GULF RESOURCES, INC. 10-Q

Item 1. Financial Statements GULF RESOURCES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Expressed in U.S. dollars) March 31, 2025 (Unaudited) December 31, 2024 (Audited) Current Assets Cash $ 8,523,045 $ 10,075,162 Accounts receivable, net 2,114,222 564,523 Inventories, net 455,059 315,371 Prepayments and deposits 6,393,161 6,376,656 Amount due from related parties 25,076 25,040 Other receivable 126,050 94,074 Total Current Assets 17,636,613 17,450,826 Non-Current Assets Property, plant and equipment, net 132,341,321 136,143,177 Finance lease right-of use assets 75,721 76,868 Operating lease right-of-use assets 6,050,429 6,169,855 Prepaid land leases, net of current portion 9,625,855 9,615,269 Deferred tax assets, net — — Total non-current assets 148,093,326 152,005,169 Total Assets $ 165,729,939 $ 169,455,995 Liabilities and Stockholders’ Equity Current Liabilities Accounts payable and accrued expenses $ 11,656,665 $ 14,323,458 Taxes payable-current 276,516 113,999 Advance from customer — — Amount due to related parties 2,586,422 2,584,808 Finance lease liability, current portion 239,771 217,743 Operating lease liabilities, current portion 498,483 491,850 Total Current Liabilities 15,257,857 17,731,858 Non-Current Liabilities Finance lease liability, net of current portion 1,077,412 1,075,865 Operating lease liabilities, net of current portion 6,809,843 6,941,602 Total Non-Current Liabilities 7,887,255 8,017,467 Total Liabilities $ 23,145,112 $ 25,749,325 Commitment and Loss 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; 13,632,448 and 11,012,754 shares issued; and 13,346,618 and 10,726,924 shares outstanding as of March 31, 2025 and December 31, 2024 25,934 24,623 Treasury stock; 285,830 shares as of March 31, 2025 and December 31, 2024 at cost ( 1,372,673 ) ( 1,372,673 ) Additional paid-in capital 105,167,292 101,688,262 Share to be issued — 194,700 Retained earnings unappropriated 32,729,304 37,358,804 Retained earnings appropriated 26,667,097 26,667,097 Accumulated other comprehensive income ( 20,632,127 ) ( 20,854,143 ) Total Stockholders’ Equity 142,584,827 143,706,670 Total Liabilities and Stockholders’ Equity $ 165,729,939 $ 169,455,995 See accompanying notes to the condensed consolidated financial statements. 1 GULF RESOURCES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Expressed in U.S. dollars) (UNAUDITED) Three-Month Period Ended March 31, 2025 2024 NET REVENUE $ 1,604,447 $ 1,307,062 OPERATING COSTS AND EXPENSE Cost of net revenue ( 1,594,270 ) ( 2,119,845 ) Sales and marketing expenses ( 5,053 ) ( 4,491 ) Direct labor and factory overheads incurred during plant shutdown ( 3,225,808 ) ( 3,734,689 ) General and administrative expenses ( 1,389,523 ) ( 717,456 ) TOTAL OPERATING COSTS AND EXPENSE ( 6,214,654 ) ( 6,576,481 ) LOSS FROM OPERATIONS ( 4,610,207 ) ( 5,269,419 ) OTHER INCOME (EXPENSE) Interest expense ( 21,722 ) ( 24,830 ) Interest income 2,429 36,060 Other expense — ( 4,003 ) LOSS BEFORE INCOME TAXES ( 4,629,500 ) ( 5,262,192 ) INCOME TAX (EXPENSE) BENEFIT — 1,270,060 NET LOSS $ ( 4,629,500 ) $ ( 3,992,132 ) COMPREHENSIVE LOSS: NET LOSS $ ( 4,629,500 ) $ ( 3,992,132 ) OTHER COMPREHENSIVE (LOSS) INCOME - Foreign currency translation adjustments 222,016 ( 393,867 ) TOTAL COMPREHENSIVE (LOSS) INCOME $ ( 4,407,484 ) $ ( 4,385,999 ) BASIC AND DILUTED EARNINGS (LOSS) PER SHARE: $ ( 0.40 ) $ ( 0.37 ) BASIC AND DILUTED WEIGHTED AVERAGE NUMBER OF SHARES: 11,685,431 10,726,924 See accompanying notes to the condensed consolidated financial statements. 2 GULF RESOURCES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY THREE-MONTH PERIOD ENDED MARCH 31, 2025 AND 2024 (Expressed in U.S. dollars) Common stock Accumulated Number Number Number Additional Retained Retained other of shares of shares of treasury Treasury Share to be paid-in earnings earnings comprehensive issued outstanding stock Amount stock issued capital unappropriated appropriated Income(loss) Total BALANCE AT DECEMBER 31, 2024 (Audited) 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 Restricted shares issued for services 2,619,694 2,619,694 1,311 ( 194,700 ) 3,479,030 3,285,641 Currency translation adjustment — — — — — — — — — 222,016 222,016 Net loss for three-month period ended March 31, 2025 — — — — — — — ( 4,629,500 ) — — ( 4,629,500 ) BALANCE AT MARCH 31, 2025(Unaudited) 13,632,448 13,346,618 285,830 25,934 ( 1,372,673 ) — 105,167,292 $ 32,729,304 $ 26,667,097 $ ( 20,632,127 ) $ 142,584,827 Common stock Accumulated Number Number Number Additional Retained Retained other of shares of shares of treasury Treasury paid-in earnings earnings comprehensive issued outstanding stock Amount stock capital unappropriated appropriated Income(loss) Total BALANCE AT DECEMBER 31, 2023 (Audited) 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 Currency translation adjustment — — — — — — — — ( 393,867 ) ( 393,867 ) Net loss for three-month period ended March 31, 2024 — — — — — — ( 3,992,132 ) — — ( 3,992,132 ) BALANCE AT MARCH 31, 2024(Unaudited) 11,012,754 10,726,924 285,830 24,623 ( 1,372,673 ) 101,688,262 $ 92,302,124 $ 26,667,097 $ ( 18,447,136 ) $ 200,862,297 Common Stock Treasury Stock Additional Paid-In Capital Retained Earnings Unappropriated Accumulated Other Comprehensive Income (Loss) Share to be Issued See accompanying notes to the condensed consolidated financial statements. 