with an estimate of the range of possible loss if determinable and material, would be disclosed.
Comprehensive income (loss)
Foreign currency translation and comprehensive
income (loss)The accounts of the Companys Chinese entities are maintained in Chinese Yuan (RMB) and the accounts
of the U.S. parent company are maintained in United States dollar (USD). The accounts of the Chinese entities were translated
into USD in accordance with FASB ASC Topic 830 Foreign Currency Matters. All assets and liabilities were translated at the
exchange rate on the balance sheet date; stockholders equity is translated at historical rates and the statements of operations
and cash flows are translated at the weighted average exchange rate for the period. The resulting translation adjustments are reported
under other comprehensive income (loss) in accordance with FASB ASC Topic 220, Comprehensive Income. Gains and losses resulting
from foreign currency transactions are reflected in the statements of operations.
The Company follows FASB ASC Topic 220-10, Comprehensive
Income (loss). Comprehensive income (loss) comprises net income (loss) and all changes to the statements of changes in stockholders
equity, except those due to investments by stockholders, changes in additional paid-in capital and distributions to stockholders.
Segment reporting
ASC 280, Segment Reporting, establishes
standards for reporting information about operating segments on a basis consistent with the Companys internal organizational structure
as well as information about geographical areas, business segments and major customers in financial statements for detailing the Companys
business segments. The Company uses the management approach to determine reportable operating segments. The management approach considers
the internal organization and reporting used by the Companys chief operating decision maker (CODM) for making decisions,
allocating resources and assessing performance. The Companys CODM has been identified as the Companys chief financial officer,
who review consolidated results when making decisions about allocating resources and assessing performance of the Company. Based on managements
assessment, the Company has determined that the Company has three operating segments, white button mushroom, compost III and mushroom
seasonings, as defined by ASC Topic 280 Segment Reporting
F-11
Correction of Immaterial Misstatement
During the year ended December 31, 2024, the Company
identified 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 $1,300,676, the accumulated deficit decreased from $1,224,811 to $1,113,233 and noncontrolling interest increased
from $3,274,308 to 3,312,459. The Company assessed the materiality of the misstatement quantitatively and qualitatively and has concluded
that the correction of the classification error is immaterial to the consolidated financials taken as a whole.
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 StatementReporting
Comprehensive IncomeExpense 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 StatementReporting Comprehensive IncomeExpense
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 Companys
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 adopted ASU 2023-09
effective January 1, 2025, and the adoption impacted disclosures only.
NOTE 3 GOING CONCERN
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As of December 31, 2025, the Company had recurring losses, liquidity constraints,
a high debt-to-asset ratio, restricted cash, and a temporary suspension of production. These conditions raise substantial doubt about
the Companys ability to continue as a going concern within one year after the date the consolidated financial statements are issued.
On March 10, 2026, the Company raised $200,000
of additional capital, which improved its near-term liquidity. Management has developed plans intended to improve liquidity and
support continued operations, including restoring production in the near term, which management currently
expects could occur within approximately one month, subject to completion of remaining operational and facility-readiness steps, pursuing additional financing sources, including potential
equity line and other financing arrangements, and continuing cost-control measures. However, these plans are dependent on future
events and there can be no assurance that they will be successfully implemented. Accordingly, substantial doubt about the
Companys ability to continue as a going concern has not been alleviated.
F-12
The consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
NOTE 4 CASH AND RESTRICTED CASH
As
of December 31, 2025 and 2024, cash was $42,978 and $110,343, respectively, and restricted cash was $36,892 and $56,398, respectively.
Restricted cash as of December 31, 2025 related to pending litigation matters. See Note 12 Commitments and Contingencies. Restricted
cash as of December 31, 2024 related to the legal restriction of certain AUM bank accounts in connection with a supplier investigation
involving unpaid amounts owed by AUM. In January 2025, AUM deposited the unpaid amount and petitioned for release of the restriction.
The restriction was lifted on February 2, 2025. Management does not believe the restriction had a material impact on the Companys
operations.
NOTE 5 ACCOUNTS RECEIVABLE
As of December 31, 2025, accounts receivable, net were $3,223,334 after
giving effect to an allowance of $534,904. As of December 31, 2024, accounts receivable was $2,917,093 and no allowance had been recorded.
NOTE 6 - PROPERTY, PLANT AND EQUIPMENT
The following table summarizes our property, plant
and equipment:
|
Schedule of property and equipment | |
| | | |
| | | |
|
December 31, | |
2025 | | |
2024 | | |
|
Buildings and improvements | |
| 13,402,009 | | |
| 12,800,087 | | |
|
Machinery, equipment and vehicle fleet | |
| 12,715,295 | | |
| 11,993,713 | | |
|
Construction in progress | |
| 48,276 | | |
| 90,809 | | |
|
Property, plant and equipment - cost | |
| 26,165,580 | | |
| 24,884,609 | | |
|
Less: Accumulated depreciation | |
| (9,852,169 | ) | |
| (7,700,417 | ) | |
|
Property, plant and equipment - net | |
$ | 16,313,411 | | |
$ | 17,184,192 | | |
Construction in progress was $48,276 as of December 31, 2025, and $90,809
as of December 31, 2024. Depreciation expense was $1,814,435 and $1,698,033 for the year ended December 31, 2025 and 2024, respectively.
As of December 31, 2025, buildings and improvements were pledged as collateral for loans.
NOTE 7 INVENTORIES
Inventories consisted of the following:
|
Schedule of inventories | |
| | | |
| | | |
|
| |
2025 | | |
2024 | | |
|
Raw materials | |
$ | 112,250 | | |
$ | 1,808,253 | | |
|
Inventory in transit | |
| - | | |
| 125,917 | | |
|
Finished goods | |
| - | | |
| 650,282 | | |
|
Work in progress | |
| - | | |
| 321,931 | | |
|
Total | |
$ | 112,250 | | |
$ | 2,906,383 | | |
There were $604,959 of raw materials write-off for the year ended December
31, 2025 due to spoilage.
F-13
NOTE 8 - INTANGIBLE ASSETS
Intangible assets consist of the following:
|
Schedule of intangible assets | |
| | | |
| | | |
|
| |
2025 | | |
2024 | | |
|
Land use right | |
$ | 3,376,322 | | |
$ | 3,236,419 | | |
|
Software | |
| - | | |
| 7,489 | | |
|
Patent | |
| 7,147 | | |
| 6,851 | | |
|
Subtotal | |
| 3,383,469 | | |
| 3,250,759 | | |
|
Less: Accumulated amortization | |
| (391,312 | ) | |
| (316,546 | ) | |
|
Total | |
$ | 2,992,157 | | |
$ | 2,934,213 | | |
Amortization expenses for the year ended December 31, 2025 and 2024
were $67,056 and $67,896, respectively.
