GULF RESOURCES, INC. 10-K

Item 8. Financial Statements and Supplementary Data The financial statements and supplementary data required by this item are included in a separate section of this Report. See “Index to Consolidated Financial Statements” on Page F-1. 46 GULF RESOURCES, INC. AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2024 and 2023 C O N T E N T S PAGE REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM (PCAOB ID #2729) F-2 CONSOLIDATED BALANCE SHEETS F-3 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) F-4 CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY F-5 CONSOLIDATED STATEMENTS OF CASH FLOWS F6 – F-7 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-8 – F-28 FINANCIAL STATEMENT SCHEDULE: SCHEDULE I – PARENT ONLY FINANCIAL INFORMATION S-1 – S-3 F- 1 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholders of Gulf Resources, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheet of Gulf Resources, Inc. and subsidiaries (collectively the “Company”) as of December 31, 2024, and the related consolidated statements of comprehensive income (loss), stockholders’ equity, and cash flows for the year ended December 31, 2024, the related notes, and financial statement schedule (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated 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 for each of the years in the year ended December 31, 2024, in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated 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 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 Company’s 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 consolidated 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 consolidated 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 consolidated financial statements. We believe that our audit provides a reasonable basis for our opinion. Critical Audit Matters The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing a separate opinion on the critical audit matters or on the accounts or disclosures to which they relate. Property, plant and equipment, net As described in Note 1 to the consolidated financial statements, property, plant and equipment consisted of facilities for products, mineral rights, constructions in process and producing oil and gas properties. The Company reviews the economic benefits associated with the item purchased periodically. Once the Company determine the likelihood of economic benefits associated is probable, the item would be recognized as an asset. We identified determining carrying amount of property, plant and equipment as a critical audit matter due to the material balance on the balance sheet and significant judgement and assumptions were used by the Management regarding the timing and ability to contribute to the generation of cash flows, which in turn led to a high degree of auditor judgement, subjectivity and effort in performing procedures and evaluating audit evidence relating to Management’s assessment of the carrying amount. The primary procedures we performed to address this critical audit matter included the following: - Reviewed the Company’s accounting policies, assumptions and estimates. - Physical inspection. - Examined contracts. - Performed independent analysis for impairment testing. /s/ GGF CPA LTD We have served as the Company’s auditor since 2024. Guangzhou, Guangdong, China PCAOB NO: 2729 April 11, 2025 F- 2 GULF RESOURCES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Expressed in U.S. dollars) December 31, 2024 December 31, 2023 Current Assets Cash $ 10,075,162 $ 72,223,894 Accounts receivable, net 564,523 4,865,696 Inventories, net 315,371 577,229 Prepayments and deposits 6,376,656 8,395,290 Amount due from related parties 25,040 — Other receivables 94,074 7,482 Total current assets 17,450,826 86,069,591 Non-Current Assets Property, plant and equipment, net 136,143,177 122,188,023 Finance lease right-of use assets 76,868 83,115 Operating lease right-of-use assets 6,169,855 6,699,784 Prepaid land leases, net of current portion 9,615,269 9,772,170 Deferred tax assets, net — 1,859,025 Total non-current assets 152,005,169 140,602,117 Total Assets 169,455,995 226,671,708 Liabilities and Stockholders’ Equity Current Liabilities Accounts payable and accrued expenses $ 14,323,458 $ 8,833,936 Taxes payable-current 113,999 475,630 Advance from customer — 42,705 Amount due to related parties 2,584,808 2,586,658 Finance lease liability, current portion 217,743 172,625 Operating lease liabilities, current portion 491,850 473,653 Total current liabilities 17,731,858 12,585,207 Non-Current Liabilities Finance lease liability, net of current portion 1,075,865 1,312,950 Operating lease liabilities, net of current portion 6,941,602 7,525,255 Total non-current liabilities 8,017,467 8,838,205 Total Liabilities 25,749,325 21,423,412 Commitment and Contingencies — — Stockholders’ Equity PREFERRED STOCK; $ 0.001 par value; 1,000,000 shares authorized; none outstanding COMMON STOCK; $ 0.0005 par value; 80,000,000 shares authorized; 11,012,754 and 11,012,754 shares issued; and 10,726,924 and 10,726,924 shares outstanding as of December 31, 2024 and 2023 24,623 24,623 Treasury stock; 285,830 shares as of December 31, 2024 and 2023 at cost ( 1,372,673 ) ( 1,372,673 ) Additional paid-in capital 101,688,262 101,688,262 Share to be issued 194,700 — Retained earnings unappropriated 37,358,804 96,294,256 Retained earnings appropriated 26,667,097 26,667,097 Accumulated other comprehensive loss ( 20,854,143 ) ( 18,053,269 ) Total Stockholders’ Equity 143,706,670 205,248,296 Total Liabilities and Stockholders’ Equity $ 169,455,995 $ 226,671,708 The accompanying notes are an integral part of these consolidated financial statements. F- 3 GULF RESOURCES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Expressed in U.S. dollars) Years Ended December 31, 2024 2023 NET REVENUE $ 7,661,010 $ 30,043,790 OPERATING COSTS AND EXPENSE Cost of revenues ( 14,746,741 ) ( 28,089,953 ) Sales and marketing expenses ( 46,264 ) ( 59,055 ) Direct labor and factory overheads ( 8,880,643 ) ( 9,544,675 ) General and administrative expenses ( 5,271,011 ) ( 4,240,832 ) TOTAL OPERATING COSTS AND EXPENSE ( 28,944,659 ) ( 41,934,515 ) LOSS FROM OPERATIONS ( 21,283,649 ) ( 11,890,725 ) OTHER INCOME (EXPENSE) Interest expense ( 91,901 ) ( 105,209 ) Interest income 80,258 250,128 Other expenses, net ( 50,470 ) — Loss on disposal of property, plant and equipment ( 29,169,008 ) — Impairment of property, plant and equipment ( 6,772,500 ) — Expenditure on water pollution treatment — ( 46,510,856 ) INCOME BEFORE INCOME TAXES ( 57,287,270 ) ( 58,256,662 ) INCOME TAX EXPENSE ( 1,648,182 ) ( 3,538,617 ) NET LOSS $ ( 58,935,452 ) $ ( 61,795,279 ) COMPREHENSIVE INCOME (LOSS): NET LOSS $ ( 58,935,452 ) $ ( 61,795,279 ) OTHER COMPREHENSIVE (LOSS) INCOME - Foreign currency translation adjustments ( 2,800,874 ) ( 5,025,980 ) TOTAL COMPREHENSIVE LOSS $ ( 61,736,326 ) $ ( 66,821,259 ) BASIC AND DILUTED LOSS PER SHARE $ ( 5.49 ) $ ( 5.92 ) BASIC AND DILUTED WEIGHTED AVERAGE NUMBER OF SHARES: 10,726,924 10,435,965 The accompanying notes are an integral part of these consolidated financial statements. F- 4 GULF RESOURCES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY YEARS ENDED DECEMBER 31, 2024 AND 2023 (Expressed in U.S. dollars) Common stock Number of shares issued Number of shares outstanding Number of treasury stock Amount Treasury stock Additional paid-in capital Retained earnings unappropriated Retained earnings appropriated Accumulated other comprehensive Income(loss) Total BALANCE AT JANUARY 1, 2023 10,717,754 10,431,924 285,830 24,476 ( 1,372,673 ) 101,237,059 $ 158,089,535 $ 26,667,097 $ ( 13,027,289 ) $ 271,618,205 Restricted shares issued for services 295,000 295,000 — 147 — 451,203 — — — 451,350 Currency translation adjustment — — — — — — — — ( 5,025,980 ) ( 5,025,980 ) Net loss for year ended December 31, 2023 — — — — — — ( 61,795,279 ) — — ( 61,795,279 ) BALANCE AT DECEMBER 31, 2023 11,012,754 10,726,924 285,830 24,623 ( 1,372,673 ) 101,688,262 $ 96,294,256 $ 26,667,097 $ ( 18,053,269 ) $ 205,248,296 Common stock Accumulated Number Number Number Additional Retained Retained other of shares of shares of treasury Treasury Share to paid-in earnings earnings comprehensive issued outstanding stock Amount stock be issued capital unappropriated appropriated Income(loss) Total BALANCE AT JANUARY 1, 2024 11,012,754 10,726,924 285,830 24,623 ( 1,372,673 ) — 101,688,262 $ 96,294,256 $ 26,667,097 $ ( 18,053,269 ) $ 205,248,296 Restricted shares to be issued for service — — — — — 194,700 — — — — 194,700 Currency translation adjustment — — — — — — — — ( 2,800,874 ) ( 2,800,874 ) Net loss for year ended December 31, 2024 — — — — — — — ( 58,935,452 ) — — ( 58,935,452 ) BALANCE AT DECEMBER 31, 2024 11,012,754 10,726,924 285,830 24,623 ( 1,372,673 ) 194,700 101,688,262 $ 37,358,804 $ 26,667,097 $ ( 20,854,143 ) $ 143,706,670 Common Stock Treasury Stock Additional Paid-In Capital Retained Earnings Unappropriated Accumulated Other Comprehensive Income (Loss) Share to be Issued The accompanying notes are an integral part of these consolidated financial statements. F- 5 GULF RESOURCES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Expressed in U.S. dollars) Years Ended December 31, 2024 2023 CASH FLOWS FROM OPERATING ACTIVITIES Net loss $ ( 58,935,452 ) $ ( 61,795,279 ) Adjustments to reconcile net income to net cash provided by (used in) operating activities: Amortization on capital lease 91,901 96,914 Depreciation and amortization 18,007,875 27,139,589 Deferred tax asset 1,632,978 3,215,727 Stock-based compensation expense 194,700 451,350 Bad debt expense 1,669,002 431 Impairment of inventory 989,035 230,776 Impairment of property plant and equipment 6,772,500 — Amortization of right-of-use asset 877,809 887,603 Loss on disposal of property, plant and equipment 29,169,008 — Changes in assets and liabilities Accounts receivable 4,264,140 410,057 Inventories ( 733,302 ) 769,543 Prepayment and deposits 248,817 ( 4,268,797 ) Advance from customers ( 42,471 ) 42,945 Other receivables ( 87,515 ) ( 6,849 ) Accounts and Other payable and accrued expenses ( 2,191,652 ) 1,114,904 Taxes payable ( 357,954 ) ( 213,480 ) Lease liabilities ( 894,351 ) ( 827,285 ) Net cash provided by (used in) operating activities 675,068 ( 32,751,851 ) CASH FLOWS FROM INVESTING ACTIVITIES Purchase of property, plant and equipment ( 60,526,213 ) — Interest-free loan lent to related parties ( 25,275 ) — Net cash used in investing activities ( 60,551,488 ) — CASH FLOWS FROM FINANCING ACTIVITIES Repayment of finance leases obligation ( 264,094 ) ( 267,810 ) Proceeds from interest-free loan from a related party 14,854 — Net cash used in financing activities ( 249,240 ) ( 267,810 ) EFFECTS OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS ( 2,023,072 ) ( 2,982,659 ) NET DECREASE IN CASH AND CASH EQUIVALENTS ( 62,148,732 ) ( 36,002,320 ) CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR 72,223,894 108,226,214 CASH AND CASH EQUIVALENTS - END OF YEAR $ 10,075,162 $ 72,223,894 F- 6 GULF