3 GULF RESOURCES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Expressed in U.S. dollars) (UNAUDITED) Three-Month Period Ended March 31, 2025 2024 　 　 CASH FLOWS FROM OPERATING ACTIVITIES 　 　 Net loss $ ( 4,629,500 ) $ ( 3,992,132 ) Adjustments to reconcile net loss to net cash (used in) provided by operating activities: Amortization on capital lease 21,722 24,830 Depreciation and amortization 4,003,524 4,733,475 Deferred tax asset — ( 1,270,060 ) Stock-based compensation expense 196,100 — Amortization of right-of-use asset 217,801 217,345 Changes in assets and liabilities Accounts receivable ( 1,549,443 ) ( 402,545 ) Inventories ( 139,285 ) ( 57,859 ) Prepayments and deposits ( 7,340 ) ( 44,903 ) Advance from customers — ( 36,222 ) Other receivables ( 31,987 ) ( 774 ) Accounts and Other payable and accrued expenses 401,190 ( 17,847 ) Taxes payable 162,411 ( 257,766 ) Lease liabilities ( 225,321 ) ( 226,018 ) Net cash used in operating activities ( 1,580,128 ) ( 1,330,476 ) CASH FLOWS FROM INVESTING ACTIVITIES Purchase of property, plant and equipment — — Net cash from investing activities — — EFFECTS OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS 28,011 ( 131,622 ) NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS ( 1,552,117 ) ( 1,462,098 ) CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 10,075,162 72,223,894 CASH AND CASH EQUIVALENTS - END OF PERIOD $ 8,523,045 $ 70,761,796 4 GULF RESOURCES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) (Expressed in U.S. dollars) Years Ended March 31, 2025 2024 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid during the three-month period ended March 31, for: Paid for taxes $ 77,386 $ 481,153 Interest on finance lease obligation $ 21,722 $ 24,830 SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES See accompanying notes to the condensed consolidated financial statements. 5 GULF RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2025 (Expressed in U.S. dollars) (UNAUDITED) NOTE 1 – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) Basis of Presentation and Consolidation The accompanying unaudited 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 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 March 31, 2025, As of March 31, 2025, the Company had current assets of $ 17.64 million and current liabilities of $ 15.26 million. As a result, the surplus was $ 2.38 million, and it has suffered losses in both the fiscal years of 2025 and 2024 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. (b) Nature of the 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, Shouguang Hengde Salt Industry Co. Ltd (“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”). Daying County Haoyuan Chemical Company Limited (“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 (b)(iii)). On March 11, 2020, the World Health Organization (WHO) officially declared COVID-19 a pandemic. The duration and intensity of the impact of the COVID-19 and resulting disruption to the Company’s operations and financial position is uncertain. While our operations are currently not materially affected, it is unknown whether or how they may be affected if such a pandemic persists for an extended period. While not yet quantifiable, the Company believes this situation did not have a material adverse impact on its operating results in the year of 2021 and will continue to assess the financial impact. The virus outbreak slightly delayed the commencement of the operations for Factory No.1, No.4, No.7, No.9. We received approval to open factory No. 8 in 2022. COVID has still delayed the approval for factories N0.2 and No.10. (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, 2019to 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 thelocal 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 midMarch 2020 and commercial production on April 3, 2020 and its Factories No. 4 and No. 9 commenced commercial production on May6, 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 still waiting for governmental approval for Factories No. 2 and No. 10. To our knowledge, the government is currently completing its planning process for all mining areas including that for prevention of flood. As a result, we may be required to make some modifications to our current wells and aqueducts prior to commencement of operations of these factories to satisfy the local government's requirements. 