NOTE 9 - BANK LOANS
Short-term bank loans consisted of the following:
|
Schedule of short-term bank loans | |
| | | |
| | | |
| |
| | | |
| | | |
| |
|
December 31, | |
2025 | | |
Interest rate | | |
Due date | |
2024 | | |
Interest rate | | |
Due date | |
|
Agricultural Bank of China Funan Branch (1) | |
| 714,746 | | |
| 4.65 | % | |
04/02/26 | |
| 781,047 | | |
| 4.45 | % | |
04/02/25 | |
|
Anhui Funan Rural Commercial Bank (2) | |
| 2,001,287 | | |
| 5.60 | % | |
12/20/26 | |
| 1,918,360 | | |
| 5.60 | % | |
12/20/25 | |
|
Anhui Funan Rural Commercial Bank (3) | |
| 1,429,490 | | |
| 5.60 | % | |
03/24/26 | |
| 1,370,257 | | |
| 5.60 | % | |
03/24/25 | |
|
Anhui Funan Rural Commercial Bank (4) | |
| 857,694 | | |
| 5.60 | % | |
01/15/26 | |
| 822,154 | | |
| 5.60 | % | |
01/16/25 | |
|
Bank of China Funan Branch (5) | |
| 1,143,592 | | |
| 3.60 | % | |
03/13/26 | |
| 1,096,206 | | |
| 3.60 | % | |
03/12/25 | |
|
Total | |
$ | 6,146,809 | | |
| | | |
| |
$ | 5,988,024 | | |
| | | |
| |
|
(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 was guaranteed by legal representative and the founder of AUFP, AUFP and SME Guarantee Corporation. | |
|
(5) | $1,143,592 and $1,096,206 of loans from Bank of China were pledged by buildings as of December 31, 2025
and 2024, respectively. | |
F-14
NOTE 10 - ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities consisted of the following:
|
Schedule of accrued expenses and other current liabilities | |
| | | |
| | | |
|
| |
2,025 | | |
2,024 | | |
|
Advances from customers | |
$ | 214,747 | | |
$ | 81,153 | | |
|
Salary payable | |
| 93,789 | | |
| 87,206 | | |
|
Interest payable | |
| 149,183 | | |
| - | | |
|
Tax payable | |
| 27,966 | | |
| 17,235 | | |
|
Other payable | |
| 4,366,441 | | |
| 2,754,809 | | |
|
Long-term payable, current portion | |
| 178,793 | | |
| 152,550 | | |
|
total | |
$ | 5,030,921 | | |
$ | 3,092,953 | | |
Other payable was primarily comprised of loans
from non-bank institution and private funds including accrued interest, which consisted of $274,051of loan at 9% of annual interest
rate with a due date of June 30,2023 from Funan Agricultural Investment Co. Ltd, $1,370,257of loan at 3.45% of annual interest rate
with a due date of December 29,2022 from Funan Small Business Financing Service Center and $185,356of accrued interests, $404,703from
unrelated private fund with non-interest bearing and due on demand, $217,871of accrued payment to the owner of Funan Zhihua Mushroom
Co., Ltd (Refer to Note 10) and $301,457of deposit received from customers as of December 31,2024.
Other payable was primarily comprised of loan
and related interest and other private funds, 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 as of December 31, 2025.
NOTE 11
- VALUE ADDED TAX RECEIVABLE
Selling merchandise in China is generally
subject to the value-added tax (VAT). The amount of VAT liability is determined by applying the applicable tax rate to
the invoiced amount of goods sold (output VAT) less VAT paid on purchases made with the relevant supporting invoices (input VAT).
VAT input was primarily due to purchase of property, plant and equipment. As of December 31, 2025, VAT input was $2,104,253
of current portion and $838,274
of non-current portion. As of December 31, 2024, VAT input was $2,704,109.
VAT input can deduct VAT output or be refunded. Anhui Allied United Mushroom Technology and Anhui Allied United Mushroom are engaged
in agricultural production in China, and their value- added tax are exempted, and AUFP are engaged in non-exempt business. AUFP field
an application for a refund of VAT receivable in 2025.
NOTE 12
- ASSET ACQUISITION AND LONG-TERM PAYABLE
On May 11, 2021, Anhui Allied United Mushroom
Co., Ltd. signed the Agreement (Agreement) with Suhua Yang and Hao Yan, the owners of Funan Zhihua Mushroom Co., Ltd. (Target
Company). As the consideration of transferring 100% equity of Target Company, AUM will pay Shareholders with $2,151,383 (RMB 14,840,028),
which is $25,612 (RMB 176,667) per month for 84 months at the end of each month after the delivery of the growing rooms. Target Company
was dissolved after the asset acquisition.
Following the guidance of ASC 805, we performed
the screen test to evaluate whether the acquired set is a business or a group of assets. The group of assets was buildings and equipment
related to growing mushrooms and didnt include an input and a substantive process that together significantly contribute to the
ability to create outputs because the target company had no employees and no operations. The transaction was accounted for as an asset
acquisition in accordance with ASC 805 -50.
F-15
The Company calculated the present value of the
debt assumed at a compound monthly interest rate of 1% at the acquisition date and recognized $1,464,214 of fixed assets and $1,464,214
of long-term payable.
On April 30, 2023, the owner of Target Company
and AUM agreed that the payment of consideration began on the production of growing rooms on January 1, 2024.
Long-term payable were $1,139,629, including $178,793
of current portion and $960,836 of long term payable, and $1,095,690, respectively as of December 31, 2025 and 2024. $290,495 was recorded as other payable
for the year ended December 31, 2024, including $135,725 of capital and $154,770 of interest at 1% compound monthly interest rate, among
them, $73,832 was paid.
The future payment schedule presents as follow:
|
Schedule of long-term payable |
| | |
|
|
|
USD | |
|
|
2026 |
| 303,053 | |
|
|
2027 |
| 303,053 | |
|
|
2028 |
| 303,053 | |
|
|
2029 |
| 303,053 | |
|
|
2030 |
| 303,053 | |
|
|
Imputed interest |
| (375,636 | ) |
|
|
Net |
| 1,139,629 | |
|
|
Long-term payable-Current Portion |
| 178,793 | |
|
|
Long-term payable-Non-Current Portion |
| 960,836 | |
|
NOTE 13 - COMMITMENTS AND CONTINGENCIES
Commitments
On January 5, 2022, Funan Modern Recycling Agriculture
Investment Co., Ltd. (FMRA) signed an agreement with AUFP to fund AUFP 115 million RMB ($18.09 million) on the expansion
of composting facilities including 6 bunkers and 22 tunnels. According to the agreement, AUFP transfers the land use right of 46,393square
meters which the composting facilities will be constructed on to FMRA and starts to pay rent for 10 years after FMRA delivers the facilities
to AUFP legally and in writing. Once Rents and Principal are paid off, FMRA will transfer the land use right and the deed of the composting
facilities back to AUFP. All the costs related to the transfer of land use right are paid by FMRA. The
overall economic substance of the arrangement is that of a construction financing arrangement; accordingly, the land use right was not
derecognized from the balance sheet, which amounted to $623,515. Rent payment method: the calculations will start from the date
of the delivery of the facilities and rent will be paid quarterly. The principal amount will be determined and confirmed in writing by
both parties at the time of the facilities delivery; if the parties cannot reach an agreement, the agreement will prevail if there is
provisions in the agreement; if there is no agreement, the confirmation by a third-party audit will prevail. AUFP will repay the principal
and pay rent on an annual basis. For the first to fifth years, AUFP will pay 4.32% of the total investment (principal amount confirmed)
as annual rent to FMRA. From the sixth to the tenth year, AUFP will pay 20% of the determined principal amount each year to repurchase
20% of the shares in the platform company (incorporated by FMRA to own the composting facilities). After AUFPs payment, FMRA will
complete the necessary changes to the industrial and commercial registration of the platform company within one month. Once AUFP starts
the payment of principal, the rent will be 4.32% of the remaining principal that AUFP has not pay, as the annual rent. The facilities
were under operative testing in 2024. FMRA has not met the conditions of delivery as of December 31, 2025 and the date these consolidated
financial statements are issued.
F-16
Legal Proceedings
The Companys PRC operating subsidiaries
and affiliates have been involved in several disputes with suppliers arising from unpaid amounts owed to raw material vendors following
the suspension of production and related liquidity constraints. These matters primarily involve claims by suppliers of chicken manure,
straw, and other production inputs, and several have been resolved through court-mediated settlements or judgments requiring staged payments
or confirming liability.
In Fengyang Leqi Trading Co., Ltd. v. Anhui Allied
United Mushroom Technology Co., Ltd. and Funan Allied United Farmer Products Co., Ltd., the plaintiff sought payment of RMB 252,780 for
unpaid raw-material purchases consisting of rice husk chicken manure, plus interest, attorneys fees, and court costs. The Funan
County Peoples Court issued a civil mediation statement under case number (2025)Wan1225
MinChu No.13121, pursuant to which the defendants agreed to pay the RMB
252,780 in installments through January 30, 2026, with default interest at 3% per annum on any unpaid balance.
In Funan Yihe Agricultural Machinery Specialized
Cooperative v. Anhui Allied United Mushroom Technology Co., Ltd., Anhui Allied United Mushroom Co., Ltd. and Funan Allied United Farmer
Products Co., Ltd., the plaintiff claimed unpaid straw purchase amounts of RMB 1,620,456.3, plus interest and related costs. The Funan
County Peoples Court issued a civil mediation statement under case number (2025)Wan1225
Min Chu No.7019, pursuant to which the defendants agreed to pay RMB 820,000,
with the remaining RMB 800,000 to be paid in installments.
