GULF RESOURCES, INC. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations Cautionary Note Regarding Forward-Looking Statements The discussion below contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act, and Section 21E of the Exchange Act. We have used words such as “believes,” “intends,” “anticipates,” “expects” and similar expressions to identify forward-looking statements. These statements are based on information currently available to us and are subject to a number of risks and uncertainties that may cause our actual results of operations, financial condition, cash flows, performance, business prospects and opportunities and the timing of certain events to differ materially from those expressed in, or implied by, these statements. Except as expressly required by the federal securities laws, we undertake no obligation to update such factors or to publicly announce the results of any of the forward-looking statements contained herein to reflect future events, developments, or changed circumstances, or for any other reason. Overview We are a Nevada holding company which conducts operations through our wholly-owned China-based subsidiaries. Our business is conducted and reported in four segments, namely, bromine, crude salt, chemical products and natural gas. Through our wholly-owned subsidiary, SCHC, we produce and trade bromine and crude salt. We are one of the largest producers of bromine in China, as measured by production output. Elemental bromine is used to manufacture a wide variety of bromine compounds used in industry and agriculture. Bromine also is used to form intermediary chemical compounds such as Tetramethylbenzidine. Bromine is commonly used in brominated flame retardants, fumigants, water purification compounds, dyes, medicines and disinfectants. Crude salt is the principal material in alkali production as well as chlorine alkali production and is widely used in the chemical, food and beverage, and other industries. Through our wholly-owned subsidiary, SYCI, we manufacture and sell chemical products used in oil and gas field exploration, oil and gas distribution, oil field drilling, papermaking chemical agents, inorganic chemicals and materials that are used for human and animal antibiotics. Our wholly-owned subsidiary, DCHC, was established to explore and develop natural gas and brine resources (including bromine and crude salt) in Sichuan Province, China. As disclosed in the Company’s Current Report on Form 8-K filed on September 8, 2017, the Company received, on September 1, 2017, letters from the Yangkou County, Shouguang City government addressed to each of its subsidiaries, SCHC and SYCI, which stated that in an effort to improve the safety and environmental protection management level of chemical enterprises, the plants are requested to immediately stop production and perform rectification and improvements in accordance with the country’s new safety and environmental protection requirements. In the Company’s press release of August 11, 2017 and on its conference call of August 14, 2017, the Company addressed concerns that increased government enforcement of stringent environmental rules that were adopted in early 2017 to insure corporations bring their facilities up to necessary standards so that pollution and other negative environmental issues are limited and remediated, could have an impact on our business in both the short and long-term. The Company also expressed that although it believed its facilities were fully compliant at the time, the Company did not know how its facilities would fare under the new rules. Teams of inspectors from the government were sent to many provinces to inspect all mining and manufacturing facilities. The local government requested that facilities be closed, so that the facilities could undergo the inspection and analysis in the most efficient manner by inspectors’ team. As a result, our facilities were closed on September 1, 2017. The Company believes that this is another step by the government to improve the environment. It further believes the goal of the government is not to close all plants, but rather to codify the regulations related to project approval, land use, planning approval and environmental protection assessment approval so that illegal plants are not able to open in the future and so that plants close to population centers do not cause serious environmental damage. In addition, the Company believes that the Shandong provincial government wants to assure that each of its regional and county governments has applied the Notice in a consistent manner. The Shouguang City Bromine Association, on behalf of all the bromine plants in Shouguang, started discussions with the local government agencies. The local governmental agencies confirmed the facts that their initial requirements for the bromine industry did not include the project approval, the planning approval and the land use rights approval and that those three additional approvals were new requirements of the provincial government. The Company understood from the local government that it has been coordinating with several government agencies to solve these three outstanding approval issues in a timely manner and that all the affected bromine plants willnot be allowed to commence production prior to obtaining those approvals. In February 2019, the Company received a notification from the local government of Yangkou County that its Factory No. 1, No. 4, No. 7 and No. 9 had passed inspection and could resume operations. In April 2019, Factory No. 1 and No. 7 resumed operations. On February 28, 2020, the Company announced that it received an approval from the government to resume bromine production after winter temporary closure. Subsequently, it received another approval from the Shouguang Yangkou People’s Government dated on March 5, 2020 to resume production at its bromine factories No. 1, No. 4, No. 7 and No. 9 in order to meet the needs of bromide products for epidemic prevention and control. With these two approvals, the Company was allowed to resume production at all four bromine factories. 