RESOURCES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) (Expressed in U.S. dollars) Years Ended December 31, 2024 2023 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid during the year for: Paid for taxes $ 1,520,292 $ 6,413,065 Interest on finance lease obligation $ 91,901 $ 96,914 Paid for Flood Prevention Project $ — $ 48,384,711 SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES The accompanying notes are an integral part of these consolidated financial statements. F- 7 GULF RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2024 (Expressed in U.S. dollars) NOTE 1 – NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) Basis of Presentation and Consolidation The accompanying audited consolidated financial statements have been prepared by Gulf Resources, Inc. (“Gulf Resources”). a Nevada corporation and its subsidiaries (collectively, the “Company”). The consolidated financial statements include the accounts of Gulf Resources, Inc. and its wholly-owned subsidiary, Upper Class Group Limited, a company incorporated in the British Virgin Islands, which owns 100% of Hong Kong Jiaxing Industrial Limited, a company incorporated in Hong Kong (“HKJI”). HKJI owns 100% of Shouguang City Haoyuan Chemical Company Limited (“SCHC”) which owns 100% of Shouguang Yuxin Chemical Industry Co., Limited (“SYCI”) ,Daying County Haoyuan Chemical Company Limited (“DCHC”) and Shouguang Hengde Salt Industry Co. Ltd. (“SHSI”). All material intercompany transactions have been eliminated on consolidation. (b) Going Concern Consideration The consolidated financial statements are prepared on the going concern basis, meaning that the enterprise is expected to realize the assets and settle the liabilities through normal business operations. However, the going concern of the enterprise relies on many factors, such as profitable operations, generating operating cash flows, obtaining financing, etc. The company assesses its liquidity by monitoring cash and cash equivalents, as well as operating and capital expenditure commitments. As of December 31, 2024, As of Dec 31, 2024, the Company had current assets of $ 17.45 million and current liabilities of $ 17.73 million. As a result, the deficit was $ 0.28 million, and it has suffered losses in both the fiscal years of 2024 and 2023 as well. If it is unable to raise additional funds, it may need to take measures such as cutting administrative and operational cost and save funds. If there are significant doubts regarding the company's ability to continue operations, the company is attempting to alleviate such concerns through measures such as controlling operating expenses, shifting business focus to revenue-generating activities, obtaining authorization from domestic banks and other financial institutions, and seeking equity or debt financing. Additionally, the company will also obtain financial support commitments from related parties. However, these situations still pose significant doubts regarding the company's ability to continue operations. The financial statements do not consider the potential impact on the recoverability of assets, classification, and amounts and classification of liabilities if the company is unable to continue operations. (c) Nature of Business The Company manufactures and trades bromine through its wholly-owned subsidiary, Shouguang City Haoyuan Chemical Company Limited (“SCHC”) manufactures and trades crude salt through its wholly owned subsidiary, SHSI; and manufactures chemical products for use in the oil industry, pesticides, paper manufacturing industry and for human and animal antibiotics through its wholly- owned subsidiary, Shouguang Yuxin Chemical Industry Co., Limited (“SYCI”) in the People’s Republic of China (“PRC”). DCHC was established to further explore and develop natural gas and brine resources (including bromine and crude salt) in the PRC. DCHC’s business commenced trial operation in January 2019 but suspended production temporarily in May 2019 as required by the government to obtain project approval (see Note 1 (c)(iii)). (i) Bromine and Crude Salt Segments 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 passed inspection and could resume operations. In April 2019, Factory No.1, and Factory No.7 resumed operation. On November 25, 2019, the government of Shouguang City issued a notice ordering all bromine facilities in Shouguang City, including the Company’s bromine facilities, including Factory No. 1 and Factory No. 7, to temporarily stop production from December 16, 2019 to February 10, 2020. Subsequently, due to the coronavirus outbreak in China, the local government ordered those bromine facilities to postpone the commencement of production. Subsequently, the Company received an approval dated February 27, 2020 issued by the local governmental authority allowing the Company to resume production after the winter temporary closure. Further, the Company received another approval from the Shouguang Yangkou People’s Government dated March 5, 2020 allowing the Company 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 (the “March 2020 Approval”). The Company’s Factories No. 1 and No. 7 commenced trial production in mid-March 2020 and commercial production on April 3, 2020 and its Factories No. 4 and No. 9 commenced commercial production on May 6, 2020. The Company received verbal notification from the government regarding Factory No. 8, allowing it to recommence production in August 2022. Factory No. 8 began contributing revenue in the fourth quarter 2022. The Company is awaiting governmental approval for Factories No. 2 and No. 10. To our knowledge, the government is finalizing plans for all mining areas, including flood prevention measures. As a result, we may be required to make certain modifications to our existing wells and aqueducts prior to commencement of operations of these factories in order to satisfy the local government's requirements. 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 8:00 AM China Time. 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 as planned. In April 2022, Shouguang Hengde Salt Industry Co. Ltd, our subsidiary, was incorporated in Shandong Province, China, for crude salt production and trading. This subsidiary was created in response to a new government policy that required bromine and crude salt companies to have separate registrations. The creation of this subsidiary and the separation of bromine and crude salt does not impact sales or overall profits. However, the establishment of this subsidiary has resulting in a reallocation of costs between bromine and crude salt. F- 8 GULF RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2024 (Expressed in U.S. dollars) NOTE 1 – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – Continued (ii) Chemical Segment 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 to the Bohai Marine Fine Chemical Industrial Park (“Bohai Park”). This is because the two plants are located in a residential area and their production activities will impact the living environment of the residents. This is as a result of the country’s effort to improve the development of the chemical industry, manage safe production and curb environmental pollution accidents effectively, and ensure the quality of the living environment of residents. All chemical enterprises which do not comply with the requirements of the safety and environmental protection regulations will be ordered to shut down. In December 2017, the Company secured from the government the land use rights for its chemical plants located at the Bohai Park and in June 2018, the Company presented a completed construction design draft and other related documents to the local authorities for approval. In January 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 and basically completed the civil works by the end of June 2021. On November 15, 2021, the Company announced that due to the supply chain issues as well as the electric restrictions in China, the delivery of some equipment, the equipment installation and testing and beginning trial production at the chemical factory had been delayed. On February 22, 2022, the Company announced that discussions with the government have convinced management that the electricity restrictions are being eased. Accordingly, the Company has contacted its suppliers and will have the remainder of the equipment produced and delivered, so the Company can complete installation and begin testing and trial production. The Company believes this relocation process will cost approximately $ 69 million in total. The Company incurred relocation costs comprising prepaid land lease, professional fees related to the design of the new chemical factory, and progress payments and deposits for the construction of the new factory building in the amount of $ 45,584,344 and $ 45,584,344 , which were recorded in the prepaid land leases, prepayments and deposits and property, plant and equipment in the consolidated balance sheets as of December 31, 2024 and 2023. (iii) Natural Gas Segment In January 2017, the Company completed the first brine water and natural gas well field construction in Daying located in Sichuan Province, China, 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 the governmental planning has been finalized. (d) Use of Estimates The Company’s 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. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. The most significant accounting estimates with regard to these consolidated financial statements that require the most significant and subjective judgments include, but are not limited to, useful lives of property, plant and equipment, recoverability of long-lived assets, determination of impairment losses, assessment of market value of inventories and provision for inventory obsolescence, allowance for doubtful accounts, recognition and measurement of deferred income taxes, valuation allowance for deferred tax assets, and assumptions used for the valuation of share based payments. Accordingly, actual results may differ significantly from these estimates under different assumptions or conditions. F- 9 GULF RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2024 (Expressed in U.S. dollars) NOTE 1 – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – Continued (e) Cash and Cash Equivalents Cash and cash equivalents consist of all cash balances and highly liquid investments with original maturities of three months or less. Because of short maturity of these investments, the carrying amounts approximate their fair values. (f) Accounts receivable and Allowance for Doubtful Accounts Accounts receivable is stated at cost, net of allowance for doubtful accounts. The normal credit term extended to customers ranges between 90 and 240 days. The company reviews all receivables that exceed the term. The Company establishes an allowance for doubtful accounts based on management’s assessment of the collectability of trade and other receivables. A considerable amount of judgment is required in assessing the amount of allowance and the Company considers the historical level of credit losses. The