In Mengcheng Shunjie Straw Recycling Co., Ltd.
v. Anhui Allied United Mushroom Technology Co., Ltd., the plaintiff sought payment of RMB 1,154,204.5 for unpaid straw deliveries, plus
interest and preservation costs, and the defendant disputed the amount and asserted quality-related defenses. After the plaintiff received
straw to offset the account payable under try-parties agreement, the case was closed.
In Funan County Jieyu Agricultural Machinery Specialized
Cooperative v. Anhui Allied United Mushroom Technology Co., Ltd., Anhui Allied United Mushroom Co., Ltd., Funan Allied United Farmer Products
Co., Ltd., Zhang Zhen and Yang Shoubin (Jieyu Case), the plaintiff sought RMB 866,279.8 for unpaid straw purchase amounts,
plus interest and other costs. By civil judgment under case number (2025)Wan1225Mi
Min Chu No.10471, the Funan County Peoples Court held that Anhui Allied United Mushroom Technology Co., Ltd. was liable
for RMB 859,129.3 plus interest, and further held that Anhui Allied United Mushroom Co., Ltd. and Funan Allied United Farmer Products
Co., Ltd. were jointly and severally liable, while dismissing the claims against the two individual employee defendants.
In Meng Jie v. Anhui Allied United Mushroom Technology
Co., Ltd. (Mengjie Case), the asserted payable was approximately RMB 162,566 and related to a straw-pellet supplier. The
parties reached a settlement agreement.
Hefei Wuxing Junye filed an execution-related
matter against Anhui Allied United Mushroom Co., Ltd. and Funan Allied United Farmer Products Co., Ltd. (Wuxing Case) concerning
a deposit refund originally in the amount of RMB 2,000,000 under case number (2025)Wan1225
Min Chu No.8232. The remaining balance of RMB 237,729.27 is to be paid by June 30, 2026.
On
December 2, 2022, Liu Pengpeng filed a lawsuit against AUFP for $66,066. Liu Pengpeng signed a contract with AUFP on installation work
and drainage construction. Liu Pengpeng breached the contract and failed to complete the construction work on time which caused a loss
to AUFP. On July 7, 2023, Liu Pengpeng withdrew the lawsuit. On November 20, 2023, Liu Pengpeng filed a lawsuit for the same claim. In
2024, the lawsuit was settled and $65,263of settlement payment was paid.
AUFP
filed a lawsuit against Heng Guang Sheng Construction Corporation in 2024. AUFP post advances to suppliers on wrong suppliers and caused
overpayment of $280,144 made in 2019. The verdict was ordered and favored AUFP in December of 2024 for the full amount. AUFP collected
$104,315 in April, 2025.
F-17
As of the date of this report, all the
liabilities above were accrued, the Company believes that these matters arose in the ordinary course of business in connection with
supplier and contract payment disputes following the suspension of the PRC mushroom operations. The Company is monitoring compliance
with the applicable settlements, judgments and related payment obligations, and evaluating any further enforcement exposure.
Note 14 CONVERTIBLE NOTES PAYABLE
The convertible notes payable was $275,000
and $0 as of December 31, 2025 and 2024, respectively.
On August 5, 2025, the Company issued a convertible
promissory note (the Note) in the principal amount of $275,000 to Labrys Fund II,
L.P. for an aggregate cash purchase of $250,000 in reliance on an exemption from registration provided by Section 4(a)(2) of the
Securities Act and/or Rule 506(b) thereunder. As additional consideration for the purchase of the Note, the Company issues a common stock
purchase warrant to purchase 45,833 shares of common stock at an initial price per share of $6.00 to the Purchaser. The Note bears
interest at 10% per annum and matures on the twelve (12) months from the Issue Date. The
Purchaser may have conversion rights at the date that an Event of Default occurs or the date that the Company failed to pay any Amortization
Payment to convert the Convertible Note into shares of the Companys common stock at a conversion price equal to the 90% of the
lowest closing bid price of the Common Stock on Principal Market during the ten (10) Trading Day period immediately preceding the respective
conversion date. The Companys convertible notes have original maturities of less than one year and contain certain features that
are contingent upon the occurrence of events of default. The Company evaluated the contingent feature under ASC 815 and concluded that
separate bifurcation and accounting as an embedded derivative was not necessary, as the fair value of the feature was immaterial to the
financial statements. Accordingly, the convertible notes are accounted for as a single financial liability. The convertible notes were
initially recognized at their principal amount, which approximates their fair value at issuance. The difference between the proceeds received
and the principal amount was not material and was recognized in expenses upon initial recognition.
NOTE 15 - DEFERRED INCOME
As of December 31, 2025 and 2024, deferred income
was $1,133,055 and $1,195,384, respectively. Of these amounts, $110,590 and $121,897 were classified as current and $1,022,465 and $1,073,487,
respectively were classified as non current. . The Company recognized $124,023 and $165,646, respectively, of government grants for the
year ended December 31, 2025 and 2024, which consisted of $124,914 of asset-based grants and $40,732 of income-based grants for the year
ended December 31, 2024, and $124,023 of asset-based grants for the year ended December 31, 2025,
The future amortization of deferred revenue schedule as follow:
|
Schedule of deferred revenue | |
| | | |
|
2026 | |
$ | 110,590 | | |
|
2027 | |
| 110,590 | | |
|
2028 | |
| 110,590 | | |
|
2029 | |
| 110,590 | | |
|
2030 | |
| 110,590 | | |
|
thereafter | |
| 580,105 | | |
|
total | |
$ | 1,133,055 | | |
NOTE 16 - INCOME TAXES
The company is subject to income taxes on an entity
basis on income derived from the location in which each entity is domiciled. ESG China Limited and Hainan ESG Tech are holding companies
without operations.
The Companys U.S. parent company is subject
to U.S. income tax rate of 21% and files U.S. federal income tax return. As of December 31, 2025 and 2024, the U.S. entity had net operating
loss (NOL) carry forwards for income tax purposes of $456,665 and $195,027.
Management believes the realization of benefits from these losses remains uncertain. Accordingly, a 100% deferred tax asset valuation
allowance was provided.
F-18
In China the Corporate Income Tax Law generally
applies an income tax rate of 25% to all enterprises. In corporate income tax article 86, Regulations for the Implementation of
the Enterprise Income Tax Law article 27(1) of stipulate: the income of an enterprise engaged in agriculture, forestry, animal
husbandry, and fishery projects may be exempted or reduced from income tax. Refer to: (1)Enterprises are exempted from enterprise income
tax on income derived from the following items: 1. Planting of vegetables, grains, potatoes. Anhui Allied United Mushroom Technology and
Anhui Allied United Mushroom are engaged in agricultural production in China, and their income tax are exempted. AUFP is not exempt for
income tax. Net income and net loss were not offset among the operating subsidiaries. Net income of $817,802
and $3,281,821 were exempt from income tax for the years ended December 31, 2025 and 2024, respectively. The estimated tax savings as
the result of the 25% tax break for the years ended December 31, 2025 and 2024 amounted to $204,451
and $820,455, respectively. The deferred tax assets were $641,840 and $517,978 as of December 31, 2025 and 2024, respectively.
After consideration of all the information available, management believes that significant uncertainty exists with respect to future realization
of the deferred tax assets and has therefore established a full valuation allowance as of December 31, 2025 and 2024. The Companys
management reviews this valuation allowance periodically and makes adjustments as necessary.
There were no uncertain tax positions as of December
31, 2025 and 2024.
As of December 31, 2025 and 2024, the Company
had net operating loss (NOL) carryforwards of $11,550,599
and $10,287,694,
respectively, in PRC. The NOL carryforwards will begin to expire in the PRC in the calendar year 2026 through 2030, if not utilized
$1,084,680 was expired for the year ended December 31,2025.