17 The Company received an oral notification from the government for its Factory No. 8, which permitted Factory No.8 to resume production in August 2022. Factory No.8 started to contribute revenue in the fourth quarter 2022. Pursuant to the notification from the government of Shouguang City, all bromine facilities in Shouguang City were temporarily closed from December 10, 2022 until February 1, 2023. To comply with such notification, the Company had temporarily stopped production at its bromine facilities during the aforesaid period and reopened the operating bromine and crude salt factories in February, 2023. The Company is still waiting for governmental approval for factories No. 2 and No. 10. To its knowledge, the government is currently completing its planning process for all mining areas including that for prevention of flood. As a result, the Company may be required to make some modifications to our current wells and aqueducts prior to commencement of operations of these factories in order to satisfy the local government's requirements. On November 24, 2017, Gulf Resources received a letter from the People’s Government of Yangkou County, Shouguang City notifying the Company that due to the new standards and regulations relating to safety production and environmental pollution, from certain local governmental departments, such as the municipal environmental protection department, the security supervision department and the fire department, its chemical enterprises would have to be relocated to a new industrial park called Bohai Marine Fine Chemical Industry Park. Although our chemical companies were in compliance with regulations, they were also close to a residential area. As a result, the government determined we should relocate to the Bohai park. Chemical companies that are not being asked to move into the park are being permanently closed. Since our factories closed, the Company has secured from the government the land use rights for its chemical plant. On January 6, 2020, the Company received the environmental protection approval by the government of Shouguang City, Shandong Province for the proposed Yuxin Chemical factory. The Company began the construction on its new chemical facilities located at Bohai Marine Fine Chemical Industrial Park in June 2020. The construction was expected to take approximately one year and an additional six months to complete the equipment installation and testing, however due to the COVID epidemic and electrical restrictions, the opening of the chemical factory has been delayed. The Company has received the refrigeration and air compressor units. On July 26, 2023, the Company announced that the delivery of the remaining equipment for its Yuxin chemical factory has been temporarily delayed and the Company will re-evaluate its chemical products strategy. In January 2017, the Company completed the first brine water and natural gas well field construction in Daying located in Sichuan Province and commenced trial production in January 2019. On May 29, 2019, the Company received a verbal notice from the government of Tianbao Town ,Daying County, Sichuan Province, whereby the Company is required to obtain project approval for its well located in Daying, including the whole natural gas and brine water project, and approvals for safety production inspection, environmental protection assessment, and to solve the related land issue. Until these approvals have been received, the Company has to temporarily halt trial production at its natural gas well in Daying. In compliance with the Chinese government new policies, the Company is also required to obtain an exploration license and a mining license for bromine and natural gas, respectively. Pursuant to the Opinions of the Ministry of Natural Resources on Several Issues in Promoting the Reform of Mineral Resources Management (Trial) promulgated by the Ministry of Natural Resources of PRC on January 9, 2020, which came into effect on May 1, 2020, privately owned enterprises are allowed to participate in the natural gas production. The Company plans to proceed with its applications for the natural gas and brine project approvals with related government departments until after the governmental planning has been finalized the land and resource planning for Sichuan Province. In April 2022, Shouguang Hengde Salt Industry Co. Ltd （ “SHSI” ） , our subsidiary, was incorporated in Shandong Province, China, for crude salt production and trading. On January 28, 2020 we completed a 1-for-5 reverse stock split of our common stock, such that for each five shares outstanding prior to the stock split there was one share outstanding after the reverse stock split. All shares of common stock referenced in this report have been adjusted to reflect the stock split figures. Recent Developments Acquisition Agreements On June 26, 2024, a wholly owned subsidiary of the Company, Shouguang Hengde Salt Industry Co. Ltd ( “SHSI”), entered into a Crude Salt Field Acquisition Agreement (the “Acquisition Agreement”) with Shouguang Qingshuibo Farm Co., LTD. (“Seller A”), pursuant to which Seller A agrees to transfer to SHSI, and SHSI agrees to purchase, 2,380,000 square meters of crude salt field (including the land lease fee) for RMB54.40 per square meter, with the total transfer price of RMB129,472,000. The term of transfer is from June 29, 2024 to June 28, 2044. 