Company makes judgments about the credit worthiness of each customer based on ongoing credit evaluations, and monitors current economic trends that might impact the level of credit losses in the future. If the financial condition of the customer begins to deteriorate, resulting in their inability to make payments within credit term provided, an allowance may be required. As of December 31, 2024 and December 31, 2023, the provision for doubtful debts was $ 29,711 and $ 25,060 . The provision for doubtful accounts in the consolidated statements of comprehensive (loss) income for the years ended December 31, 2024 is $ 5,069 . (g) Concentration of Credit Risk The Company is exposed to credit risk in the normal course of business, primarily related to accounts receivable and cash and cash equivalents. Substantially all of the Company’s cash and cash equivalents are maintained with financial institutions in the PRC, namely, Industrial and Commercial Bank of China Limited, China Merchants Bank Company Limited and Sichuan Rural Credit Union, which are not insured or otherwise protected. The Company placed $ 10,075,162 and $ 72,223,894 with these institutions as of December 31, 2024 and 2023, respectively. The Company has not experienced any losses in such accounts in the PRC. Concentrations of credit risk with respect to accounts receivable exists as the Company sells a substantial portion of its products to a limited number of customers. However, such concentrations of credit risks are limited since the Company performs ongoing credit evaluations of its customers’ financial condition and extends credit terms as and when appropriate. (h) Inventories Inventories are stated at the lower of cost, determined on a first-in first-out cost basis, or net realizable value. Costs of work-in-progress and finished goods comprise direct materials, direct labor and an attributable portion of manufacturing overhead. Net realizable value is based on estimated selling price less costs to complete and selling expenses. (i) Advances to suppliers, net Advances to suppliers are stated at the original amount less an allowance for doubtful account. Advances to supplier primarily consists of prepayments for purchase of cryptocurrency mining machines and standardized computing equipment. The Company reviews its advance to suppliers on a periodic basis and determines the adequacy of provision when amounts outstanding are not likely to be collected in cash or utilized against receive of products. An allowance for doubtful is recorded in the period in which the Company cash collection or receipts of products is remote. F- 10 GULF RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2024 (Expressed in U.S. dollars) NOTE 1 – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – Continued (j) Property, Plant and Equipment Property, plant and equipment are stated at cost less accumulated depreciation and any impairment losses. Expenditures for new facilities or equipment, and major expenditures for betterment of existing facilities or equipment are capitalized and depreciated, when available for intended use, using the straight-line method at rates sufficient to depreciate such costs less 5% residual value over the estimated productive lives. All other ordinary repair and maintenance costs are expensed as incurred. Mineral rights are recorded at cost less accumulated depreciation and any impairment losses. Mineral rights are amortized ratably over the term of the lease, or the equivalent term under the units of production method, whichever is shorter. Construction in process primarily represents direct costs of construction of property, plant and equipment. Costs incurred are capitalized and transferred to property, plant and equipment upon completion and depreciation will commence when the completed assets are placed in service. The Company’s depreciation and amortization policies on property, plant and equipment, other than mineral rights and construction in process, are as follows: Basis of Presentation and Summary of Significant Accounting Policies - Schedule of Property, Plant and Equipment Useful Life Minimum Maximum Useful life (in years) Buildings (including salt pans) 8 - 20 Plant and machinery (including protective shells, transmission channels and ducts) 3 - 8 Motor vehicles Motor Vehicles 5 Furniture, fixtures and equipment 3 - 8 Property, plant and equipment under the finance lease are depreciated over their expected useful lives on the same basis as owned assets, or where shorter, the term of the lease, which is 20 years. Producing oil and gas properties are depreciated on a unit-of-production basis over the proved developed reserves. Common facilities that are built specifically to service production directly attributed to designated oil and gas properties are depreciated based on the proved developed reserves of the respective oil and gas properties on a pro-rata basis. Common facilities that are not built specifically to service identified oil and gas properties are depreciated using the straight-line method over their estimated useful lives. Costs associated with significant development projects are not depreciated until commercial production commences and the reserves related to those costs are excluded from the calculation of depreciation. (k) Asset Retirement Obligation The Company follows Financial Accounting Standards Board Accounting Standards Codification (“FASB ASC”), which established a uniform methodology for accounting for estimated reclamation and abandonment costs. FASB ASC 410 requires the fair value of a liability for an asset retirement obligation to be recognized in the period in which the legal obligation associated with the retirement of the long-lived asset is incurred. When the liability is initially recorded, the offset is capitalized by increasing the carrying amount of the related long-lived asset. Over time, the liability is accreted to its present value each period, and the capitalized cost is depreciated over the useful life of the related asset. To settle the liability, the obligation is paid, and to the extent there is a difference between the liability and the amount of cash paid, a gain or loss upon settlement is recorded. F- 11 GULF RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2024 (Expressed in U.S. dollars) NOTE 1 – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – Continued Currently, there are no reclamation or abandonment obligations associated with the land being utilized for exploitation by the bromine and crude salt factories. Also, for the two chemical plants that are to be relocated, currently, there are no obligations to restore the land to its original condition. (l) Recoverability of Long-lived Assets In accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 360-10-35 ”Impairment or Disposal of Long-lived Assets” , long-lived assets to be held and used are analyzed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be fully recoverable or that the useful lives of those assets are no longer appropriate. The Company evaluates at each balance sheet date whether events and circumstances have occurred that indicate possible impairment. The Company determines the existence of such impairment by measuring the expected future cash flows (undiscounted and without interest charges) and comparing such amount to the carrying amount of the assets. An impairment loss, if one exists, is then measured as the amount by which the carrying amount of the asset exceeds the discounted estimated future cash flows. Assets to be disposed of are reported at the lower of the carrying amount or fair value of such assets less costs to sell. Asset impairment charges are recorded to reduce the carrying amount of the long-lived asset that will be sold or disposed of to their estimated fair values. Charges for the asset impairment reduce the carrying amount of the long-lived assets to their estimated salvage value in connection with the decision to dispose of such assets. For the year ended December 31, 2024 and 2023, the Company determined that the impairment of long-lived assets was $ 6,772,500 and $ nil . (m) Retirement Benefits Pursuant to the relevant laws and regulations in the PRC, the Company participates in a defined contribution retirement plan for its employees arranged by a governmental organization. The Company makes contributions to the retirement plan at the applicable rate based on the employees’ salaries. The required contributions under the retirement plans are charged to the consolidated statement of comprehensive income (loss) on an accrual basis when they are due. The Company’s contributions totaled $ 535,475 and $ 691,033 for the years ended December 31, 2024 and 2023, respectively. F- 12 GULF RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2024 (Expressed in U.S. dollars) NOTE 1 – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – Continued (n) Mineral Rights The Company follows FASB ASC 805 “Business Combinations” that certain mineral rights are considered tangible assets and that mineral rights should be accounted for based on their substance. Mineral rights are included in property, plant and equipment. (o) Leases The Company determines if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”) assets and operating lease liabilities in the consolidated balance sheets. Finance leases are included in finance lease ROU assets and finance lease liabilities in the consolidated balance sheets. ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating lease and finance lease ROU assets and liabilities are recognized at January 1, 2019 based on the present value of lease payments over the lease term discounted using the rate implicit in the lease. In cases where the implicit rate is not readily determinable, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. Lease expense for lease payments is recognized on a straight-line basis over the lease term. The Company has elected not to recognize operating lease ROU assets and liabilities arising from short-term lease. (p) Basic and Diluted Earnings per Share of Common Stock Basic earnings per common share are based on the weighted average number of shares outstanding during the periods presented. Diluted earnings per share are computed using weighted average number of common shares plus dilutive common share equivalents outstanding during the period. Potential common shares that would have the effect of increasing diluted earnings per share are considered to be anti-dilutive, i.e. the exercise prices of the outstanding stock options were greater than the market price of the common stock. Anti-dilutive common stock equivalents which were excluded from the calculation of number of dilutive common stock equivalents amounted to 0 and 0 shares for the years ended December 31, 2024 and 2023, respectively. These awards could be dilutive in the future if the market price of the common stock increases and is greater than the exercise price of these awards. (q) Reporting Currency and Translation The financial statements of the Company’s foreign subsidiaries are measured using the local currency, Renminbi (“RMB”), as the functional currency; whereas the functional currency and reporting currency of the Company is the United States dollar (“USD” or “$”). F- 13 GULF RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2024 (Expressed in U.S. dollars) NOTE 1 – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – Continued As such, the Company uses the “current rate method” to translate its PRC operations from RMB into USD, as required under FASB ASC 830 “Foreign Currency Matters”. The assets and liabilities of its PRC operations are translated into USD using the rate of exchange prevailing at the balance sheet date. The capital accounts are translated at the historical rate. Adjustments resulting from the translation of the balance sheets of the Company’s PRC subsidiaries are recorded in stockholders’ equity as part of accumulated other comprehensive income (loss). The statement of comprehensive income (loss) is translated at average rate during the reporting period. Gains or losses resulting from transactions in currencies other than the functional currencies are recognized in net loss for the reporting periods as part of general and administrative expense. The statement of cash flows is translated at average rate during the reporting period, with the exception of the consideration paid for the acquisition of business which is translated at historical rates. (r) Revenue Recognition Net revenue is net of discount and value added tax and comprises the sale of bromine, crude salt and chemical products. Revenue is recognized at a point time when the control of the promised goods is transferred to the customers in an amount that reflects the consideration that the Company expects to receive from the customers in exchange for those goods. The acknowledgement of receipt of goods by the customers is when control of the product is deemed to be transferred. Invoicing occurs upon acknowledgement of receipt of the goods by the customers. Customers have no rights to return the goods upon acknowledgement of receipt of goods. Customers typically pay after the Company delivers and transfers the products to them in accordance to terms set forth in their contract. Revenue from contracts with customers is disaggregated in Note 18. (s) Income Taxes The Company accounts for income taxes in accordance with the Income Taxes Topic of the FASB ASC, which requires the use of the liability method of accounting for deferred income taxes. Under this method, deferred income taxes are recorded to reflect the tax consequences on future years of temporary differences between the tax basis of assets and liabilities and their reported amounts at each period end. Deferred tax assets and liabilities are measured using tax rates that are expected to apply to taxable income for the years in which those tax assets and liabilities are expected to be realized or settled. The deferred income tax effects of a change in tax rates are recognized in the period of enactment. If it is more likely than not that some portion or all of a deferred tax asset will not be realized, a valuation allowance is recognized. The guidance also provides criteria for the recognition, measurement, presentation and disclosures of uncertain tax positions. A tax benefit from an uncertain tax position may be recognized if it is “more likely than not” that the position is sustainable based solely on its technical merits. Interests and penalties associated with unrecognized tax benefits are included within the (benefit from) provision for income tax in the consolidated statement of comprehensive income (loss). (t) Exploration Costs Exploration costs, which included the cost of researching for appropriate places to drill wells and the cost of well drilling in search of potential natural brine or other resources, are charged to the income statement as incurred. Once the commercial viability of a project has been confirmed, all subsequent costs are capitalized. F- 14 GULF RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2024 (Expressed in U.S. dollars) NOTE 1 – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – Continued For oil and gas properties, the successful efforts method of accounting is adopted. The Company carries exploratory well costs as an asset when the well has found a sufficient quantity of reserves to justify its completion as a producing well and where the Company is making sufficient progress assessing the reserves and the economic and operating viability of the project. Exploratory well costs not meeting these criteria are charged to expenses. Exploratory wells that discover potentially economic reserves in areas where major capital expenditure will be required before production would begin and when the major capital expenditure depends upon the successful completion of further exploratory work remain capitalized and are reviewed periodically for impairment. (u) Fair Value Measurement The Company applies Accounting Standards Codification (“ASC”) Topic 820, Fair Value Measurements and Disclosures which defines fair value, establishes a framework for measuring fair value and expands financial statement disclosure requirements for fair value measurements. ASC Topic 820 defines fair value as the price that would be received from the sale of an asset or paid to transfer a liability (an exit price) on the measurement date in an orderly transaction between market participants in the principal or most advantageous market for the asset or liability. ASC Topic 820 specifies a hierarchy of valuation techniques, which is based on whether the inputs into the valuation technique are observable or unobservable. The hierarchy is as follows: Level 1 inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets. Level 2 inputs to the valuation methodology include quoted prices for identical or similar assets and liabilities in active markets or in inactive markets, and inputs that are observable for the assets or liability, either directly or indirectly, for substantially the full term of the financial instruments. Level 3 inputs to the valuation methodology are unobservable and significant to the fair value. The carrying amounts of the Company’s financial instruments approximate their fair values because of their short-term nature. The Company’s financial instruments include cash, accounts receivable, amounts due to related parties, accounts payable and other current payables. There were no material unrecognized financial assets and liabilities as of December 31, 2024 and 2023. (v) Loss Contingencies The Company accrues for loss contingencies relating to legal matters, including litigation defense costs, claims and other contingent matters, including liquidated damage liabilities, when such liabilities become probable and reasonably able to be estimated. Such estimates may be based on advice from third parties or on management’s judgment, as appropriate. Revisions to accruals are reflected in income (loss) in the period in which different facts or information become known or circumstances change that affect the Company’s previous assumptions with respect to the likelihood or amount of loss. Amounts paid upon the ultimate resolution of such liabilities may be materially different from previous estimates. (w) Stock-based Compensation The Company accounts for stock-based compensation under the provisions of FASB ASC 718, Compensation Stock Compensation, which requires the measurement and recognition of compensation expense for all stock-based awards made to employees and directors based on estimated fair values on the grant date. The Company estimates the fair value of stock-based awards on the date of grant using the Black-Scholes model. The value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service periods using the straight-line method. In June 2018, the FASB issued ASU No. 201807, Compensation - Stock Compensation (Topic 7 I8), Improvements to Nonemployee Share-Based Payment Accounting. The amendments in this Update expand the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. Prior to this Update, Topic 718 applied only to share-based transactions to employees. Consistent with the accounting requirement for employee share-based payment awards, nonemployee share-based payment awards within the scope of Topic 718 are measured at grant-date fair value of the equity instruments that an entity is obligated to issue when the good has been delivered or the service has been rendered and any other conditions necessary to earn the right to benefit from the instruments have been satisfied. The Company has elected to account for the forfeiture of stock-based awards as they occur. (x) New Accounting Pronouncements Recent accounting pronouncements adopted In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments. The amendments in this Update affect loans, debt securities, trade receivables, and any other financial assets that have the contractual right to receive cash. The ASU requires an entity to recognize expected credit losses rather than incurred losses for financial assets. For public entities, the amendments are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. For the Company which is a smaller reporting company, ASU No. 2019-10 extends the effective dates for two years. The Company had evaluated the effect of the adoption of this standard on the consolidated financial statements and related disclosures. And the Company had adopted this standard beginning January 1, 2024. Recently Issued Accounting Pronouncements Not Yet Adopted There were no recently issued accounting pronouncements not yet adopted for the year ended December 31, 2024. F- 15 GULF RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2024 (Expressed in U.S. dollars) NOTE 2 – ACCOUNTS RECEIVABLE, NET December 31, 2024 December 31, 2023 Accounts receivable $ 594,234 $ 4,890,756 Allowance for doubtful debt ( 29,711 ) ( 25,060 ) Accounts receivable, net $ 564,523 $ 4,865,696 The overall accounts receivable balance as of December 31, 2024 decreased by $ 4,301,173 compared to those of December 31, 2023. The decrease in accounts receivable is due to the decrease in sales revenue. 