The following table reconciles the U.S. statutory rates to the Companys
effective tax rate for the years ended December 31, 2025 and 2024:
|
Schedule of effective tax rates | |
| | | |
| | | |
|
| |
2025 | | |
2024 | | |
|
US federal statutory rates | |
| (21.0 | %) | |
| (21 | %) | |
|
Tax rate difference between PRC and U.S. | |
| (3.5 | %) | |
| (4 | %) | |
|
Effect of income tax exemption on certain income | |
| (8.2 | %) | |
| (54 | %) | |
|
Change in valuation allowance | |
| 16.3 | % | |
| 79 | % | |
|
Effective tax rate | |
$ | - | | |
$ | - | | |
The provision for income tax expense (benefit) for the periods ended
December 31, 2025 and 2024 consisted of the following:
|
Schedule of income tax expense (benefit) | |
| | | |
| | | |
|
| |
2025 | | |
2024 | | |
|
Income tax expense - current | |
$ | - | | |
$ | - | | |
|
Income tax benefit -deferred | |
| (641,840 | ) | |
| (517,978 | ) | |
|
Increase in valuation allowance | |
| 641,840 | | |
| 517,978 | | |
|
Total income tax expense | |
$ | - | | |
$ | - | | |
F-19
The Companys net deferred tax assets as of December 31, 2025
and 2024 is as follows:
|
Schedule of net deferred tax assets | |
| | | |
| | | |
|
| |
2025 | | |
2024 | | |
|
Deferred tax asset | |
| | | |
| | | |
|
Net operating loss | |
$ | (3,419,792 | ) | |
$ | (3,049,122 | ) | |
|
Less: valuation allowance | |
| 3,419,792 | | |
| 3,049,122 | | |
|
Net deferred tax asset | |
$ | - | | |
$ | - | | |
NOTE 17 -RELATED PARTY TRANSACTIONS
For the year ended December 31,2025, Mr. Zhi Yang,
our founder loaned the Company $142,929, and the Company repaid $21,235. As of December 31, 2025, the Company had outstanding loans payable
to Mr. Zhi Yang in the aggregate amount of $121,714. Such loans were non-interest-bearing and due on demand.
On
October 22, 2022, Mr. Zhi Yang subscribed12million shares of common stock. Mr. Yang paid $30,000for the12,000,000shares
of ESG Inc. stock. The subscription was canceled on September 28, 2023, and the capital was recorded as a payable to Mr. Yang. The payable
was paid off onFebruary 5, 2024.
NOTE 18 - CONCENTRATIONS
Customers**:**
****
The Company had two customers that individually represented 10% or
more of total sales, which accounted for 36.1% and 13.3% for the year ended December 31, 2025. For the year ended December 31, 2024, there
were five customers sales over 10% and accounted for 31.1%, 16.0%,
14.6%, 14.0%, and 12.7%.
Suppliers:
Purchasing from One supplier accounted for 37.7%
of the Companys purchases for the year ended December 31, 2024. One supplier accounted for 12.0% of the Companys purchases
in 2025.
Accounts receivable:
As of December 31, 2025, the account receivable
from one customer accounted for 82.0% of the total Companys accounts
receivable. As of December 31, 2024, Accounts receivable from one customer accounted for 95.4% of the total Companys
accounts receivable balance.
Accounts payable:
As of December 31, 2025, the account payable from one supplier
accounted for 25.7%
of the total Companys accounts payable.
F-20
NOTE 19 OPERATING SEGMENTS
The Company has three reportable segments: (1) White button mushroom
(2) Compost III and (3) Mushroom powder seasonings in 2025 and one segment in 2024.
|
Schedule of operating segment | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
|
| |
White button mushroom | | |
Compost III | | |
Mushroom powder seasonings | | |
Corporate | | |
Eliminations | | |
Total | | |
|
For the year ended December 31, 2025 | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
|
Net operating revenues: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
|
Third party | |
| 2,667,590 | | |
| 1,242,360 | | |
$ | 2,212,683 | | |
$ | - | | |
$ | - | | |
$ | 6,122,633 | | |
|
Intersegment | |
| 1,004,550 | | |
| 382,920 | | |
| - | | |
| - | | |
| (1,387,470 | ) | |
| - | | |
|
Total net operating revenues | |
| 3,672,140 | | |
| 1,625,280 | | |
| 2,212,683 | | |
| - | | |
| - | | |
| 7,510,103 | | |
|
Cost of goods sold | |
| (1,325,499 | ) | |
| (1,124,985 | ) | |
| (3,154,629 | ) | |
| - | | |
| - | | |
| (5,605,113 | ) | |
|
Intersegment cost of goods sold | |
| (382,920 | ) | |
| - | | |
| (1,004,550 | ) | |
| - | | |
| 1,387,470 | | |
| - | | |
|
Total net operating cost | |
| (1,708,419 | ) | |
| (1,124,985 | ) | |
| (4,159,179 | ) | |
| - | | |
| | | |
| (6,992,583 | ) | |
|
Selling, general administrative expenses | |
| (340,204 | ) | |
| (847,800 | ) | |
| (894,890 | ) | |
| (321,638 | ) | |
| - | | |
| (2,404,532 | ) | |
|
Research anddevelopment | |
| (155,696 | ) | |
| (156,917 | ) | |
| (49,899 | ) | |
| - | | |
| - | | |
| (362,512 | ) | |
|
Operating income (loss) | |
| 846,191 | | |
| (887,342 | ) | |
| (1,886,735 | ) | |
| (321,638 | ) | |
| | | |
| (2,249,524 | ) | |
|
Interest income (expense) | |
| (299,049 | ) | |
| (36,671 | ) | |
| (189,002 | ) | |
| | | |
| | | |
| (524,722 | ) | |
|
Other income (loss) net | |
| 54,323 | | |
| 88,598 | | |
| 128,152 | | |
| | | |
| | | |
| 271,073 | | |
|
Income before income taxes | |
$ | 601,465 | | |
$ | (835,415 | ) | |
$ | (1,947,585 | ) | |
$ | (321,638 | ) | |
| - | | |
$ | (2,503,173 | ) | |
|
Other segment information: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
|
Property, plant and equipment - net | |
$ | 2,019,895 | | |
$ | 772,190 | | |
$ | 13,521,164 | | |
$ | 162 | | |
$ | - | | |
$ | 16,313,411 | | |
|
Depreciation and amortization | |
$ | 200,493 | | |
$ | 91,454 | | |
$ | 1,545,234 | | |
$ | - | | |
$ | - | | |
$ | 1,837,181 | | |
F-21
|
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
|
| |
White button mushroom | | |
Compost III | | |
Mushroom powder seasonings | | |
Corporate | | |
Eliminations | | |
Total | | |
|
Year Ended December31, 2024 | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
|
Net operating revenues: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
|
Third party | |
$ | 5,858,322 | | |
$ | 2,884,364 | | |
$ | 3,939,645 | | |
$ | - | | |
$ | - | | |
| 12,682,330 | | |
|
Intersegment | |
| 4,588,702 | | |
| 3,270,725 | | |
| 881,232 | | |
| 205,000 | | |
| (8,945,659 | ) | |
| - | | |
|
Total net operating revenues | |
| 10,447,024 | | |
| 6,155,089 | | |
| 4,820,877 | | |
| - | | |
| - | | |
| 21,422,990 | | |
|
Cost of goods sold | |
| (3,384,118 | ) | |
| (631,830 | ) | |
| (5,119,049 | ) | |
| - | | |
| - | | |
| (9,134,997 | ) | |
|
Intersegment cost | |
| (4,574,213 | ) | |
| (3,418,261 | ) | |
| (576,657 | ) | |
| - | | |
| 8,569,131 | | |
| - | | |
|
Total net operating cost | |
| (7,958,331 | ) | |
| (4,050,091 | ) | |
| (5,695,707 | ) | |
| - | | |
| - | | |
| (17,704,129 | ) | |
|
Selling expense | |
| (177,926 | ) | |
| (28,973 | ) | |
| (796,019 | ) | |
| (148,008 | ) | |
| - | | |
| (1,150,927 | ) | |
|
general administrative expenses | |
| (32,745 | ) | |
| (32,855 | ) | |
| - | | |
| - | | |
| 65,600 | | |
| - | | |
|
Research and development | |
| (340,309 | ) | |
| (163,516 | ) | |
| (204,929 | ) | |
| - | | |
| - | | |
| (708,754 | ) | |
|
Operating income (loss) | |
| 1,955,969 | | |
| 2,060,044 | | |
| (2,180,353 | ) | |
| (148,008 | ) | |
| - | | |
| 1,687,652 | | |
|
Interest expense | |
| (328,571 | ) | |
| (42,686 | ) | |
| (281,857 | ) | |
| - | | |
| - | | |
| (653,114 | ) | |
|
Other income (loss) net | |
| 7,576 | | |
| 22,167 | | |
| 182,741 | | |
| 831 | | |
| - | | |
| 213,315 | | |
|
Income before income taxes | |
$ | 1,634,974 | | |
$ | 2,039,525 | | |
$ | (2,279,470 | ) | |
$ | (147,177 | ) | |
| - | | |
$ | 1,247,853 | | |
|
Other segment information: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
|
Property, plant and equipment - net | |
$ | 2,090,501 | | |
$ | 724,851 | | |
$ | 14,368,418 | | |
$ | 422 | | |
$ | - | | |
$ | 17,184,192 | | |
|
Depreciation and amortization | |
$ | 162,836 | | |
$ | 62,114 | | |
$ | 1,540,719 | | |
$ | 260 | | |
$ | - | | |
$ | 1,765,929 | | |
|
* | $310,928 of the balance of elimination is the inter-segment unsold inventory. | |
NOTE 20 - SUBSEQUENT EVENTS
Management evaluated subsequent events through the date the consolidated
financial statements were issued and determined that, except as disclosed below and in Note 12 Commitments and Contingencies,
there were no material subsequent events requiring recognition or additional disclosure in the accompanying consolidated financial statements.