80% of the transfer price shall be paid upon the execution of Acquisition Agreement, and the remaining 20% shall be paid in shares of common stock of the Company within three months from the date of Acquisition Agreement after SHSI has inspected the and accepted the crude salt field in writing. On June 27, 2024, SHSI entered into four Crude Salt Field Acquisition Agreements (the “Agreements”) with Shouguang city Yangkou town Dingjia Zhuangzi village stock economic cooperative, Shouguang city Yangkou town Shanjia Zhuangzi village stock economic cooperative, Shouguang City Yangkou town Zhengjia Zhuangzi village stock economic cooperative, and Shouguang city Yangkou town Renjia Zhuangzi village stock economic cooperative (together, “Sellers”), pursuant to which Sellers agree to transfer to SHSI, and SHSI agrees to purchase from Sellers, 750,000, 804,000, 385,000, and 822,000 square meters of crude salt field (including the land lease fee) for RMB54.10, RMB54.90, RMB54.00, and RMB55.70 per square meter, respectively, with the total transfer price of RMB40,575,000, RMB44,139,600, RMB20,790,000, and RMB45,785,400, respectively. The term of transfers is from June 29, 2024 to June 28, 2044. 80% of the transfer price shall be paid upon the execution of Agreements, and the remaining 20% shall be paid in shares of common stock of the Company within three months from the date of Agreements after SHSI has inspected the and accepted the crude salt fields in writing. 18 Nasdaq Compliance The Company received a notice (the “Initial Notice”) from the Listing Qualifications Department of The Nasdaq Stock Market LLC (“Nasdaq”) on April 18, 2024 notifying the Company that due to the Company’s failure to timely file its Annual Report on Form 10-K for the fiscal year ended December 31, 2023 (the “Form 10-K”), with the SEC, the Company is not in compliance with Nasdaq’s continued listing requirements under Nasdaq Listing Rule 5250(c)(1) (the “Rule”), which requires the timely filing of all required periodic reports with the SEC, and the Company subsequently received a notice (the “May Notice”) from Nasdaq on May 21, 2024 due to the Company’s non-compliance with the Rule as a result of the Company’s failure to timely file its Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2024 (the “Form 10-Q”, together with the Form 10-K, the “Delinquent Reports”). The May Notice states that the Company has until June 17, 2024 to submit to Nasdaq a plan to regain compliance with the Rule. On June 26, 2024, the Company received a letter from Nasdaq indicating that, based on its further review and the plan of compliance submitted by the Company on June 14, 2024, Nasdaq has determined to grant an exception to enable the Company to regain compliance with the Rule. The terms of the exception were as follows: on or before October 14, 2024, the Company must file the Delinquent Reports, as required by the Rule. In the event the Company does not satisfy the terms, Nasdaq will provide written notification that its securities will be delisted. At that time, the Company may appeal Nasdaq’s determination to a hearings panel. Subsequently, on August 20, 2024, the Company received a notice (the “August Notice”) from Nasdaq indicating that, because the Company is delinquent in filing its quarterly report on Form 10-Q for the period ended June 30, 2024, the Company was not in compliance with the Rule. The Notice also indicates that as a result of this additional delinquency, the Company must submit an update to its original plan to regain compliance with respect to the filing requirements. The Company has until September 4, 2024 to submit such update to Nasdaq. On October 15, 2024, the Company received written notice from the Staff that, as a result of the Company filing the Delinquent Filings with the SEC, the Staff has determined that the Company complies with the Rule and considers the matter to be closed. On November 5, 2024, the Company received a notice in the form of a letter (“Price Deficiency Letter”) from Nasdaq stating that the Company was not in compliance with Nasdaq Listing Rule 5450(a)(1) because the bid price for the Company’s common stock had closed below $1.00 per share for the previous 34 consecutive business days (the “Minimum Bid Price Requirement”). In accordance with Nasdaq Listing Rule 5810(c)(3)(A), the Company has been given 180 calendar days, or until May 5, 2025, to regain compliance with the Minimum Bid Price Requirement. If at any time before May 5, 2025, the bid price of the Company’s common stock closes at $1.00 per share or more for a minimum of 10 consecutive business days, the Staff will provide written confirmation that the Company has achieved compliance. In the event the Company does not regain compliance, the Company may be eligible for additional time. To qualify for the additional compliance period, the Company will be required to (i) submit, no later than the expiration date, an on-line Transfer Application, (ii) submit a non-refundable $5,000 application fee, (iii) meet the continued listing requirement for the market value of its publicly held shares and all other continued listing standards for The Nasdaq Stock Market, with the exception of the bid price requirement, and (iv) will need to provide written notice of its intention to cure the deficiency during the second compliance period, by effecting a reverse stock split if necessary. As part of its review process, the Staff will make a determination of whether they believe the Company will be able to cure this deficiency. Should the Staff conclude that the Company will not be able to cure the deficiency, or should the Company determine not to submit a transfer application or make the required representation, the Staff will provide notice that the Company’s securities will be subject to delisting. The Nasdaq Price Deficiency Letter has no immediate impact on the listing of the Company’s common stock, which will continue to be listed and traded on The Nasdaq Global Select Market, subject to the Company’s compliance with the other continued listing requirements of The Nasdaq Stock Market. 