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 customer. NOTE 3 – INVENTORIES Inventories consist of: Inventories - Schedule of Inventories, Current December 31, 2024 December 31, 2023 Raw materials $ 10,610 $ 32,840 Finished goods 1,545,521 804,046 Less: impairment ( 1,240,760 ) ( 259,657 ) Inventory, net $ 315,371 $ 577,229 The Company recorded impairment charges for slow moving inventory in the amounts of $ 989,035 and $ 230,776 for the years ended December 31, 2024 and 2023. NOTE 4 – PREPAYMENTS AND DEPOSITS, NET Prepayments and deposits consisted of the following: Prepayments and Deposits, Net - Schedule of Prepayments and Deposits, Net December 31, 2024 December 31, 2023 Prepayments and deposits $ 8,025,110 $ 8,395,290 Provision for impairment ( 1,648,454 ) - Prepayments and deposits, net $ 6,376,656 $ 8,395,290 For the year December 31, 2024 and 2023, the Company recorded provision of $ 1,663,933 and nil for the prepayments and deposits. NOTE 5 – PREPAID LAND LEASES The Company has the rights to use certain parcels of land located in Shouguang, Shandong, PRC, through lease agreements signed with local townships or the government authority. The production facilities and warehouses of the Company are located on these parcels of land. The lease term ranges from ten to fifty years. Some of the lease contracts were paid in one lump sum upfront and some are paid annually at the beginning of each anniversary date. These leases have no purchase option at the end of the lease term and were classified as operating leases prior to and as of January 1, 2019 when the new lease standard was adopted. Prior to January 2019, the prepaid land lease was amortized on a straight line basis. As of January 1, 2019, all the leases in which term has commenced and were in use were classified as operating lease right-of-use assets (“ROU”). See Note 7. In December 2017, the Company paid a one lump sum upfront amount of $ 8,846,282 for a 50-year lease of a parcel of land at Bohai Marine Fine Chemical Industrial Park (“Bohai”) for the new chemical factory to be built. There is no purchase option at the end of the lease term. This was classified as an operating lease prior to and as of January 1, 2019. The land use certificate was issued on October 25, 2019. The lease term expires on August 12, 2069. The amount paid was recorded as prepaid land leases, net of current portion in the consolidated balance sheet as of December 31 2024 and 2023. As of December 31, 2024, the prepaid land lease increased to $ 9,204,556 due to an additional amount paid for stamp duty and related land use rights fees. Amortization of this prepaid land lease will commence when the chemical factory is built and placed in service. F- 16 GULF RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2024 (Expressed in U.S. dollars) NOTE 6 – PROPERTY, PLANT AND EQUIPMENT, NET Property, plant and equipment, net consist of the following: Property, Plant and Equipment, Net - Schedule of Property, Plant and Equipment December 31, 2024 December 31, 2023 At cost: Mineral rights $ 2,682,882 $ 2,722,997 Buildings 68,476,868 29,863,200 Plant and machinery 143,839,420 185,738,906 Furniture, fixtures and office equipment 1,435,090 1,456,547 Motor vehicles 124,215 126,072 Construction in process 10,155,642 10,307,491 Total 226,714,117 230,215,213 Less: Accumulated depreciation and amortization ( 83,826,560 ) ( 108,027,190 ) Impairment ( 6,744,380 ) — Net book value $ 136,143,177 $ 122,188,023 The Company has certain buildings and salt pans erected on parcels of land located in Shouguang, PRC, and such parcels of land are collectively owned by local townships or the government authority. The Company has not been able to obtain property ownership certificates over these buildings and salt pans. The aggregate carrying values of these properties situated on parcels of the land are $ 50,219,026 and $ 8,346,742 as at December 31, 2024 and December 31, 2023, respectively. During the year ended December 31, 2024, depreciation and amortization expense totaled $ 17,989,747 of which $ 10,864,807 , $ 6,806,372 and $ 318,568 were recorded in direct labor and factory overheads incurred cost of net revenue , during plant shutdown, and administrative expenses respectively. During the year ended December 31, 2023, depreciation and amortization expense totaled $ 27,064,404 of which $ 15,626,277 , $ 4,113,962 and $ 7,324,165 were recorded in direct labor and factory overheads incurred cost of net revenue , during plant shutdown, and administrative expenses respectively. NOTE 7 – FINANCE LEASE RIGHT-OF-USE ASSETS Property, plant and equipment under finance leases, net consist of the following: Finance Lease Right-Of-Use Assets - Schedule of Property, Plant and Equipment Under Finance Leases December 31, 2024 December 31, 2023 At cost: Buildings Buildings $ 208,473 $ 211,590 Total 208,473 211,590 Less: Accumulated depreciation and amortization ( 131,605 ) ( 128,475 ) Net book value 76,868 83,115 F- 17 GULF RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2024 (Expressed in U.S. dollars) The above buildings erected on parcels of land located in Shouguang, PRC, are collectively owned by local townships. The Company has not been able to obtain property ownership certificates over these buildings as the Company could not obtain land use rights certificates on the underlying parcels of land. During the year ended December 31, 2024, depreciation and amortization expense totaled $ 5,068 , respectively, which was recorded in direct labor and factory overheads incurred during plant shutdown. During the year ended December 31, 2023, depreciation and amortization expense totaled $ 61,981 , respectively, which was recorded in direct labor and factory overheads incurred during plant shutdown. NOTE 8 – OPERATING LEASE RIGHT–OF-USE ASSETS The Company has the rights to use certain parcels of land located in Shouguang, the PRC, through lease agreements signed with local townships or the government authority. For parcels of land that are collectively owned by local townships, the Company cannot obtain land use rights certificates. The parcels of land of which the Company cannot obtain land use rights certificates covers a total of approximately 34.95 square kilometers with an aggregate operating lease right-of-use assets amount of $ 7,318,031 as at December 31, 2024. As of December 31, 2024, the total operating lease ROU assets was $ 6,169,855 . The total operating lease cost for the years ended December 31, 2024 and 2023 was $ 877,809 and $ 887,603 . NOTE 9 – PAYABLE AND ACCRUED EXPENSES Payable and accrued expenses consist of the following: Payable and Accrued Expenses - Schedule of Accounts Payable and Accrued Liabilities December 31, 2024 December 31, 2023 Accounts payable $ 30,003 $ 206,984 Salary payable 323,655 216,253 Social security insurance contribution payable 169,858 172,398 Other payable-related party — 88,086 Accrued expense for construction 5,310,040 5,389,437 Accrued expense-others 8,489,902 2,760,778 Total $ 14,323,458 $ 8,833,936 Accrued expense-others mainly include the purchase of the unpaid portion of salt Pans of $ 7,878,182 , and others. NOTE 10 – RELATED PARTY TRANSACTIONS On September 25, 2012, the Company purchased five floors of a commercial building in the PRC, through SYCI, from Shandong Shouguang Vegetable Seed Industry Group Co., Ltd. (the “Seller”) at a cost of approximately $ 5.7 million in cash, of which Mr. Ming Yang, the Chairman of the Company, had a 99 % equity interest in the Seller that time. During the first quarter of 2018, the Company entered into an agreement with the Seller, a related party, to provide property management services for an annual amount of approximately $ 87,927 for five years from January 1, 2023 to December 31, 2027 . The expense associated with this agreement for the year ended December 31, 2024 was $ 87,821 . The expense associated with this agreement for the year ended December 31, 2023 was $ 88,049 . F- 18 GULF RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2024 (Expressed in U.S. dollars) NOTE 10 – RELATED PARTY TRANSACTIONS – Continued a) Related parties Name of related parties Position Yang Ming Shareholder LiuXiaoBin Chief Executive Officer LiMin Chief Financial Officer MiaoNaiHui Chief Operating Officer Chengdu Dianjinshi Culture media Co., LTD Affiliated with company officers b) December 31, 2024 December 31, 2023 Amount due to related parties: Yang Ming $ 410,350 $ 416,484 LiuXiaoBin 887,214 887,214 LiMin 636,264 641,480 MiaoNaiHui 650,980 641,480 Total 2,584,808 2,586,658 c) December 31, 2024 December 31, 2023 Due from related party : Chengdu Dianjinshi Culture media Co., LTD $ 25,040 — Total $ 25,040 $ — NOTE 11 – TAXES PAYABLE December 31, 2024 December 31, 2023 Land use tax payable $ 19,318 $ 24,689 Value added tax and other taxes payable 94,681 450,941 Total $ 113,999 $ 475,630 NOTE 12 – LEASE LIABILITIES - FINANCE AND OPERATING LEASE The components of finance lease liabilities were as follows: Lease Liabilities - Finance and Operating Lease - Schedule of Finance and Operating Leased Liabilities Imputed Interest rate December 31, 2024 December 31, 2023 Total finance lease liability 6.7 % $ 1,293,608 $ 1,485,575 Less: Current portion ( 217,743 ) ( 172,625 ) Finance lease liability, net of current portion $ 1,075,865 $ 1,312,950 Interest expenses from capital lease obligations amounted to $ 91,901 and $ 96,914 for the years ended December 31, 2024 and 2023, respectively, which were charged to the consolidated statement of comprehensive income (loss). F- 19 GULF RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2024 (Expressed in U.S. dollars) The components of operating lease liabilities as follows: Discount rate December 31, 2024 December 31, 2023 Total Operating lease liabilities 4.89 % $ 7,433,452 $ 7,998,908 Less: Current portion ( 491,850 ) ( 473,653 ) Operating lease liabilities, net of current portion $ 6,941,602 $ 7,525,255 The weighted average remaining operating lease term at December 31, 2024 was 17.3 years and the weighted average discounts rate was 4.89 %, This discount rates used are based on the base rate quoted by the People’s Bank of China and vary with the remaining term of the lease. Lease payments for the years ended December 31, 2024 and 2023, respectively, were $ 823,608 and $ 824,572 . Maturities of lease liabilities were as follows: Lease Liabilities - Finance and Operating Lease - Schedule of Financing and Operating Lease Maturities Finance lease Operating Lease Payable within: the next 12 months $ 261,109 $ 821,511 the next 13 to 24 months 261,109 825,689 the next 25 to 36 months 261,109 833,255 the next 37 to 48 months 261,109 837,767 the next 49 to 60 months 261,109 845,843 thereafter 261,109 8,280,354 Total 1,566,654 12,444,419 Less: Amount representing interest ( 273,046 ) ( 5,010,967 ) Present value of net minimum lease payments $ 1,293,608 $ 7,433,452 NOTE 13 –– EQUITY Restricted Shares A restricted stock award (“RSA”) is an award of common shares that is subject to certain restrictions during a specified period. Restricted stock awards are independent of option grants and are generally subject to forfeiture if employment terminates prior to the release of the restrictions. The grantee cannot transfer the shares before the restricted shares vest. Shares of nonvested restricted stock have the same voting rights as common stock, are entitled to receive dividends and other distributions thereon and are considered to be currently issued and outstanding. The Company expenses the cost of the restricted stock awards, which is determined to be the fair market value of the shares at the date of grant, straight-line over the period during which the restrictions lapse. For these purposes, the fair market value of the restricted stock is determined based on the closing price of the Company's common stock on the grant date. During the year ended December 31, 2023, the Company granted in the aggregate, 295,000 restricted shares of common stock to a consultant, the company's directors, officers and an employee. The restricted shares award