On March 6, 2026, ESG Inc. (the Company)
entered into a Securities Purchase Agreement (the Monroe SPA)
with Monroe Street Capital Partners, LP (the Monroe Investor),
pursuant to which the Company issued a convertible promissory note in the principal amount of $110,000 in exchange for $100,000 in gross
proceeds (the Monroe Note). In connection with the Monroe
SPA, the Company also issued a common stock purchase warrant to purchase 18,333 shares of the Companys
common stock at an exercise price of $6.00 per share (the Monroe
Warrant).
On March 9, 2026, the Company entered into a Securities Purchase Agreement
(the Crom SPA) with Crom Structured Opportunities Fund I,
LP (the Crom Investor), pursuant to which the Company issued
a convertible promissory note in the principal amount of $110,000 in exchange for $100,000 in gross proceeds (the Crom
Note). In connection with the Crom SPA, the Company also issued a common stock purchase warrant to purchase 18,333 shares of the
Companys common stock at an exercise price of $6.00 per share (the
Crom Warrant).
In addition, as disclosed in Note 12 Commitments and Contingencies,
in Huaian Hansen Environmental Engineering Co., Ltd. v. Funan Allied
United Farmer Products Co., Ltd., the matter involves a contract dispute allegedly relating to quality issues in the amount of RMB 153,037,
under case number (2026) Wan 1225 Zhi
No.537.
Under the Leqi case, the Company is working on the comprehensive solution
along with Jieyu, Mengjie and Wuxing cases through the Court under the local government support.
F-22
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
None.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
In connection with the preparation of this annual
report, an evaluation was carried out by the Companys management, with the participation of the principal executive officer and
the principal financial officer, of the effectiveness of the Companys disclosure controls and procedures (as defined in Rules 13a-15(e)
and 15d-15(e) under the Exchange Act (Exchange Act) as of December 31, 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 Commissions rules and forms, and that such information is accumulated and
communicated to management, including the principal executive officer and the principal financial officer, to allow timely decisions regarding
required disclosures.
Based on that evaluation, the Companys
management concluded, as of the end of the period covered by this report, that the Companys 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 Commissions rules and forms, and that such information was not accumulated and communicated to management, including
the principal executive officer and the principal financial officer, to allow timely decisions regarding required disclosures.
Managements Report on Internal Control over Financial Reporting
The management of the Company is responsible for
establishing and maintaining adequate internal control over financial reporting. The Companys internal control over financial reporting
is a process, under the supervision of the principal executive officer and the principal financial officer, designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of the Companys financial statements for external
purposes in accordance with United States generally accepted accounting principles (GAAP). Internal control over financial reporting includes
those policies and procedures that:
|
| Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions
and dispositions of the Companys assets; | |
|
| Provide reasonable assurance that transactions are recorded as necessary to permit preparation of the
financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures are being made only
in accordance with authorizations of management and the board of directors; and | |
|
| Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use,
or disposition of the Companys assets that could have a material effect on the financial statements. | |
Because of its inherent limitations, internal
control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance
with the policies or procedures may deteriorate.
In connection with managements assessment
of our internal control over financial reporting as of December 31, 2025, we have concluded we have a material weakness. Specifically,
we have insufficient internal control written policies and procedures for accounting and financial
reporting with respect to the requirements and application of both US GAAP and SEC guidelines.
Changes in Internal Control Over Financial Reporting
During the fiscal year ended December 31,
2025, the Board of Directors of the Company appointed Edward F. Gobora as Chief Financial Officer of the Company. During the fiscal year ended December 31, 2025, the Board appointed Edward
F. Gobora as Chief Financial Officer, and Zhi Yang ceased serving in that role. As a result, we remediated
the weakness of segregation of duties that was outstanding as of December 31, 2024.
Except as discussed above, there were no changes in the Companys
internal control over financial reporting that has materially affected or is reasonably likely to materially affect internal control over
financial reporting.
29
This annual report does not include an attestation
report of our registered public accounting firm regarding our internal controls over financial reporting. Managements report was
not subject to attestation by our registered public accounting firm pursuant to Section 404(b) of the Sarbanes-Oxley Act that permit us
to provide only managements report in this annual report.
Item 9B. Other Information
None
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent
Inspections.
Not applicable.
PART III
Item 10. Directors, Executive Officers and Corporate Governance
**MANAGEMENT DIRECTORS, EXECUTIVE OFFICERS
AND CORPORATE GOVERNANCE**
****
The following table sets forth certain information
about our executive officers, key employees and directors as of December 31, 2025.
|
Name |
|
Age |
|
Position |
|
Appointment | |
|
Zhi Yang |
|
51 |
|
Chief Executive Officer and Executive Director |
|
July 2, 2021 | |
|
Edward F. Gobora |
|
59 |
|
Chief Financial Officer |
|
August 27, 2025 | |
|
John Wallace |
|
75 |
|
Chairman of the Board and Independent Director |
|
July 31, 2024 | |
|
Cathy Fleming |
|
70 |
|
Independent Director |
|
July 31, 2024 | |
|
Mark Hemmann |
|
55 |
|
Independent Director |
|
July 31, 2024 | |
|
Neal Naito |
|
64 |
|
Independent Director |
|
July 31, 2024 | |
Effective July 31, 2024, the Board of Directors
appointed 4 new Independent Directors to serve on our newly created Audit Committee, Compensation Committee, and Nominating and Governance
Committee: John Wallace, Cathy Fleming, Mark Hemmann, and Neal Naito (together, the New Directors). Zhi Yang, our Chief
Executive Officer, was appointed as Executive Director.
Zhi Yang, Chief Executive Officer and Executive
Director
Zhi Yang is the Chief Executive Officer of the
Company. He served as our Chairman of the Board and Director since inception (July 22, 2021). On July 31, 2024, he stepped down as Chairman
upon the appointment of John Wallace. Mr. Yang is appointed as Executive Director and remains our Chief Executive Officer. For the past
5 years, Mr. Yang has been a business consultant and more recently, in 2017, he founded a mushroom growing company in the Peoples
Republic of China (PRC). Mr. Yang received Master Degree in Law from China University of Political Science and Law (PRC) and received
a LLM in Law from Temple University. Mr. Yang is a founder of the Company and brings a wide range of business experience to our board
of directors.