19 Our current corporate structure chart is set forth in the following diagram: As a result of our acquisitions of SCHC and SYCI, our historical financial statements and the information presented below reflects the accounts of SCHC, SYCI, SHSI and DCHC. The following discussion should be read in conjunction with our condensed consolidated financial statements and notes thereto appearing elsewhere in this report. 20 RESULTS OF OPERATIONS The following table presents certain information derived from the condensed consolidated statements of operations, cash flows and stockholders equity for the three-month and nine-month periods ended September 30, 2024 and 2023. Comparison of the Three-Month Period Ended September 30, 2024 and 2023 Three-Month Period Ended September 30, 2024 Three-Month Period Ended September 30, 2023 Percent Change Increase/ (Decrease) Net revenue $ 2,242,365 $ 5,865,615 　 (62%) Cost of net revenue (4,071,616 ) (6,373,902 ) 　 (36%) Gross profit (1,829,251) (508,287) 　 260% Sales and marketing expenses (13,484) (14,428) (7%) Direct labor and factory overheads incurred during plant shutdown (1,736,345) ( 1,007,689 ) 72% General and administrative expenses (1,002,529) ( 762,884 ) 31% Income(Loss) from operations (4,581,609) (2,293,288) 　 100% Other income (14,971) 33,967 　 (144% ) Income(Loss) before taxes (4,596,580) (2,259,321) 　 103% Income tax benefit 1,103,697 483,524 　 128% Net income(loss) $ (3,492,883) $ (1,775,797) 　 97% Net revenue. The table below shows the changes in net revenue in the respective segment of the Company for the three-month period ended September 30, 2024 as compared to the same period in 2023: Net Revenue by Segment Three-Month Period Ended Three-Month Period Ended Percent Change Increase September 30, 2024 September 30, 2023 of Net Revenue Segment % of total % of total Bromine $ 1,571,313 70 % $ 4,908,152 84 % (68 %) Crude Salt 654,039 29 % 889,556 15 % (26 %) Chemical Products — — — — Natural Gas — — — — — Total 2,225,352 99 % 5,797,708 99 % (62 %) Equipment Lease 17,013 1 % 67,907 1 % (75 %) Total sales $ 2,242,365 100 % $ 5,865,615 100 % (62 %) Bromine and crude salt segments Three-Month Period Ended Percentage Change product sold in tonnes September 30, 2024 September 30, 2023 Increase (Decrease) Bromine 656 1,516 (57 %) Crude Salt 24,249 30,334 (20 %) Bromine segment For the three-month periods ended September 30, 2024 and 2023, the net revenue for the bromine segment was $1,571,313 and $4,908,152, respectively. The decrease of the net revenue of bromine was due to the 57% decrease in tonnes sold and the 26% decrease in average selling price of bromine in the third quarter of 2024. The average selling price of bromine in the third quarter of 2024 was $2,396 compared to the average selling price of bromine in the third quarter of 2023 of $3,237 (calculated by dividing revenue by tonnes). Crude salt segment For the three-month periods ended September 30, 2024 and 2023, the net revenue for the crude salt was $654,039 and $889,556, respectively. The decrease of net revenue of crude salt was mainly due to the 20% decrease in tonnes sold and the 8% decrease in average selling price of crude salt for the three-month period ended September 30, 2024. Chemical products segment For the three-month periods ended September 30, 2024 and 2023, the net revenue for the chemical products segment was $0 due to the closure of our chemical factories since September 1, 2017. Natural gas segment For the three-month period ended September 30, 2024 and 2023, the net revenue was $0. For the three-month period ended September 30, 2024 and 2023, the net revenue for the equipment lease was $17,013 and $67,907. Cost of Net Revenue Cost of Net Revenue by Segment Percent Change Three-Month Period Ended Three-Month Period Ended of Cost of September 30, 2024 September 30, 2023 Net Revenue Segment % of total % of total Bromine $ 3,794,088 93.18 % $ 5,995,496 94.06 % (37 %) Crude Salt 277,451 6.81 % 378,100 5.93 % (27 %) Chemical Products — — — — — Natural Gas 77 0.01 % 306 0.01 % (75 %) Total $ 4,071,616 100 % $ 6,373,902 100 % (36 %) Cost of net revenue reflects mainly the raw materials consumed, the direct salaries and benefits of staff engaged in the production process, electricity, depreciation and amortization of manufacturing plant and machinery and other manufacturing costs. Bromine production capacity and utilization of our factories The table below represents the annual capacity and utilization ratios for all of our bromine producing properties: Annual Production Capacity (in tonnes) Utilization Ratio (i) Three-month period ended September 30, 2023 31,506 19% Three-month period ended September 30, 2024 31,506 8% Variance of the three-month period ended September 30, 2024 and 2023 — (11% ) (i) Utilization ratio is calculated based on the annualized actual production volume in tonnes for the periods divided by the annual production capacity in tonnes of all the seven factories including those that have not commenced operations. Bromine segment For the three-month period ended September 30, 2024, the bromine segment had a net cost of revenue of $3,794,088. For the three-month period ended September 30, 2023 the cost of net revenue for the bromine segment was $5,995,496. Crude salt segment For the three-month period ended September 30, 2024 the cost of net revenue for the crude salt segment was $277,451. For the three-month period ended September 30, 2023 the cost of net revenue for the crude salt segment was $378,100. Chemical products segment Cost of net revenue for our chemical products segment for the three-month period ended September 30, 2024 and 2023 was $0. Natural gas segment Cost of net revenue for our natural gas segment for the three-month period ended September 30, 2024 and 2023 was $77 and 306, respectively. 