were granted under the 2019 Omnibus Equity Incentive Plan (See Note 15) and vested immediately. The fair value of the award on the date of grant was $ 451,350 which was expensed in full during the year ended December 31, 2023. The Company granted an aggregate of 295,000 restricted shares of common stock in January 2025 to a consultant, the Company's directors, officers, and an employee as compensation for services rendered for the year ended December 31, 2024. The restricted shares award were granted under the 2019 Omnibus Equity Incentive Plan (See Note 15) and vested immediately. The fair value of the award on the date of grant was $ 194,700 which was expensed in full during the year ended December 31, 2024. Retained Earnings - Appropriated In accordance with the relevant PRC regulations and the PRC subsidiaries’ Articles of Association, the Company’s PRC subsidiaries are required to allocate its profit after tax to the following reserve: Statutory Reserve SCHC, SYCI, SHSI and DCHC are required each year to transfer at least 10% of the profit after tax as reported under the PRC statutory financial statements to the Statutory Reserve until the balance reaches 50% of the registered share capital. This reserve can be used to make up any loss incurred or to increase share capital. Except for the reduction of losses incurred, any other application should not result in this reserve balance falling below 25% of the registered capital. As of December 31, 2024, the Company’s statutory provident fund stood at $26.67 million. NOTE 14 – TREASURY STOCK As of December 31, 2024 and December 31, 2023, the number of treasury stock of the Company was 285,830 and 285,830 , respectively. NOTE 15 – STOCK-BASED COMPENSATION Pursuant to the Company’s 2019 Omnibus Equity Incentive Plan adopted and approved in 2019 (“2019 Plan”), awards under the 2019 Plan is limited in the aggregate to 2,068,398 shares of our common stock, inclusive of the awards that were previously issued and outstanding under the Company’s 2007 Equity Incentive Plan, as amended (the “2007 Plan”). Upon adoption and approval of the 2019 Plan, the 2007 Plan was frozen, no new awards will be granted under the 2007 Plan, and outstanding awards under the 2007 Plan will continue to be governed by the terms and condition of the 2007 Plan and applicable award agreement. As of December 31, 2024, the number of shares of the Company’s common stock available for grant of stock options and issuance under the 2019 Plan is 561,801 shares. The fair value of each option award is estimated on the date of grant using the Black-Scholes option-pricing model. The risk free rate is based on the yield-to-maturity in continuous compounding of the US Government Bonds with the time-to-maturity similar to the expected tenor of the option granted, volatility is based on the annualized historical stock price volatility of the Company, and the expected life is based on the historical option exercise pattern. For the year ended December 31, 2024 and 2023, total compensation costs for options issued recorded in the consolidated statement of comprehensive income (loss) were $ 0 and $ 0 . There were no related tax benefits as a full valuation allowance was recorded in the years ended December 31, 2024 and 2023. F- 20 GULF RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2024 (Expressed in U.S. dollars) NOTE 15 – STOCK-BASED COMPENSATION – Continued The following table summarizes all Company stock option transactions between January 1, 2024 and December 31, 2024. Stock-Based Compensation - Schedule of Stock Option Activity Number of Option and Warrants Outstanding and exercisable Weighted- Average Exercise price of Option and Warrants Range of Exercise Price per Common Share Balance, January 1, 2024 — $ — $ — Exercised — $ — $ — Expired — — — Balance, December 31, 2024 — — — Stock and Warrants Options Exercisable and Outstanding Outstanding at December 31, 2024 Range of Exercise Prices Weighted Average Remaining Contractual Life (Years) Exercisable and outstanding — — — All options exercisable and outstanding at December 31, 2024 are fully vested. As of December 31, 2024, there was no unrecognized compensation cost related to outstanding stock options, The aggregate intrinsic value of options outstanding and exercisable as of December 31, 2024 and 2023 was $ 0 and $ 0 . F- 21 GULF RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2024 (Expressed in U.S. dollars) NOTE 16– EXPENDITURE ON WATER POLLUTION TREATMENT December 31, 2024 December 31, 2023 Expenditure on water pollution treatment $ — $ 46,510,856 Total $ — $ 46,510,856 The Company had done the flood prevention project which involved the renovation of the channels of four major rivers within our mining area, encompassing the tributary of the Mihe River. The aim is to prevent flooding that could harm the wells, aqueducts and crude salt pans at our plant. This Project incurred total expense of $ 46,510,856 in the fiscal year 2023. NOTE 17 – INCOME TAXES The Company utilizes the asset and liability method of accounting for income taxes in accordance with FASB ASC 740-10. If it is more likely than not that some portion or all of a deferred tax asset will not be realized, a valuation allowance is recognized. (a) United States (“US”) United States Gulf Resources, Inc. may be subject to the United States of America Tax laws at a tax rate of 21 %. No provision for the US federal income taxes has been made as the Company had no US taxable income for the years ended December 31, 2024 and 2023, and management believes that its earnings are permanently invested in the PRC. (b) British Virgin Islands (“BVI”) Upper Class Group Limited, a subsidiary of Gulf Resources, Inc., was incorporated in the BVI and, under the current laws of the BVI, it is not subject to tax on income or capital gain in the BVI. Upper Class Group Limited did not generate assessable profit for the years ended December 31, 2024 and 2023. (c) Hong Kong Hong Kong HKJI, a subsidiary of Upper Class Group Limited, was incorporated in Hong Kong and is subject to Hong Kong taxation on its activities conducted in Hong Kong and income arising in or derived from Hong Kong. No provision for income tax has been made as it has no taxable income for the years ended December 31, 2024 and 2023. The applicable statutory tax rates for the years ended December 31, 2024 and 2023 are 16.5 %. There is no dividend withholding tax in Hong Kong. (d) PRC PRC Enterprise income tax (“EIT”) for SCHC, SYCI, SHSI and DCHC in the PRC is charged at 25 % of the assessable profits. The operating subsidiaries SCHC is a wholly foreign-owned enterprises (“FIE”), SYCI, DCHC, and SHSI are incorporated in the PRC and are subject to PRC Local Income Tax Law. The PRC tax losses may be carried forward to be utilized against future taxable profit for ten years for High-tech enterprises and small and medium-sized enterprises of science and technology and for five years for other companies. Tax losses of the operating subsidiaries of the Company may be carried forward for five years. On February 22, 2008, the Ministry of Finance (“MOF”) and the State Administration of Taxation (“SAT”) jointly issued CaiShui [2008] Circular 1 (“Circular 1”). According to Article 4 of Circular 1, distributions of accumulated profits earned by a FIE prior to January 1, 2008 to foreign investor(s) in 2008 will be exempted from withholding tax (“WHT”) while distribution of the profit earned by an FIE after January 1, 2008 to its foreign investor(s) shall be subject to WHT at 5% effective tax rate. As of December 31, 2024 and 2023, the accumulated distributable earnings under the Generally Accepted Accounting Principles (GAAP”) of PRC that are subject to WHT are $ 40,524,183 and $ 87,160,228 , respectively. Since the Company intends to reinvest its earnings to further expand its businesses in mainland China, its foreign invested enterprises do not intend to declare dividends to their immediate foreign holding companies in the foreseeable future. Accordingly, as of December 31, 2024 and December 31, 2023, the Company has not recorded any WHT on the cumulative amount of distributable retained earnings of its foreign invested enterprises that are subject to WHT in China. As of December 31, 2024 and December 31, 2023, the unrecognized WHT are $ 1,078,743 and $ 3,396,379 , respectively. The Company’s income tax returns are subject to the various tax authorities’ examination. The federal, state and local authorities of the United States may examine the Company’s income tax returns filed in the United States for three years from the date of filing. The Company’s US income tax returns since 2017 are currently subject to examination. Inland Revenue Department of Hong Kong (“IRD”) may examine the Company’s income tax returns filed in Hong Kong for seven years from date of filing. For the years 2012 through 2018, HKJI did not report any taxable income. It did not file any income tax returns during these years except for 2014 and 2018. For companies which do not have taxable income, IRD typically issues notification to companies requiring them to file income tax returns once in every four years. The tax returns for 2014 and 2018 are currently subject to examination. F- 22 GULF RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2024 (Expressed in U.S. dollars) The components of the provision for income tax benefit (expense) from continuing operations are: Income Taxes - Schedule of Components of Income Tax Expense Benefit Years Ended December 31, 2024 2023 Current taxes – PRC $ ( 15,204 ) $ ( 322,890 ) Deferred taxes – PRC entities ( 1,632,978 ) ( 3,215,727 ) Total Income tax (expenses) benefits $ ( 1,648,182 ) $ ( 3,538,617 ) Significant components of the Company’s deferred tax assets and liabilities at December 31, 2024 and December 31, 2023 are as follows: Income Taxes - Schedule of Deferred Tax Assets and Liabilities December 31, December 31, 2024 2023 Deferred tax assets: Exploration costs $ 1,731,920 $ 1,757,816 Allowance 729,731 — Impairment of property plant and equipment 1,686,095 — PRC tax losses 9,125,871 11,941,045 US federal net operating loss 1,661,464 1,694,013 Total deferred tax assets 14,935,081 15,392,874 Valuation allowance ( 14,935,081 ) ( 13,533,849 ) Net deferred tax asset $ — $ 1,859,025 Deferred tax assets consist of future reversals of existing taxable temporary differences and adequate future taxable income, exclusive of reversing deductible temporary differences. As of December 31, 2024 and 2023, valuation allowances were mainly provided against deferred tax assets caused by exploration costs, Impairment of property plant and equipment , Allowance and net operating loss where it was determined it was more likely than not that the benefits of the deferred tax assets will not be realized due to their continuous losses. The increase in valuation allowance for the year ended December 31, 2024 is $ 1,401,232 . The increase in valuation allowance for the year ended December 31, 2023 is $ 3,516,915 . There were no unrecognized tax benefits and accrual for uncertain tax positions as of December 