**Edward F. Gobora, Chief Financial Officer**
****
Mr. Gobora currently serves as President and Chief Executive Officer
of Main Line Advisory, LLC. He is also a founder of Miami International Holdings, Inc., the parent company of the MIAX Options Exchange.
Prior to founding MIAX, Mr. Gobora was employed by Merrill Lynch in Princeton and London, where he served as Global Head of Currency Management
and Head of the Global Bond Team from 1988 to 2001. Mr. Gobora earned a Bachelor of Science in Business Administration from Bloomsburg
University of Pennsylvania. In addition to his professional experience, Mr. Gobora has been a long-standing member of the First Troop
Philadelphia City Cavalry and served as its Executive Officer for eight years.
30
John Wallace, Chairman of the Board and Independent
Director
John F. Wallace, our newly appointed Chairman
and Independent Director, is Chairman and CEO of the Wallace Securities Corporation. John is also the President and Managing Partner of
Philadelphia Financial Services, LLC (PFS). For the majority of his career, John was a senior executive & officer of
the Philadelphia Stock Exchange ("PHLX") including Chairman, Vice Chairman and Chief Executive Officer. John also served as
Chairman of the Board of the Stock Clearing Corporation of Philadelphia, Chairman of the Board of the Philadelphia Board of Trade, Chairman
of the Board of the Philadelphia Depository Corporation and a board member of the PHLXs technology subsidiary, Advanced Tech Source
Company. Over the course of his career in the securities industry, John has also been a member of the Toronto Stock Exchange, a seat owner
of the New York Mercantile Exchange as well as registered with the National Futures Association as a floor broker. Upon leaving NASDAQ
OMX PHLX, John was a founder of Miami International Holdings, Inc. ("MIH") a company focused on building exchange technology.
He served as the President - Chief Executive Officer and was on the board of directors for MIH. He served for 27 years in the United States
Army, the Army Reserve and the Army National Guard and retired holding the rank of Lieutenant Colonel. John saw active duty in Grenada
in 1983 with 1st Special Operations Command and Desert Storm from December 1990 to July 1991 with the Third U.S. Army. He is a graduate
of the United States Army Command and General Staff College and the National Emergency Management Institute of the Federal Emergency Management
Agency (FEMA).
Cathy Fleming, Independent Director
Cathy Fleming, our newly appointed Independent
Director, is a litigator and corporation counsel and board member for more than 43 years. A trial lawyer, Cathy has tried more than 60
cases to verdict across the Country, with the majority in federal courts. A former federal prosecutor, Cathy has special expertise in
white collar criminal defense, SEC and other regulatory enforcement matters, securities litigation, complex civil litigation, sanctions
matters, tax controversies and internal investigations. She has extensive experience in international matters, including money laundering
investigations and international extraditions. Her skill as a trial lawyer has been repeatedly recognized, including by the American College
of Trial Lawyers which inducted her as a Fellow in 2018, American College of Trial Lawyers, Platinum Award for Womens Initiative
& Leaders in Law, New Jersey Women Lawyers Association, 2008, Woman of Power & Influence, National Organization for Women, 2007,
Special Commendation Award, Department of Justice, 1987, for her work as a federal prosecutor, Super Lawyer, Super Lawyers New York, 2006-present
(White Collar Defense), etc. Cathy also serves as outside general counsel for corporations and on not-for-profit boards, including as
president. She frequently teaches courses focused on ethics, fraud and trial skills.. In addition, she has managed budgets, P&L and
personnel in law firms.
**Mark Hemmann, Independent Director**
****
Mark Hemmann, our newly appointed Independent
Director, is the co-founder of Stage Point Alternatives (SPA). Mark manages its global asset-based acquisitions and advisory
business. Prior to joining SPA, Mark was a co-founder of Akkadian Investment Management, which was acquired by SPA. Mark has worked over
25 years in significant positions for top-tier international banks, companies and lessors as well as serving on the Board of Directors
of an LSE-listed private equity fund. Mark is a specialist in structured finance, capital markets, banking, and cross border private equity.
Previously, Mark built the U.S. debt capital markets, cross border distribution, and structured finance platforms for a global top-20,
trillion-dollar Asian bank. Mark also spent six years as a Director of Capital Markets at a major multinational bank where he was responsible
for managing a $2 billion portfolio. Prior to those endeavors, he worked in significant roles for the largest private aviation lessor
(finance, lender relations, marketing), a top-8 airline (Treasury, FP&A, business strategy), and in government service.
Neal Andrew Naito, Independent Director
Neal Naito, MD, MPH, our newly appointed Independent
Director, has Over 35 years of healthcare experience including positions as a staff physician, internal medicine department head, occupational
medicine department head, assistant professor of preventive medicine, director of public health, and co-founder of several biotech companies.
As Director of Public Health, Navy Medicine, Neal has expertise in all areas of healthcare management, with a proven record of unprecedented
accomplishment along with superb senior- level experience in executive decision-making, policy development, strategic business planning,
Congressional relations, financial and personnel management, research and development, and current and future operations. As a medical
research leader, Mr. Naito obtained $2.5 million dollars in Department of Defense funding for the development of intranasal thyrotropin
releasing hormone as an anti- suicide medication, a visionary leader who spearheaded the first military medicine conference on incentives
for health as a means for developing a Department of Defense roadmap in this key area for improving health outcomes while lowering costs.
Attendees included other Federal Agencies, academic health centers, and civilian research organizations.
31
There are no arrangements or understandings between
any Director and any other persons pursuant to which any Director was selected as a Director. There are no transactions in which any Director
has a direct or indirect material interest requiring disclosure under Item 404(a) of Regulation S-K.
Board Composition and Election of Directors
In accordance with the terms of our current Articles
of Incorporation and by-laws, the term of office of each director automatically renews at our annual meeting of stockholders or until
their successors are duly elected and qualified.
Family Relationships
There are no family relationships among our directors or officers.
Involvement in Legal Proceedings
To the best of our knowledge, none of our directors
or executive officers, during the past ten years, has been convicted in a criminal proceeding, excluding traffic violations or similar
misdemeanors, or has been a party to any judicial or administrative proceeding during the past five years that resulted in a judgment,
decree or final order enjoining the person from future violations of, or prohibiting activities subject to, federal or state securities
laws, or a finding of any violation of federal or state securities laws, except for matters that were dismissed without sanction or settlement.
Except as set forth in our discussion below in Certain Relationships and Related Transactions, none of our directors, director
nominees or executive officers has been involved in any transactions with us or any of our directors, executive officers, affiliates or
associates which are required to be disclosed pursuant to the rules and regulations of the Securities and Exchange Commission.
Director Independence
Effective July 31, 2024, the Board of Directors
of the Company appointed 4 new Independent Directors to serve on our newly created Audit Committee, Compensation Committee, and Nominating
and Governance Committee: John Wallace, Cathy Fleming, Mark Hemmann, and Neal Naito (together, the New Directors). Zhi Yang,
our Chief Executive Officer, was appointed as Executive Director.
Board Committees
Effective July 31, 2024, we created an Audit Committee.
John Wallace, Cathy Fleming and Mark Hemmann will serve on the Audit Committee, with Mr. Wallace serving as Chair.
Effective July 31, 2024, we created a Compensation
Committee. Cathy Fleming, Mark Hemmann, and Neal Naito will serve on the Compensation Committee, with Ms. Fleming serving as Chair.
Effective July 31, 2024, we created a Nominating
and Governance Committee. Mark Hemmann, Cathy Fleming, and Neal Naito will serve on the Nominating and Governance Committee, with Mr.
Hemmann serving as Chair.
There are no arrangements or understandings between
any Director and any other persons pursuant to which any Director was selected as a Director. There are no transactions in which any Director
has a direct or indirect material interest requiring disclosure under Item 404(a) of Regulation S-K.
Nominating Procedures
During the fiscal year ended December 31, 2025,
there were not any material changes to the procedures by which security holders may recommend nominees to the Companys Board of
Directors.
Directors
Fees
No compensation has been paid to any individual for services rendered
as a director.