21 Gross Profit. Gross loss was $1,829,251 or 82%, of net revenue for three-month period ended September 30, 2024, representing an decrease of $1,320,964, as compared to a gross profit of $508,287 or 9%, of net revenue for the same period in 2023. Gross Profit (Loss) by Segment % Point Change Three-Month Period Ended Three-Month Period Ended of Gross September 30, 2024 September 30, 2023 Profit Margin Segment Gross Profit(loss) Margin Gross Profit (loss) Margin Bromine $ (2,222,775 ) (141 %) $ (1,087,344 ) (22 %) (119 %) Crude Salt 376,588 58 % 511,456 57 % 1 % Chemical Products — — — — — Natural Gas — — — — — Equipment Lease 16,936 100 % 67,601 100 % 0 % Total Gross Profit (Loss) $ (1,829,251 ) (82 %) $ (508,287 ) (9 %) (73 %) Bromine segment For the three-month period ended September 30, 2024, the gross loss for our bromine segment was 141%, compared to 22% in the three-month period ended September 30, 2023. The increase in gross loss margin was primarily attributable to the lower average selling price of bromine of $2,396 per ton in the three-month period ended September 30, 2024 compared to $3,237 per ton in the three-month period ended September 30, 2023. For the three-month period ended September 30, 2023, the gross loss margin for our bromine segment was 22%. Crude salt segment For the three-month period ended September 30, 2024, the gross profit margin for our crude salt segment was 58%. For the three-month period ended September 30, 2023, the gross profit margin for our crude salt segment was 57%. Direct labor and factory overheads incurred during plant shutdown On September 1, 2017, the Company received notification from the government of Yangkou County, Shouguang City of PRC that stated that production at all its bromine and crude salt and chemical factories should be halted with immediate effect in order for the Company to perform rectification and improvement in accordance with the county’s new safety and environmental protection requirements. On November 24, 2017, the Company received a letter from the Government of Yangkou County, Shouguang City notifying the Company to relocate its two chemical production plants located in the second living area of the Qinghe Oil Extraction Plant to Bohai Park. As a result, direct labor and factory overhead costs (including depreciation of plant and machinery) in the amount of $1,736,345 and $1,007,689 incurred for the three-month periods ended September 30, 2024 and 2023, respectively, of factories that have not resumed production were presented as part of the operating expense. General and Administrative Expenses General and administrative expenses were $1,002,529 for the three-month period ended September 30, 2024, representing an increase of $239,645 as compared to $ 762,884 for the same period in 2023. Income (loss) from Operations loss from operations was $4,581,609 for the three-month period ended September 30, 2024, compared to income of $2,293,288 in the same period in 2023. Loss from Operations by Segment Three-Month Period Ended September 30, 2024 Three-Month Period Ended September 30, 2023 Segment: % of total % of total Bromine $ (4,029,999 ) 89.34 % $ (2,143,203 ) 105.27 % Crude Salt (102,657 ) 2.27 % 500,469 (24.58 %) Chemical Products (339,038 ) 7.52 % (397,410 ) 19.52 % Natural Gas (39,072 ) 0.87 % 4,156 (0.21 %) Income(loss) from operations before corporate costs (4,510,766 ) 100 % (2,035,988 ) 100 % Corporate costs (70,843 ) (65,148 ) Unrealized gain (loss) on translation of Intercompany balance — (192,152 ) Income (loss) from operations $ (4,581,609 ) $ (2,293,288 ) Bromine segment Loss from operations from our bromine segment was $4,029,999 for the three-month period ended September 30, 2024, compared to loss from operations of $2,143,203 in the same period in 2023. The decrease of the net revenue of bromine was due to the 57% decrease in tonnes sold and the 26% decrease in average selling price of bromine in the third quarter of 2024. Crude salt segment Loss from operations from our crude salt segment was $102,657 for the three-month period ended September 30, 2024, compared to income from operations of $500,469 in the same period in 2023. The decrease of net revenue of crude salt was mainly due to the 20% decrease in tonnes sold and the 8% decrease in average selling price of crude salt for the three-month period ended September 30, 2024. Chemical products segment Loss from operations from our chemical products segment was $339,038 for the three-month period ended September 30, 2024, compared to loss from operations of $397,410 in the same period in 2023. Natural gas segment Loss from operations from our natural gas segment was $39,072 for the three -month period ended September 30, 2024, compared to an income of $4,156 in the same period in 2023. Other Income(loss), Net Other loss, net of $14,971 represented bank interest income, net of capital lease interest expense for the three -month period ended September 30, 2024, a decrease of $48,938 as compared to the same period in 2023. Net Income (loss) Net loss was $3,492,883 for the three-month period ended September 30, 2024, compared to a net loss of $1,775,797 in the same period in 2023. Comparison of the Nine-Month Period Ended September 30, 2024 and 2023 Nine-Month Period Ended September 30, 2024 Nine-Month Period Ended September 30, 2023 Percent Change Increase/ (Decrease) Net revenue $ 5,932,596 $ 23,173,404 (74 %) Cost of net revenue (11,303,519 ) (20,464,418 ) (45 %) Gross profit (5,370,923 ) 2,708,986 (298 %) Sales, marketing and other operating expenses (31,608 ) (42,850 ) (26 %) Direct labor and factory overheads incurred during plant shutdown (7,185,537 ) (4,471,954 ) 61 % Other operating loss — 60,134 General and administrative expenses (2,409,957 ) (2,266,260 ) 6 % Income(Loss) from operations (14,998,025 ) (4,011,944 ) 274 % Other income 6,236 119,805 (95 %) Other Expenses (29,173,011 ) — — Income(Loss) before taxes (44,164,800 ) (3,892,139 ) 1035 % Income tax benefit (expense) 3,581,867 876,779 309 % Net income(loss) $ (40,582,933 ) $ (3,015,360 ) 1245 % 22 Net revenue. The table below shows the changes in net revenue in the respective segment of the Company for the nine-month period ended September 30, 2024 as compared to the same period in 2023: Net Revenue by Segment Nine-Month Period Ended Nine-Month Period Ended Percent Increase September 30, 2024 September 30, 2023 of Net Revenue Segment % of total % of total Bromine $ 4,576,744 77.15 % $ 20,734,871 89.48 % (78 %) Crude Salt 1,294,645 21.82 % 2,287,672 9.87 % (43 %) Chemical Products — — — — — Natural Gas — — — — — Total 5,871,389 98.97 % 23,022,543 99.35 % (75 %) Equipment Lease 61,207 1.03 % 150,861 0.65 % (59 %) Total sales $ 5,932,596 100 % $ 23,173,404 100 % (74 %) Bromine and crude salt segments Nine-Month Period Ended Percentage Change product sold in tonnes September 30, 2024 September 30, 2023 Increase Bromine (excluding volume sold to SYCI) 1,889 5,937 (68 %) Crude Salt 53,172 71,354 (25 %) Bromine segment Net revenue from our bromine segment decreased to $4,576,744 for the nine-month period ended September 30, 2024 compared to $20,734,871 for the same period in 2023 respectively, due to the lower selling price and selling quantity. Crude salt segment Net revenue from our crude salt segment decreased to $1,294,645 for the nine-month period ended September 30, 2024 compared $2,287,672 for the same period in 2023, respectively, due to the lower selling price and selling quantity. Chemical products segment For the nine-month period ended September 30, 2024 and 2023, the net revenue for the chemical products segment was $0 due to the closure of our chemical factories since September 1, 2017. Natural gas segment For the nine-month period ended September 30, 2024 and 2023, the net revenue for the natural gas was $0. Equipment Lease For the nine-month period ended September 30, 2024 and 2023, the net revenue for the equipment lease was $61,207 and $150,861. Cost of Net Revenue Cost of Net Revenue by Segment % Change Nine-Month Period Ended Nine-Month Period Ended of Cost of September 30, 2024 September 30, 2023 Net Revenue Segment % of total % of total Bromine $ 10,595,899 94 % $ 19,187,620 94 % (45 %) Crude Salt 707,344 6 % 1,276,119 6 % (45 %) Chemical Products — — — — — Natural Gas 276 0 % 679 0 % (59 %) Total $ 11,303,519 100 % $ 20,464,418 100 % (45 %) Cost of net revenue reflects mainly the raw materials consumed-direct salaries and benefits of staff engaged in the production process, electricity, depreciation and amortization of manufacturing plant and machinery and other manufacturing costs. Bromine production capacity and utilization of our factories The table below represents the annual capacity and utilization ratios for all of our bromine producing properties: Annual Production Capacity (in tonnes) Utilization Ratio (i) Nine-month period ended September 30, 2023 31,506 29% Nine-month period ended September 30, 2024 31,506 8% Variance of the nine-month period ended September 30, 2024 and 2023 — (21%) (i) Utilization ratio is calculated based on the annualized actual production volume in tonnes for the periods divided by the annual production capacity in tonnes. 23 Bromine segment For the nine-month period ended September 30, 2024 the cost of net revenue for the bromine segment was $10,595,899. For the nine-month period ended September 30, 2023 the cost of net revenue for the bromine segment was $19,187,620. Crude salt segment For the nine-month period ended September 30, 2024 the cost of net revenue for the crude salt segment was $707,344. The cost of net revenue for our crude salt segment for the nine-month period ended September 30, 2023 was $1,276,119. The reason for the decrease is that there is that with the creation of SHSI, some costs formerly allocated to crude sale were allocated to bromine. Natural gas segment Cost of net revenue for our natural gas segment for the nine-month period ended September 30, 2024 and 2023 was $276 and $679. Gross Profit. Loss profit was $5,370,923, or 91%, of net revenue for nine-month period ended September 30, 2024 compared to $2,708,986, or 12%, of net revenue for the same period in 2023. Gross Profit (Loss) by Segment % Point Change Nine-Month Period Ended Nine-Month Period Ended of Gross September 30, 2024 September 30, 2023 Profit Margin Segment Gross Profit (loss) Margin Gross Profit Margin Bromine $ (6,019,155 ) (132 %) $ 1,547,251 7 % 139 % Crude Salt 587,301 45 % 1,011,553 44 % 1 % Chemical Products — — — — — Natural Gas — — — — — Equipment Lease 60,931 100 % 150,182 100 % — Total Gross Profit(Loss) $ (5,370,923 ) (91 %) $ 2,708,986 12 % (102 %) Bromine segment For the nine-month period ended September 30, 2024, the gross loss margin for our bromine segment was 132%, compared to 7% in the nine-month period ended September 30, 2023. The increase in gross loss margin was primarily attributable to the lower average selling price of bromine of $2,423 per ton in the nine-month period ended September 30, 2024 compared to $3,493 per ton in the nine-month period ended September 30, 2023. For the nine-month period ended September 30, 2023, the gross profit margin for our bromine segment was 7%. Crude salt segment For the nine-month period ended September 30, 2024, the gross profit margin for our crude salt segment was 45%. For the nine-month period ended September 30, 2023 the gross profit margin for our crude salt segment was 44%. Chemical products segment For the nine-month period ended September 30, 2024, the gross profit margin for our chemical segment was 0% due to the closure of our chemical products plant. As a result of the closure, there were no chemical products for sale for the nine-month period ended September 30, 2024. 