ESGH 10-K & 10-Q changes, risk factors and insider trading

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.

Our PRC subsidiaries have not opened HPF accounts for their employees (almost all of them are with rural housing registration). RegardingWith thoserespect to employees whofor whom our PRC subsidiaries do not make HPF no contribution to HPF,contributions, our PRC subsidiaries have entered into employment contractsarrangements with themintended to clarify salarythat 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 includeeliminate contributionthe andrisk employee hasthat obligation to deal with it by themself. Although ourthe PRC subsidiaries do this way, they may still potentiallycould be orderedrequired by HPFthe enforcement relevant authorities to make full contribution,HPF contributions and could face litigationemployee byclaims employeesor inother relationproceedings relating to theirsuch failure to make full contribution.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.

Temperature can have a significant impact on the growth and the quality of mushrooms. Although our growing facilities are indoors and operated under themonitored control of AI monitor,environmental controls, we aremay still potentialexperience tomalfunctions encounter the malfunction ofin cooling, airflow, andor heating system.

Our farms are responsiblerequired forto complyingcomply with theapplicable legal and regulatory requirements. It is possible thatIf we fail to comply with any PRC lawlaws relating to food safetysafety, composting, duringcultivation or related operations, the compostingrelevant and growing. If the governmental agencyauthorities determinescould werequire are not eligibleus to continuesuspend or modify operations. In addition, the operation, we will need to pause. Our farms may also be negatively impacted by bad quality of our raw materials somay failaffect our ability to comply withmeet our internal quality standards.standards and applicable regulatory requirements.

An insufficient amount ofInsufficient insurance coverage could expose us to significant costs and business disruption.

An emerging growth company is also exempt from Section Section 404(b) of the Sarbanes OxleySarbanes-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-OxleySarbanes- 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.

We would will cease to be an emerging growth company upon the earliest of:

Movements in Renminbi exchange rates are affected by, among other things, changes in political and economic conditions and China’s foreign exchange regime and policy. The Renminbi has been unpegged from the U.S. dollar since July 2005 and, althoughAlthough the People’s 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.

Under the current PRC tax regulations, indirect transfers transfers of equity interests and other properties of PRC tax resident enterprises by non-PRCnon- 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.

The SAFE’s Circular on Reforming the Administration Approach Regarding the Foreign Exchange Capital Settlement of Foreign-investedForeign- invested Enterprises (“Circular 19”) provides that the 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.

Risks Related to the Market f or our Stock The OTC and share value Our Common Stock trades over the counter, which may may deprive stockholders of the full value of their shares. Our stock is quoted via the Over-The-Counter (“OTC”) Pink Sheets under under the ticker symbol “ESGH”. Therefore, our Common Stock is expected to have fewer market makers, lower trading volumes, and 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 Stock Market. These factors may result in higher price volatility and less market liquidity for our Common Stock.

ESG Inc. (“ESG”) was incorporated in in July 2021, a Nevada corporation and headquartered at KennettChadds Square,Ford, Pennsylvania, USA, and is a holding company to develop and operate 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.

Cost of goods sold was $9,134,997$5,605,113 for the year ended December 31, 2024,2025, compared to $5,697,351$9,134,997 of cost of goods sold for the year ended December 31, 2023,2024, ana increasedecrease of $3,437,646$3,529,884 or or 60.3%.38.6%.

Gross profit margin is a ratio calculated by dividing gross profit by net operating revenues. Our gross profit margin increaseddecreased to 28.0%8.5% for the year ended December 31, 2024,2025, compared to 23.5% 28.0% for the year ended December 31, 2023.2024. The increasedecrease was primarily due to the increasedecrease of scale margin from the expansion of capacity. Fixed costs such as depreciation expense spread over more products along with the expanded production scale resulted in a decrease in unit cost.margin.

During the year ended December 31, 2024,2025, Research and development expenses increaseddecreased $99,012,$346,242, or 16.2%48.9% versus the prior year. In 2024, Research and development input increased.

For the year ended December 31, 2024, 2025, selling, general and administrative expenses decreasedincreased $203,822,$1,253,605, from $1,150,927 to $2,404,532, or 15.0%102% versus the prior year. The decrease increase in administrative expenses was mainly due to cuttingthe expenditures andwrite-ff improvingof efficiency.the scrap of raw materials.

NetOther income was $271,073 for the year ended December 31, 2025 compared to $213,315 for the year ended December 31, 2024 compared to $230,635 for the year ended December 31, 2023,2024, an decreaseincrease of $17,320,$57,758, or 7.5%.27.1%. The decrease in other income was primarily due to the decrease of government grants.

The Company recorded no income taxes for the year ended December 31, 2024, and 2023, respectively. AUM2025, and AUMT2024, are exempt from income tax and AUFP had operating loss for the year ended December 31, 2024 and 2023.respectively.

Net cash provided by operating activities for the year ended December 31, 2025 and 2024 and 2023 was $1,546,524$101,246 and $119,934,$1,546,524, respectively, ana increasedecrease of $1,426,588$1,445,278 or 1189.5%.93.5%. This increase decrease was primarily due to the increase decrease of revenue.

Net cash used in investing activities for the year ended December 31, 2024 2025 and 20232024 were $685,056$178,227 and $0,$685,056, respectively. The Company purchased $685,056 of machinery equipment for the year ended December 31, 2025 and 2024.

Net cash provided (used) in financing activities were $1,031,380$888,777 and $344,354, $1,031,380, respectively for the year ended December 31, 20242025 and 2023.2024. 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 of $293,064, borrowed $7,271,714 of loans for the year ended December 31, 2024, comparing to $7,045,131 of loan and $7,389,485 of payment made for the year ended December 31, 2023.2024.

Our long-term debt obligations as of December 31, 2025 and 2024 were $1,095,690. $152,550 was included in accrued expenses$960,836 and other$1,095,690, current labilities as current portion of long-term liabilities and expected to be paid within 12 months.respectively. Our long-term debt obligation are related to assets acquisition. See Note 11, 11 Assets Acquisition and Note 12, Long-term Payable, to the consolidated financial statements included in Part II, Item 8, Financial Statements.

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

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

Revenue, Cost of Goods Sold and Gross Profit

ResearchSelling, general and developmentadministrative expenses were $0$1,610 for the three months ended March 31,June 30, 2026, compared towith $66,323$96,074 for the comparablecorresponding 2025 period, dueas torevised. The decrease of $94,464, or approximately 98.3%, principally reflected $90,559 of share-based compensation included in the suspensionrevised 2025 period and the limited level of researchcontinuing operations andduring testing activities related to the PRC2026 operations.quarter.

Cash Flows from Operating Activities

Net cash used in investingoperating activities was $0$57,847 for the threesix months ended ended MarchJune 31,30, 2026, compared towith $88,321$1,531,277 for the threecorresponding months ended March 31, 2025. The decrease was due to no purchases of property, plant and equipment during the 20262025 period.

Cash Flows from FinancingInvesting Activities