32
Code of Ethics
We have adopted a code of ethics that applies
to all of our directors, officers and employees, including our principal executive officer, principal financial officer and principal
accounting officer. Such Code of Ethics addresses, among other things, honesty and ethical conduct, conflicts of interest, compliance
with laws, regulations and policies, including disclosure requirements under the federal securities laws, and reporting of violations
of the Code.
A copy of the Code of Ethics has been filed as
an exhibit to this Annual Report. We are required to disclose any amendment to, or waiver from, a provision of our Code of Ethics applicable
to our principal executive officer, principal financial officer, principal accounting officer, controller, or persons performing similar
functions. We intend to use our website as a method of disseminating this disclosure as well as by SEC filings, as permitted or required
by applicable SEC rules. Any such disclosure will be posted to our website within four (4) business days following the date of any such
amendment to, or waiver from, a provision of our code of ethics.
In addition, our Officers have committed to spend
a sufficient amount of time and attention to the affairs of the Company to fulfill their respective officer responsibilities. In this
regard, generally, each officer or director will spend between 15 to 40 hours per week on the affairs of the Company, depending on the
circumstances. Therefore, we may face conflicts of interest between the time and attention each officer or director devotes to the Company
and that of their other business interests.
Other than as described above, we are not aware
of any other conflicts of interest among our executive Officers and Directors.
Involvement in Certain Legal Proceedings
No.
**Subsequent Board Changes.**
On March 12, 2026, John Wallace and Cathy Fleming each resigned from
the Board of Directors of the Company and all committees thereof, effective immediately. The Company understands that neither resignation
resulted from any disagreement with the Company on any matter relating to the Companys operations, policies or practices. Following
such resignations, the Board reconstituted its committees as follows: the Audit Committee is comprised of Mark Hemmann (Chair) and Neal
Naito; the Compensation Committee is comprised of Neal Naito (Chair) and Mark Hemmann; and the Nominating and Corporate Governance Committee
is comprised of Neal Naito (Chair) and Mark Hemmann.
Item 11. Executive Compensation
*Summary Executive Compensation Table*
For the fiscal years ended December 31, 2025
and 2024, no bonus, stock awards, option awards, non-equity incentive plan compensation, nonqualified deferred compensation earnings
or other compensation was paid to our named executive officers, except as set forth below. Mr. Gobora was appointed Chief Financial Officer
on August 27, 2025. No compensation was paid to Mr. Gobora by the Company during fiscal 2025.
|
| |
| |
Salary | | |
Stock Awards Shares | | |
Total | | |
|
Name and principal position (a) | |
Year | |
($) | | |
($) | | |
($) | | |
|
Zhi Yang | |
2025 | |
| 0 | | |
| 0 | | |
| 0 | | |
|
Chief Executive Officer | |
2024 | |
| 0 | | |
| 0 | | |
| 0 | | |
|
Edward F. Gobora | |
|
| | |
| | |
| | |
|
Chief Financial Officer | |
2025 | |
| 0 | | |
| 0 | | |
| 0 | | |
33
Employment Agreements
The Company does not have any employment or other
compensation agreement with its executive officers. Moreover, there are no agreements or understandings for any of our executive officers
or directors to resign at the request of another person and no officer or director is acting on behalf of nor will any of them act at
the direction of any other person.
Grants of Plan-Based Awards
No plan-based awards were granted to any of our
named executive officers during the interim fiscal year ended December 31, 2025.
Outstanding Equity Awards at Interim Fiscal
Year End
No stock or stock option awards were granted to
any other officer of the Company as at December 31, 2025.
Option Exercises and Stock Vested
No option to purchase our capital stock was exercised
by any of our named executive officers, nor was any restricted stock held by such executive officers vested during the interim fiscal
period ended December 31, 2025.
Pension Benefits
No named executive officers received or held pension
benefits during the fiscal period ended December 31, 2025.
34
Item 12. Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters.
**Security Ownership of Certain Beneficial Owners
and Management**
****
The following table sets forth certain information
with respect to the beneficial ownership of our voting securities following the completion of the Reverse Merger described in Items 1.01
of this report by (i) any person or group owning more than 5% of any class of voting securities, (ii) each director, (iii) our chief executive
officer and (iv) all executive officers and directors as a group as of December 31, 2025.
|
Name | |
Number of Shares of Common Stock | | |
Percentage | | |
|
Zhi Yang, Director and CEO | |
| 0 | | |
| 0 | % | |
|
DCG China Limited(1) | |
| 18,273,910 | | |
| 70.56 | % | |
|
John Wallace, Independent Director | |
| 0 | | |
| 0 | % | |
|
Edward F. Gobora | |
| 0 | | |
| 0 | % | |
|
Cathy Fleming, Independent Director | |
| 0 | | |
| 0 | % | |
|
Mark Hemmann, Independent Director | |
| 0 | | |
| 0 | % | |
|
Neal Naito, Independent Director | |
| 0 | | |
| 0 | % | |
|
| |
| | | |
| | | |
|
(All officers and directors as a group (5 people) | |
| 18,273,910 | | |
| 70.56 | % | |
|
(1) | Zhi Yang is considered the beneficial owner of DCG China Limited,and thus has majority voting control
over the Company. On May 8, 2024, Mr. Zhi Yang, the Company's founder and CEO transferred 14,000,000 shares of our common stock held in
his name to DCG China Limited, ("DCG") a company owned by his mother, Xiayun Zhou. Under DCG China Limited, Mr. Yang is a director
with voting control over DCG and is considered the beneficial owner of DCG, and therefore no change in control occurred. Prior to the
transfer, DCG owned 7,632,800 shares of common stock, and now owns a total of 18,273,910, representing 70.56% of the issued and outstanding
shares of common stock. As a result, our executive officers and directors may be able to: elect or defeat the election of our directors,
amend or prevent amendment to our certificates of incorporation or bylaws, effect or prevent a merger, sale of assets or other corporate
transaction, and control the outcome of any other matter submitted to the shareholders for vote. Accordingly, our outside stockholders
may be unable to influence management and exercise control over our business. | |
|
(2) | Unless otherwise specified above, the mailing address for each of the shareholders is 433 East Hillendale
Road, Chadds Ford PA. 19317. | |
Unless otherwise indicated in the footnotes to
this table and subject to community property laws where applicable, each of the stockholders named in this table has sole or shared voting
and investment power with respect to the shares indicated as beneficially owned. Except as set forth above, applicable percentages are
based upon 25,899,468 shares of common stock to be outstanding.
Item 13. Certain Relationships and Related Transactions, and Director
Independence.
On May 8, 2024, Mr. Zhi Yang, the Company's founder
and CEO transferred 14,000,000 shares of our common stock held in his name to DCG China Limited, ("DCG") a company owned by
his mother, Xiayun Zhou. Under DCG China Limited, Mr. Yang is a director with voting control over DCG and is considered the beneficial
owner of DCG, and therefore no change in control occurred. Prior to the transfer, DCG owned 7,632,800 shares of common stock, and now
owns a total of 18,273,910, representing 70.56% of the issued and outstanding shares of common stock.
35
We are not subject to any independence standards
of a national securities exchange or national securities association dealer quotation system. Our Board of Directors has determined that
to be considered independent, an outside director may not have a direct or indirect material relationship with the company. A material
relationship is one which impairs or inhibits or has the potential to impair or inhibit a directors exercise of critical and disinterested
judgment on behalf of the company and its stockholders. To determine whether a material relationship exists, the Board consults with the
companys counsel. This ensures that the Boards determinations are consistent with:
|
1. | All relevant securities and other laws; and | |
|
2. | Recent relevant cases and regulations regarding the definition of (independent director/business judgment)
including those set forth in the listing standards of the New York Stock Exchange as in effect from time to time. | |
Effective July 31, 2024, the Board of Directors
appointed 4 new Independent Directors to serve on our newly created Audit Committee, Compensation Committee, and Nominating and Governance
Committee: John Wallace, Cathy Fleming, Mark Hemmann, and Neal Naito (together, the New Directors). Zhi Yang, our Chief
Executive Officer, was appointed as Executive Director.