31, 2024 and 2023. There were no amounts accrued for penalties and interest for the years ended December 31, 2024 and 2023. There were no change in unrecognized tax benefits during the years ended December 31, 2024 and 2023. F- 23 GULF RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2024 (Expressed in U.S. dollars) NOTE 18 – BUSINESS SEGMENTS Operating segment’s performance is primarily evaluated based on segment operating income, which excludes share-based compensation expense, certain corporate costs and other income not associated with the operations of the segment. These corporate costs are separately stated below and also include costs that are related to functional areas such as accounting, treasury, information technology, legal, human resources, and internal audit. The Company believes that segment operating income, as defined above, is an appropriate measure for evaluating the operating performance of its segments. All the customers are located in PRC. Year Ended December 31, 2024 Operating Segment Bromine* Crude Salt* Chemical Products Natural Gas Segment Total Corporate Corporate Total Net revenue (external customers) $ 5,549,815 $ 2,049,988 $ — $ 61,207 $ 7,661,010 $ — $ 7,661,010 Net revenue (intersegment) — — — — — — — Loss from operations before income tax expense ( 17,238,619 ) ( 76,694 ) ( 3,028,479 ) ( 195,364 ) ( 20,539,156 ) ( 744,493 ) ( 21,283,649 ) Income tax (expense) benefit ( 1,632,978 ) ( 15,204 ) — — ( 1,648,182 ) — ( 1,648,182 ) Loss from operations after income tax (expense) benefit ( 18,871,597 ) ( 91,898 ) ( 3,028,479 ) ( 195,364 ) ( 22,187,338 ) ( 744,493 ) ( 22,931,831 ) Total assets 73,137,911 46,843,471 46,020,977 1,673,535 167,675,894 1,755,061 169,455,995 Depreciation and amortization 15,941,214 1,659,865 272,716 134,080 18,007,875 — 18,007,875 Capital expenditures 28,923,642 31,602,571 — — 60,526,213 — 60,526,213 Year Ended December 31, 2023 Bromine* Crude Salt* Chemical Products Natural Gas Segment Total Corporate Total Net revenue (external customers) $ 26,921,462 $ 2,971,467 $ — $ 150,861 $ 30,043,790 $ — $ 30,043,790 Net revenue (intersegment) — — — — — — — Loss from operations before income tax expense ( 10,005,755 ) 640,309 ( 1,653,349 ) ( 86,284 ) ( 11,105,079 ) ( 785,646 ) ( 11,890,725 ) Income tax (expense) benefit ( 3,214,629 ) ( 323,988 ) — — ( 3,538,617 ) — ( 3,538,617 ) Loss from operations after income tax (expense) benefit ( 13,220,384 ) 316,321 ( 1,653,349 ) ( 86,284 ) ( 14,643,696 ) ( 785,646 ) ( 15,429,342 ) Total assets 104,414,525 11,747,999 108,259,342 1,983,126 226,404,992 266,716 226,671,708 Depreciation and amortization 25,354,200 1,369,812 313,735 101,842 27,139,589 — 27,139,589 Capital expenditures — — — — — — — * Certain common production overheads, operating and administrative expenses and asset items (mainly cash and certain office equipment) of bromine and crude salt segments in SCHC were split by reference to the average selling price and production volume of the respective segment. F- 24 GULF RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2024 (Expressed in U.S. dollars) Years Ended December 31, Reconciliations 2024 2023 Total segment operating loss $ ( 20,539,156 ) $ ( 11,105,079 ) Corporate costs ( 744,493 ) ( 785,646 ) Unrealized gain (loss) on translation of intercompany balance — — Loss from operations ( 21,283,649 ) ( 11,890,725 ) Other expense, net ( 62,113 ) 144,919 Expenditure on water pollution treatment — ( 46,510,856 ) Loss on disposal of property, plant and equipment ( 29,169,008 ) — Impairment of Property, plant and equipment ( 6,772,500 ) — Loss before taxes $ ( 57,287,270 ) $ ( 58,256,662 ) The following table shows the major customers (10% or more) for the year ended December 31, 2024 Business Segments - Schedule of Revenue by Major Customers Bromine Crude Salt Chemical Products Total Revenue Percentage of Total Number Customer (000’s) (000’s) (000’s) (000’s) Revenue (%) 1 Shandong Morui Chemical Company Limited $ 677 $ 770 $ — $ 1,447 18.9 % 2 Shandong Brother Technology Limited $ 646 $ 702 $ — $ 1,348 17.6 % 3 Shouguang Weidong Chemical Company Limited $ 646 $ 578 $ — $ 1,224 16.0 % The following table shows the major customers (10% or more) for the year ended December 31, 2023 Bromine Crude Salt Chemical Products Total Revenue Percentage of Total Number Customer (000’s) (000’s) (000’s) (000’s) Revenue (%) 1 Shandong Morui Chemical Company Limited $ 3,735 $ 1,137 $ — $ 4,872 16.3 % 2 Shandong Brother Technology Limited $ 3,639 $ 998 $ — $ 4,637 15.5 % 3 Shouguang Weidong Chemical Company Limited $ 3,492 $ 837 $ — $ 4,329 14.5 % 4 Shandong Shouguang Shenrunfa Marine Chemical Company Limited $ 3,018 $ — $ — $ 3,018 10.1 % F- 25 GULF RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2024 (Expressed in U.S. dollars) NOTE 19 – CUSTOMER CONCENTRATION Revenue Customer Concentration Product The Company sells a substantial portion of its products to a limited number of customers. During the year ended December 31, 2024, the Company sold 66.05 % of its products to its top five customers, respectively. As of December 31, 2024, amounts due from these customers were $ 594,234 . The Company sells a substantial portion of its products to a limited number of customers. During the year ended December 31, 2023, the Company sold 61.8 % of its products to its top five customers, respectively. As of December 31, 2023, amounts due from these customers were $ 2,082,217 . NOTE 20 – MAJOR SUPPLIERS Product Concentration Cost of Goods During the year ended December 31, 2024, the Company purchased 100 % of its raw materials from its top four suppliers. As of December 31, 2024, amounts due to those suppliers were $ 30,003 . During the year ended December 31, 2023, the Company purchased 100 % of its raw materials from its top four suppliers. As of December 31, 2023, amounts due to those suppliers were $ 206,984 . F- 26 GULF RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2024 (Expressed in U.S. dollars) NOTE 21 – LOSS CONTINGENCIES Settled Litigation On or about August 3, 2018, written decisions of administration penalty captioned Shou Guo Tu Zi Fa Gao Zi [2018] No. 291, Shou Guo Tu Zi Fa Gao Zi [2018] No. 292, Shou Guo Tu Zi Fa Gao Zi [2018] No. 293, Shou Guo Tu Zi Fa Gao Zi [2018] No. 294, Shou Guo Tu Zi Fa Gao Zi [2018] No. 295 and Shou Guo Tu Zi Fa Gao Zi [2018] No. 296 (together, the “Written Decisions”) were served on Shouguang City Haoyuan Chemical Company Limited (“SCHC”) by Shouguang City Natural Resources and Planning Bureau (the “Bureau”), naming SCHC as respondent respectively thereof. The Decisions challenged the land use of Factory nos. 2, 9, 7, 4, 8 and 10, respectively, and alleged, among other things, that SCHC had illegally occupied and used the land in the total area of approximately 52,674 square meter, on which Factory nos. 2, 9, 7, 4, 8 and 10 were built, respectively. The Written Decisions ordered SCHC, among other things, to return the land subject to the Written Decisions to its respective legal owner, restore the land to its original state, and demolish or confiscate all the buildings and facilities thereon and pay monetary penalty of approximately RMB 1.3 million ($184,000) in the aggregate. Each of the Written Decisions shall be executed within 15 days upon serving on SCHC. Additional interest penalty shall be imposed at a daily rate of 3% in the event that SCHC does not make the monetary penalty payment in a timely manner. Subsequently, the Bureau filed enforcement actions to the People’s Court of Shouguang City, Shandong Province (the “Court”), naming SCHC as enforcement respondent and alleged, among other things, that SCHC failed to perform its obligations under each of the Written Decisions within the specified timeframe. The enforcement proceedings sought court orders to enforce the Written Decisions. On May 5, 2019, written decisions of administrative ruling captioned (2019) Lu 0783 Xing Shen No. 384, (2019) Lu 0783 Xing Shen No. 385, (2019) Lu 0783 Xing Shen No. 389, (2019) Lu 0783 Xing Shen No. 390, (2019) Lu 0783 Xing Shen No. 393, and (2019) Lu 0783 Xing Shen No. 394, respectively (together, the “Court Rulings”) were made by the Court in favor of the Bureau. The Court orders, among other relief, to enforce each of the Written Decisions, to return each subject land to its legal owners and demolish or confiscate the buildings and facilities thereon and restore the land to its original state within 10 days from the service of the Court Rulings on SCHC. The Court Rulings became enforceable immediately upon service on SCHC on May 5, 2019. In the last twenty years, to the Company’s knowledge, there were no government regulations requiring bromine manufacturers to obtain land use and planning approval document. As such, the Company believes most of the bromine manufacturers in Shouguang City do not have land use and planning approval documents and lease their land parcels from the village associations. They are facing the same issues in connection with land use and planning as the Company. To the Company’s knowledge, the local government has submitted its plan to solve the issues to higher authority and are waiting for approval from the higher authority. The Company is in the process of resolving the issues in connection with SCHC’s land use and planning diligently. The Company has been in discussions closely with the local government authorities with the help from Shouguang City Bromine Association to seek reliefs and, based on verbal confirmation by local government authorities, believes the administrative penalties imposed by the Bureau according to the Written Decisions are being re-assessed by local government authorities and may be revoked. Pursuant to a Written Application dated October 28, 2019 addressed to the Court by the Bureau, the Bureau withdrew its application for the enforcement proceedings regarding the administrative penalty imposed on Factory No. 7, Factory No. 8 and Factory No.10. Pursuant to a written decisions of administrative ruling captioned (2019) Lu 0783 Xing Shen No. 389 Zhi Yi, dated November 25, 2020, the Court orders to terminate the enforcement of the case captioned (2019) Lu 0783 Xing Shen No. 389. Production of Factory No. 7 was allowed to resume in April 2019. The Company received a notification from the Shouguang City Government in February 2019 informing the Company that Factory No. 1, No.4, No. 7 and No. 9 have passed inspection and were approved to resume operation In addition, on August 28, 2019, the People’s Government of Shandong Province, issued a regulation titled “Investment Project Management Requirements of Chemical Companies in Shandong Province” permitting the construction of facilities on existing sites or infrastructure of bromine manufacturing and other chemical industry-related types of projects (clause 11 of section 3). The Company believes that the goal of the government is to standardize and regulate the industry and not to demolish the facilities or penalize the manufacturers. As of the date of this report, the Company has not been notified by the local government that it will take any measure to