Quarterly Report for Quarter Ending June 30, 2026 (Form 10-Q)

Management's Discussion and Analysis of Financial Condition and Results of Operations

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 financial statements and related notes included in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2025.

Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include statements regarding, among other matters, our plans, objectives, expectations, financing and liquidity needs, operating strategy, the anticipated effects of the completed split-off of our China operations, the development and commercialization of our North American food products, and other future events and circumstances.

Forward-looking statements are based on management's current expectations, estimates, assumptions and projections and are subject to risks, uncertainties and other factors that could cause actual results to differ materially from those expressed or implied by such statements. Readers should not place undue reliance on these forward-looking statements. Except as required by applicable law, the Company undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.

Overview

On May 26, 2026, the Company completed the split-off of its China operations pursuant to the Split-Off and Share Exchange Agreement described in Note 4 to the unaudited condensed consolidated financial statements. In connection with the transaction, the Company transferred its ownership of ESG China Limited and its subsidiaries, and 10,432,800 shares of the Company's common stock were surrendered and canceled. The former China operations ceased to be consolidated effective May 26, 2026 and are presented as discontinued operations for all periods presented.

Following the split-off, the Company's continuing operations consist of its early-stage North American food and snack business conducted through ESG Provisions, Inc. The Company is developing and commercializing mushroom-based snacks and alternative-protein products through product development, sourcing, packaging, co-manufacturing, e-commerce and other commercialization activities.

The continuing business generated limited revenue during the six months ended June 30, 2026 and remains dependent on additional financing, successful product commercialization, third-party suppliers and manufacturers, production readiness, supply-chain execution and customer acceptance.

Results of Operations

Revenue, Cost of Goods Sold and Gross Profit

Revenue from continuing operations was $918 for both the three and six months ended June 30, 2026, compared with no revenue during the corresponding 2025 periods.

Cost of goods sold was $555 for both the three and six months ended June 30, 2026, resulting in gross profit of $363 and a gross margin of approximately 39.5%. The continuing business remains in an early commercialization stage, and the results are not necessarily indicative of future periods.

Selling, General and Administrative Expenses

Selling, general and administrative expenses were $1,610 for the three months ended June 30, 2026, compared with $96,074 for the corresponding 2025 period, as revised. The decrease of $94,464, or approximately 98.3%, principally reflected $90,559 of share-based compensation included in the revised 2025 period and the limited level of continuing operations during the 2026 quarter.

For the six months ended June 30, 2026, selling, general and administrative expenses were $126,863, compared with $193,115 for the corresponding 2025 period, as revised. The 2026 amount included $95,939 of share-based compensation attributable to the three months ended March 31, 2026. The 2025 amount included $181,119 of revised share-based compensation.

On June 1, 2026, the Company issued 115,908 restricted shares in settlement of $540,035.48 of compensation earned through March 31, 2026. The issuance did not result in additional second-quarter expense and had no effect on cash flows. See Note 7.

Professional Fees

Professional fees were $0 and $15,820 for the three and six months ended June 30, 2026, respectively, compared with $0 and $20,500 for the corresponding 2025 periods. The six-month decrease of $4,680 primarily reflected the timing of legal, accounting, audit and other professional services.

Interest Expense

Interest expense was $26,036 and $32,817 for the three and six months ended June 30, 2026, respectively, compared with no interest expense during the corresponding 2025 periods. The 2026 expense resulted from the Company's convertible notes, including stated interest and amortization of debt discounts and approximately $13,110 of additional default interest recognized during the second quarter of 2026 under the Labrys Fund II, L.P. convertible promissory note. See Note 6 to the unaudited condensed consolidated financial statements.

Loss from Continuing Operations and Net Loss

Loss from continuing operations was $27,283 for the three months ended June 30, 2026, compared with $96,074 for the corresponding 2025 period, as revised. For the six months ended June 30, 2026, loss from continuing operations was $175,137, compared with $213,615 for the corresponding 2025 period, as revised. The 2026 losses included interest expense associated with the Company's convertible notes, including the additional default interest recognized under the Labrys note described above.

Loss from discontinued operations was $46,206 and $878,342 for the three and six months ended June 30, 2026, respectively. Income from discontinued operations was $701,917 and $452,745 for the corresponding 2025 periods.

Consolidated net loss was $73,489 and $1,053,479 for the three and six months ended June 30, 2026, respectively, compared with consolidated net income of $605,843 and $239,130 for the corresponding 2025 periods, as revised.

Liquidity and Capital Resources

As of June 30, 2026, the Company had cash of $161,100, current assets of $190,745 and current liabilities of $564,916, resulting in a working-capital deficit of $374,171. Current liabilities included accounts payable of $64,324, accrued interest payable of $19,522 and convertible notes payable, net, of $481,070. The aggregate outstanding principal of the convertible notes was $495,000.

The Company's continuing operations generated only $918 of revenue during the six months ended June 30, 2026 and have not generated sufficient cash flow to fund operating expenses, public-company costs, working-capital requirements and debt obligations. Existing cash and expected operating cash flows are not expected to be sufficient to meet the Company's obligations for the twelve months following issuance of the financial statements. These conditions raise substantial doubt about the Company's ability to continue as a going concern, and management's plans have not alleviated that doubt.

Management's plans include seeking additional debt or equity financing, negotiating extensions, conversions or modifications of outstanding debt, controlling operating expenses, commercializing the Company's North American products and evaluating strategic transactions. Financing may not be available when required or on acceptable terms. Failure to obtain financing or generate sufficient operating cash flow could require the Company to delay product launches, reduce operations, default on obligations or pursue a restructuring or other strategic transaction.

Cash Flows

Operating Activities

Net cash used in operating activities was $57,847 for the six months ended June 30, 2026, compared with $1,531,277 for the corresponding 2025 period.

Continuing operations used $84,905 of cash during the six months ended June 30, 2026, compared with $40,992 during the corresponding 2025 period. The 2026 reconciliation included a noncash share-based compensation adjustment of $95,939.

Discontinued operations provided $27,058 of cash during the six months ended June 30, 2026 and used $1,490,285 during the corresponding 2025 period.

Investing Activities

Continuing operations had no investing cash flows during either period. Discontinued operations had no investing cash flows during the six months ended June 30, 2026 and used $208,253 during the corresponding 2025 period.

Financing Activities

Continuing operations received $200,000 of net financing cash flows during the six months ended June 30, 2026 from the Monroe and Crom convertible-note financings. Continuing operations had no financing cash flows during the corresponding 2025 period.

Discontinued operations had no financing cash flows during the six months ended June 30, 2026 and provided $1,341,253 during the corresponding 2025 period.

The Company transferred $38,493 of cash and restricted cash in connection with the China split-off and recorded a $22,431 adverse effect of exchange-rate changes on cash and restricted cash. Cash and restricted cash increased by $81,229, from $79,871 at December 31, 2025 to $161,100 at June 30, 2026.