24 Direct labor and factory overheads incurred during plant shutdown On September 1, 2017, the Company received notification from the government of Yangkou County, Shouguang City of PRC that stated that production at all its bromine and crude salt and chemical factories should be halted with immediate effect in order for the Company to perform rectification and improvement in accordance with the county’s new safety and environmental protection requirements. On November 24, 2017, the Company received a letter from the Government of Yangkou County, Shouguang City notifying the Company to relocate its two chemical production plants located in the second living area of the Qinghe Oil Extraction Plant to Bohai Park. As a result, direct labor and factory overhead costs (including depreciation of plant and machinery) in the amount of $ 7,185,537 and $4,471,954 incurred for the nine-month periods ended September 30, 2024 and 2023, respectively, for the factories that have not resumed production were presented as part of the operating expense. General and Administrative Expenses. General and administrative expenses were $ 2,409,957 for the nine-month period ended September 30, 2024, a increase of $143,697 (or 6%) as compared to $ 2,266,260 for the same period in 2023. The increase was mainly due to the unrealized foreign currency transaction loss on intercompany balance recorded in nine-month period ended September 30, 2024 compared to an unrealized foreign currency transaction gain on intercompany balance recorded in the same period in the previous year. Income (Loss) from Operations. Loss from operations was $14,998,025 for the nine-month period ended September 30, 2024, compared to an income of $4,011,944 in the same period in 2023. Income(Loss) from Operations by Segment Nine-Month Period Ended September 30, 2024 Nine-Month Period Ended September 30, 2023 Segment: % of total % of total Bromine $ (13,475,400 ) 91.94 % $ (3,340,404 ) 91.43 % Crude Salt (47,725 ) 0.32 % 904,482 (24.76 %) Chemical Products (993,116 ) 6.78 % (1,231,302 ) 33.7 % Natural Gas (140,554 ) 0.96 % 14,011 (0.37 %) Income (Loss) from operations before corporate costs (14,656,795 ) 100 % (3,653,213 ) 100 % Corporate costs (341,230 ) (193,287 ) Unrealized gain on translation of intercompany balance — (165,444 ) Income (Loss) from operations before taxes $ (14,998,025 ) $ (4,011,944 ) Bromine segment Loss from operations from our bromine segment was $13,475,400 for the nine-month period ended September 30, 2024, compared to a loss of $3,340,404 in the same period in 2023. The increase in gross loss margin was primarily attributable to the lower average selling price of bromine of $2,423 per ton in the nine-month period ended September 30, 2024 compared to $3,493 per ton in the nine-month period ended September 30, 2023. Crude salt segment Loss from operations from our crude salt segment was $47,725 for the nine-month period ended September 30, 2024, compared to an income of $904,482 in the same period in 2023. Chemical products segment Loss from operations from our chemical products segment was $993,116 for the nine-month period ended September 30, 2024, compared to a loss of $1,231,302 in the same period in 2023. Natural gas segment Loss from operations from our natural gas segment was $140,554 for the nine-month period ended September 30, 2024, compared to an income of $14,011 in the same period in 2023. Other Income, Net. Other income, net of $6,236 represented bank interest income, net of capital lease interest expense for the nine -month period ended September 30, 2024, a decrease of $113,569, (or approximately 95%) as compared to the same period in 2023. Net Income (Loss). Net loss was $ 40,582,933 for the nine-month period ended September 30, 2024, compared to a net loss of $3,015,360 in the same period in 2023. Net Income Per Share For the nine months ended September 30, 2024, net loss per share was $ 3.78 compared to a loss of $0.29 in the period ending September 30, 2023. There were 10,726,924 shares outstanding compared to 10,431,924 shares. Foreign Currency Translation Adjustment For the nine months ending September 30, 2024, the Company had a positive foreign currency translation adjustment of $1,859,755 versus a positive adjustment of $7,879,513 in the previous year. This adjustment impacts all balance sheet translations into U.S. dollars. 25 LIQUIDITY AND CAPITAL RESOURCES As of September 30, 2024, cash and cash equivalents were $11,237,493 as compared to $72,223,894 as of December 31, 2023. The components of this decrease of $60,986,401 are reflected below. Statement of Cash Flows Nine-Month Period Ended September 30, 2024 2023 Net cash (used in) provided by operating activities $ (293,463 ) $ 9,869,612 Net cash used in investing activities (60,526,213 ) (15,197,648 ) Net cash used in financing activities (264,094 ) (267,810 ) Effects of exchange rate changes on cash and cash equivalents 97,369 1,144,609 ) Net increase (decrease) in cash and cash equivalents $ (60,986,401 ) $ (4,451,237 ) For the nine-month period ended September 30, 2024, we met our working capital and capital investment requirements by using cash on hand. Net Cash (used in) Provided by Operating Activities During the six-month period ended September 30, 2024, cash flow used in by operating activities of approximately $0.29 million was mainly due to a net loss of $40.58 million, a decrease in deferred taxes of $3.62 million and offset by depreciation and amortization expense of $14.04 million and loss on disposal of equipment of $29.17 million. During the nine-month period ended September 30, 2023, cash flow provided by operating activities of approximately $9.9 million