enforce the administrative penalties. Based on information known to date, the Company believes that it is remote that the Written Decisions or Court Rulings will be enforced within the expected timeframe and a material penalty or costs and expenses against the Company will result. However, there can be no assurance that there will not be any further enforcement action, the occurrence of which may result in further liabilities, penalties and operational disruption. In view of the above facts and circumstances, the Company believes that it is not necessary to accrue for any estimated losses or impairment as of December 31, 2024. NOTE 22 - SUBSEQUENT EVENT Subsequent Events On January 20, 2025, the company issued total 295,000 shares to its employees, officers and consultant for the services rendered for the year ended December 31, 2024. Pursuant to the notification from the government of Shouguang City, all bromine facilities in Shouguang City were temporarily closed from December 15, 2024 until February 12, 2025. In compliance with the notification, the Company ceased production at its bromine facilities during this period and resumed preparation operations at the bromine and crude salt factories as scheduled in February 2025. F- 27 GULF RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2024 (Expressed in U.S. dollars) On February 28, 2025 (the “Closing Date”), a wholly owned subsidiary of the Company, SHSI, closed the transactions contemplated by the Acquisition Agreements (the “Agreements”) dated June 26, 2024 by and between SHSI, and Shouguang Qingshuibo Farm Co., LTD. (“Seller 1”), dated June 27, 2024 by and between SHSI and each of Shouguang city Yangkou Town Dingjia Zhuangzi Village Stock Economic Cooperative (“Seller 2”), Shouguang city Yangkou town Renjia Zhuangzi village stock economic cooperative (“Seller 3”), Shouguang city Yangkou town Shanjia Zhuangzi village stock economic cooperative (“Seller 4”), Shouguang city Yangkou town Zhengjia Zhuangzi village stock economic cooperative (“Seller 5”), respectively, as amended on December 17, 2024. Pursuant to the Agreements, SHSI acquired the crude salt field owned by each seller located in Shandong province, China. On the Closing Date, the Company issued a total of 2,059,694 shares of the Company’s common stock, par value $ 0.0005 per share (the “Shares”), at a price of $ 1.50 per share, to five individuals, who are citizens residing in the People’s Republic of China, designated by each the Seller 1, the Seller 2, the Seller 3, the Seller 4 and the Seller 5. The issuance of the Shares was exempt from registration pursuant to Regulation S of the Securities Act of 1933, as amended. Determined by the civil mediation document issued by Shouguang People's Court on March 17, 2025, SCHC owed Shouguang Chengyu Trading Co., Ltd. a sum of RMB 226,825.44 for goods. SCHC is required to pay RMB 50,000 to Shouguang Chengyu Trading Co., Ltd. before the 15th day of each month starting from April 2025 until the debt is fully repaid. On March 21, 2025, the company issued total 265,000 shares to its employees, officers and consultant for the service rendered in the year ended December 31, 2025. F- 28 GULF RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2024 (Expressed in U.S. dollars) SCHEDULE I – PARENT ONLY FINANCIAL INFORMATION The following presents condensed parent company only financial information of Gulf Resources, Inc. Condensed Balance Sheets Parent Company As of December 31, 2024 2023 Current Assets Prepayments and deposits $ — $ — Total Current Assets — — Non-Current Assets Interests in subsidiaries 83,755,560 144,749,406 Amounts due from group companies 69,821,271 62,288,744 Deferred tax assets, net — — Total non-current assets 153,576,831 207,038,150 Total Assets $ 153,576,831 $ 207,038,150 Liabilities and Stockholders’ Equity Current Liabilities Other payables and accrued expenses $ 8,265,349 $ 185,042 Amounts due to related parties 1,462,110 1,462,110 Amounts due to group companies 142,702 142,702 Total Current Liability 9,870,161 1,789,854 Total Liabilities $ 9,870,161 $ 1,789,854 Stockholders’ Equity PREFERRED STOCK; $ 0.001 par value; 1,000,000 shares authorized; none outstanding $ — $ — COMMON STOCK; $ 0.0005 par value; 80,000,000 shares authorized; 11,012,754 shares issued; and 10,726,924 shares outstanding as of December 31, 2024 and December 31, 2023 24,623 24,623 Treasury stock; 285,830 shares as of December 31, 2024 and December 31, 2023 at cost ( 1,372,673 ) ( 1,372,673 ) Additional paid-in capital 101,688,262 101,688,262 Share to be issued 194,700 — Retained earnings unappropriated 37,358,804 96,294,256 Retained earnings appropriated 26,667,097 26,667,097 Cumulative translation adjustment ( 20,854,143 ) ( 18,053,269 ) Total Stockholders’ Equity 143,706,670 205,248,296 Total Liabilities and Stockholders’ Equity $ 153,576,831 $ 207,038,150 S- 1 Condensed Statements of Comprehensive Loss Years Ended December 31, 2024 2023 OPERATING EXPENSES General and administrative expenses $ ( 742,480 ) $ ( 780,379 ) TOTAL OPERATING EXPENSES ( 742,480 ) ( 780,379 ) OTHER EXPENSES Interest expense — — TOTAL OTHER EXPENSES — — TOTAL EXPENSES ( 742,480 ) ( 780,379 ) Equity in net Loss of subsidiaries ( 59,841,154 ) ( 61,014,900 ) LOSS BEFORE INCOME TAXES ( 58,935,452 ) ( 61,795,279 ) INCOME TAXES — — NET LOSS $ ( 58,935,452 ) $ ( 61,795,279 ) Condensed Statements of Cash Flows Years Ended December 31, 2024 2023 CASH FLOWS FROM OPERATING ACTIVITIES Net Loss $ ( 58,935,452 ) $ ( 61,795,279 ) Adjustments to reconcile net Loss to net cash provided by (used in) operating activities: Equity Loss in unconsolidated subsidiaries 59,841,154 61,014,900 Stock-based compensation expense-options — 451,350 Shares issued from treasury stock for services — — Changes in assets and liabilities: — — Other payables and accrued expenses 1,251,357 ( 23,152 ) Net cash used in operating activities ( 345,655 ) ( 352,181 ) CASH FLOWS FROM FINANCING ACTIVITIES Advances from group companies 345,655 352,181 Net cash provided by financing activities 345,655 352,181 NET INCREASE IN CASH AND CASH EQUIVALENTS — — CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR — — CASH AND CASH EQUIVALENTS - END OF YEAR $ — $ — S- 2 (i) Basis of presentation In the condensed parent-company-only financial statements, the Company’s investment in subsidiaries is stated at cost plus equity in undistributed earnings of subsidiaries since the date of acquisition. The Company’s share of net loss of its subsidiaries is included in condensed statements of comprehensive loss using the equity method. These condensed parent- company-only financial statements should be read in connection with the consolidated financial statements and notes thereto. As of December 31, 2024, the Company itself has no purchase commitment, capital commitment and operating lease commitment. (ii) Restricted Net Assets Schedule I of Rule 5-04 of Regulation S-X requires the condensed financial information of registrant shall be filed when the restricted net assets of consolidated subsidiaries exceed 25 percent of consolidated net assets as of the end of the most recently completed fiscal year. For purposes of the above test, restricted net assets of consolidated subsidiaries shall mean that amount of the registrant’s proportionate share of net assets of consolidated subsidiaries (after intercompany eliminations) which as of the end of the most recent fiscal year may not be transferred to the parent company by subsidiaries in the form of loans, advances or cash dividends without the consent of a third party (i.e., lender, regulatory agency, foreign government, etc.). The condensed parent company financial statements have been prepared in accordance with Rule 12-04, Schedule I of Regulation S-X as the restricted net assets of the subsidiaries of Gulf Resources, Inc. exceed 25% of the consolidated net assets of Gulf Resources, Inc. The ability of the Company’s Chinese operating subsidiaries to pay dividends may be restricted due to the foreign exchange control policies and availability of cash balances of the Chinese operating subsidiaries. Because a significant portion of the Company’s operations and revenues are conducted and generated in China, a significant portion of the revenues being earned and currency received are denominated in RMB. RMB is subject to the exchange control regulation in China, and, as a result, the Company may be unable to distribute any dividends outside of China due to PRC exchange control regulations that restrict the Company’s ability to convert RMB into US Dollars. S- 3 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. (a) Dismissal of Independent Registered Public Accounting Firm. On April 16, 2024, WWC, P.C. Certified Public Accountants (“WWC”) was dismissed as our independent registered public accounting firm, effective immediately. The decision to dismiss WWC as the Company’s principal independent accountant was approved by the Audit Committee of the Board of Directors of the Company on April 16, 2024. WWC’s reports on our consolidated financial statements for the fiscal years ended December 31, 2023 and 2022 did not contain an adverse opinion or a disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope or accounting principles. During the two most recent fiscal years ended December 31, 2023 and 2022, and the subsequent interim period through April 16, 2024, there were no disagreements with WWC on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of WWC, would have caused WWC to make reference to the subject matter of the disagreements in connection with its reports on our consolidated financial statements for such years. Also during this time, there were no “reportable events,” as defined in Item 304(a)(1)(v) of Regulation S-K. We provided WWC with a copy of the above disclosures and requested that WWC furnish the Company with a letter addressed to the SEC stating whether or not it agrees with the statements made above. A copy of WWC’s letter dated April 16, 2024 was attached as Exhibit 16.1 to a Current Report on Form 8-K that was filed by us with the SEC on April 16, 2024. (b) Appointment of New Independent Registered Public Accounting Firm. On April 16, 2024, we engaged GGF CPA LIMITED (“GGF”) as our independent registered public accounting firm for the fiscal year ending December 31, 2023, effective immediately. During the fiscal years ended December 31, 2023 and 2022 and through April 16, 2024, neither we nor anyone on its behalf consulted with GGF regarding (i) the application of accounting principles to any specified transaction, either completed or proposed or the type of audit opinion that might be rendered on our consolidated financial statements, and neither a written report nor oral advice was provided to us that GGF concluded was an important factor considered by us in reaching a decision as to any accounting, auditing, or financial reporting issue, or (ii) any matter that was either the subject of a “disagreement,” as defined in Item 304(a) (1)(iv) of Regulation S-K, or a “reportable event,” as defined in Item 304(a)(1)(v) of Regulation S-K.