Board Committees
Effective July 31, 2024, we created an Audit Committee.
John Wallace, Cathy Fleming and Mark Hemmann will serve on the Audit Committee, with Mr. Wallace serving as Chair.
Effective July 31, 2024, we created a Compensation
Committee. Cathy Fleming, Mark Hemmann, and Neal Naito will serve on the Compensation Committee, with Ms. Fleming serving as Chair.
Effective July 31, 2024, we created a Nominating
and Governance Committee. Mark Hemmann, Cathy Fleming, and Neal Naito will serve on the Nominating and Governance Committee, with Mr.
Hemmann serving as Chair.
There are no arrangements or understandings between
any Director and any other persons pursuant to which any Director was selected as a Director. There are no transactions in which any Director
has a direct or indirect material interest requiring disclosure under Item 404(a) of Regulation S-K.
Nominating Procedures
During the fiscal year ended December 31, 2025,
there were not any material changes to the procedures by which security holders may recommend nominees to the Companys Board of
Directors.
Directors
Fees
No compensation has been paid to any individual for services rendered
as a director.
Compliance with Section 16(a) of the Securities Exchange Act
Not Applicable
Item 14. Principal Accountant Fees and Services.
The following table presents the aggregate fees
billed for professional services rendered by our independent registered public accounting firms for the fiscal years ended December 31,
2025 and 2024:
**Audit Fees**
Audit fees for 2025 and 2024 were $120,000 and $140,000, respectively. Audit fees consist of fees for professional services rendered
for the audit of the Companys annual financial statements, the review of interim financial statements included in the Companys
quarterly reports, and services that are normally provided in connection with statutory and regulatory filings or engagements. For the
year ended December 31, 2025, the aggregate fees for Prager Metis CPAs was $30,000, the review fees for Boladale Lawal & Co (Chartered
Accountants) was $10,000 and $80,000 for Tang Qian & Associates, PLLC. For the year ended December 2024, the aggregate fees for Prager
Metis CPAs related to audit services was $120,000, and the aggregate fees for Qi CPA LLC was $20,000.
**Audit-Related Fees**
Audit-related fees for 2025 and 2024 were $0 and $0, respectively.
**Tax Fees**
Tax fees for 2025 and 2024 were $0 and $0, respectively.
**All Other Fees**
All other fees for 2025 and 2024 were $0 and $0, respectively.
The Audit Committee, or the Board of Directors
acting in lieu thereof, pre-approves all audit and permissible non-audit services provided by the independent registered public accounting
firm.
36
The percentage of hours expended on the principal
accountants engagement to audit our financial statements for the most recent fiscal year that were attributed to work performed
by persons other than the principal accountants full-time, permanent employees was 0%.
Item 15. Exhibits, Financial Statement Schedules.
(a) Financial Statements
The financial statements required by this Item are included in Part II, Item 8 of this Annual Report on Form 10-K.
(b) Exhibits
The exhibits required by Item 601 of Regulation S-K are listed in the Exhibit Index below.
**Exhibit Index**
****
|
Exhibit |
|
Description | |
|
3.1 |
|
Articles of Incorporation (incorporated by reference to Exhibit 3.1(a) to the Registration Statement on Form S-1 filed with the SEC on September 24, 2021) | |
|
3.2 |
|
Agreement and Plan of Merger, dated effective as of November 16, 2023, by and between Plasma Innovative Inc. and ESG Inc. (incorporated by reference to Exhibit 2.1 to the Current Report on Form 8-K filed with the SEC on December 1, 2023). | |
|
3.3 |
|
Articles of Merger between Plasma Innovative Inc. and ESG Inc. (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K filed with the SEC on December 1, 2023). | |
|
3.4 |
|
Articles of Merger between Plasma Innovative Inc. and ESG Inc. (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K filed with the SEC on December 1, 2023). | |
|
3.5 |
|
Amended and Restated Bylaws of ESG Inc., approved February 20, 2025 and adopted effective February 24, 2025 (incorporated by reference to Exhibit 3.5 to the Quarterly Report on Form 10-Q for the period ended September 30, 2025). | |
|
10.1 |
|
Technology Assignment Agreement, dated August 6, 2021, by and between Plasma Innovative Inc. and Hanliang Shao (incorporated by reference to Exhibit 10.1 to the Registration Statement on Form 10-Q filed with the SEC on September 21, 2021). | |
|
10.2 |
|
Investment and Cooperation Agreement, dated January 4, 2021, between the Company and Funan Agricultural Reclining Investment Co. Ltd (incorporated by reference to Exhibit 10.2 to the Registration Statement on Form S-1/A filed with the SEC on September 19, 2024). | |
|
10.3 |
|
Share Exchange Agreement between ESG Inc. and Funan Allied United Farmer Products Co., Ltd., dated September 28, 2023 (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed with the SEC on November 9, 2023). | |
|
10.4 |
|
Share Exchange Agreement between Plasma Innovative Inc. and ESG Inc., dated November 6, 2023 (incorporated by reference to Exhibit 99.1 to the Current Report on Form 8-K filed with the SEC on November 9, 2023). | |
|
10.5 |
|
Securities Purchase Agreement, dated August 5, 2025, by and between ESG Inc. and Labrys Fund II, L.P. (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed on August 8, 2025). | |
|
10.6 |
|
Form of Convertible Promissory Note, dated August 5, 2025, issued by ESG Inc. in favor of Labrys Fund II, L.P. (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K filed on August 8, 2025). | |
|
10.7 |
|
Securities Purchase Agreement, dated March 6, 2026, by and between ESG Inc. and Monroe Street Capital Partners, LP (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed on March 12, 2026). | |
|
10.8 |
|
Convertible Promissory Note, dated March 6, 2026 (Monroe Note) (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K filed on March 12, 2026). | |
|
10.9 |
|
Common Stock Purchase Warrant, dated March 6, 2026 (Monroe Warrant) (incorporated by reference to Exhibit 10.3 to the Current Report on Form 8-K filed on March 12, 2026). | |
|
10.10 |
|
Securities Purchase Agreement, dated March 9, 2026, by and between ESG Inc. and Crom Structured Opportunities Fund I, LP (incorporated by reference to Exhibit 10.4 to the Current Report on Form 8-K filed on March 12, 2026). | |
37
|
16.1 |
|
Letter from Prager Metis CPAs, LLC, dated August 8, 2025 (incorporated by reference to Exhibit 16.01 to the Current Report on Form 8-K filed on August 8, 2025). | |
|
16.2 |
|
Letter from Boladale Lawal & Co., dated February 19, 2026 (incorporated by reference to Exhibit 16.1 to the Current Report on Form 8-K filed on February 20, 2026). | |
|
21.1 |
|
Subsidiaries of the Registrant.* | |
|
23.1 |
|
Consent of Independent Registered Public Accounting Firm.* | |
|
31.1 |
|
Certification of Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.* | |
|
31.2 |
|
Certification of Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.* | |
|
32.1 |
|
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350.** | |
|
32.2 |
|
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350.** | |
|
101.INS |
|
Inline XBRL Instance Document.* | |
|
101.SCH |
|
Inline XBRL Taxonomy Extension Schema Document.* | |
|
101.CAL |
|
Inline XBRL Taxonomy Calculation Linkbase Document.* | |
|
101. DEF |
|
Inline XBRL Taxonomy Definition Linkbase Document.* | |
|
101.LAB |
|
Inline XBRL Taxonomy Label Linkbase Document.* | |
|
101.PRE |
|
Inline XBRL Taxonomy Presentation Linkbase Document.* | |
|
104 |
|
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).* | |
|
* | Filed herewith. |
|
|
** | Furnished herewith. |
|
38
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
|
By: |
/s/ Zhi Yang |
| |
|
Zhi Yang |
| |
|
Chief Executive Officer |
| |
|
(Principal Executive Officer) |
| |
|
|
|
| |
|
By: |
/s/ Edward F. Gobora |
| |
|
Edward F. Gobora |
| |
|
Chief Financial Officer |
| |
|
(Principal Financial Officer and Principal Accounting Officer) |
| |
Dated: March __, 2026
39