was mainly due to a non-cash adjustment for depreciation and amortization expense of $15.4 million and offset by a net loss of $3.02 million and an increase in prepayments and deposits of $3.95 million. Accounts receivable Cash collections on our accounts receivable had a major impact on our overall liquidity. The following table presents the aging analysis of our accounts receivable as of September 30, 2024 and December 31, 2023. September 30, 2024 December 31, 2023 % of total % of total Aged 1-30 days $ 895,402 75 % $ 2,040,377 42 % Aged 31-60 days 291,478 25 % 2,460,233 51 % Aged 61-90 days — — 365,086 7 % Aged 91-120 days — — — — Aged 121-150 days — — — — Aged 151-180 days — — — — Aged 181-210 days — — — — Aged 211-240 days — — — — Total $ 1,186,880 100 % $ 4,865,696 100 % 26 The overall accounts receivable balance as of September 30, 2024 decreased by $3,678,816, as compared to those of December 31, 2023. We have policies in place to ensure that sales are made to customers with an appropriate credit history. We perform ongoing credit evaluation on the financial condition of our customers. No allowance for doubtful accounts for the three-month and nine-month periods ended September 30, 2024 is required. Inventory Our inventory consists of the following: September 30, 2024 December 31, 2023 % of total % of total Raw materials $ 29,833 7 % $ 32,840 5 % Finished goods 398,006 93 % 544,389 95 % Total $ 427,839 100 % $ 577,229 100 % The net inventory level as of September 30, 2024 decreased by $149,390, as compared to the net inventory level as of December 31, 2023. Raw materials decreased by $3,007 as of September 30, 2024 as compared to December 31, 2023. Our finished goods decreased by $146,383 as of September 30, 2024 as compared to December 31, 2023. Net Cash Used in Investing Activities During the six months ended September 30, 2024, we used approximately $60.5 million to acquire property, plant and equipment, which primarily included the cost of bromine wells and the installation of high and low voltage lines for these bromine wells, as well as the purchase of salt plants. For the nine-month period ended September 30, 2023, we used approximately $15.2 million to the flood prevention project aiming to prevent flooding that could harm the wells, aqueducts and crude salt pans at our plant. Net Cash Used in Financing Activities For the nine-month period ended September 30, 2024 and 2023, we used $0.3 million to repay finance lease obligations. We believe that our available funds and cash flows generated from operations will be sufficient to meet our anticipated ongoing operating needs and our obligations as they full due in the next twelve (12) months. We had available cash of approximately $11.24 million at September 30, 2024, all of which is in highly liquid current deposits earning no or little interest. We do not anticipate paying cash dividends in the foreseeable future. We intend to continue to focus our efforts on the activities of SCHC, SYCI, SHSI and DCHC as these segments continue to expand within the Chinese market. We may not be able to identify, successfully integrate or profitably manage any businesses or business segment we may acquire, or any expansion of our business. An expansion may involve a number of risks, including possible adverse effects on our operating results, diversion of management’s attention, inability to retain key personnel, risks associated with unanticipated events, risks associated with the COVID-19 pandemic and the financial statement effect of potential impairment of acquired intangible assets, any of which could have a materially adverse effect on our condition and results of operations. In addition, if competition for acquisition candidates or operations were to increase, the cost of acquiring businesses could increase materially. We may effect an acquisition with a target business which may be financially unstable, under-managed, or in its early stages of development or growth. Our inability to implement and manage our expansion strategy successfully may have a material adverse effect on our business and future prospects. Contractual Obligations and Commitments We have no significant contractual obligations not fully recorded on our consolidated balance sheets or fully disclosed in the notes to our consolidated financial statements. Additional information regarding our contractual obligations and commitments at September 30, 2023 is provided in the notes to our consolidated financial statements. See “Notes to Condensed Consolidated Financial Statements, Note 17 – Capital Commitment and Operating Lease Commitments”. Material Off-Balance Sheet Arrangements We do not currently have any off balance sheet arrangements falling within the definition of Item 303(a) of Regulation S-K. Critical Accounting Policies and Estimates Our consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and this requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. We base its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Accordingly, actual results may differ significantly from these estimates under different assumptions or conditions. We have identified the following critical accounting policies and estimates used by us in the preparation of our financial statements: accounts receivable and allowance for doubtful accounts, leases, property, plant and equipment, recoverability of long lived assets, revenue recognition, income taxes, loss contingencies, and stock-based compensation. These policies and estimates are described in the Company’s 2023 Form 10-K. Item 3. Quantitative and Qualitative Disclosures About Market Risk Pursuant to Item 305(e) of Regulation S-K (§ 229.305(e)), the Company is not required to provide the information required by this Item as it is a “smaller reporting company,” as defined by Rule 229.10(f)(1). 27