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. (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 was because the two plants were located in a residential area and their production activities impacted the living environment of the residents. This was 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 did not comply with the requirements of the safety and environmental protection regulations were 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 COVID restrictions and resulting national and international supply chain issues as well as permitting issues have caused delays in receiving some previously ordered machinery and equipment. The Company is working with its existing suppliers and may identify new suppliers so that it can complete construction of its factory based on accelerated delivery. Currently, the Company can not estimate when construction will be completed and production can begin. The Company estimates 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, purchase of plant and equipment and construction costs and installation costs incurred for the new chemical factory in the amount of $ 45,584,344 and $ 45,584,344 , which were recorded in the Property, plant and equipment in the consolidated balance sheets as of March 31, 2025 and December 31, 2024. The Company suspended the construction in the chemical factory until it decide what products can be produced most profitably. (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. (c) 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. (d) 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. (e) Allowance for Doubtful Accounts We make estimates of the uncollectability of accounts receivable, especially analyzing accounts receivable and historical bad debts, customer concentrations, customer credit-worthiness, current economic trends and changes in customer payment terms, when evaluating the adequacy of the allowance for doubtful accounts. Credit evaluations are undertaken for all major sale transactions before shipment is authorized. On a quarterly basis, we evaluate aged items in the accounts receivable aging report and provide an allowance in an amount we deem adequate for doubtful accounts. If management were to make different judgments or utilize different estimates, material differences in the amount of our reported operating expenses could result. (f) 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 $ 8,523,045 and $ 10,075,162 with these institutions as of March 31, 2025 and December 31, 2024, respectively. The Company has not experienced any losses in such accounts in the PRC. 6 GULF RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2025 (Expressed in U.S. dollars) (UNAUDITED) NOTE 1 – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – Continued (g) 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 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 5 Furniture, fixtures and equipment 3 - 8 Property, plant and equipment under the capital lease are depreciated over their expected useful lives on the same basis as owned assets, or where shorter, the term of the lease. 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. (h) 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 condensed consolidated statement of income on an accrual basis when they are due. The Company’s contributions totaled $ 173,485 and $ 123,123 for the three-month periods ended March 31, 2025 and 2024, respectively. (i) 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 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. Revenue from contracts with customers is disaggregated in Note 17. 7 GULF RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2025 (Expressed in U.S. dollars) (UNAUDITED) NOTE 1 – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – Continued (j) 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 three-month period ended March 31, 2025 and 2024, the Company determined that there were no events or circumstances indicating possible additional impairment of its long-lived assets. (k) Basic and Diluted Net Income 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 three-month periods ended March 31, 2025 and 2024, respectively. Because the Company reported a net loss for the three-month periods ended March 31, 2025 and 2024, common stock equivalents including stock options and warrants were anti-dilutive, therefore the amounts reported for basic and diluted loss per share were the same. 8 GULF RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2025 (Expressed in U.S. dollars) (UNAUDITED) NOTE 1 – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – Continued (l) 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 “$”). 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. The statement of income and comprehensive income 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 income 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. (m) Foreign Operations All of the Company’s operations and assets are located in PRC. The Company may be adversely affected by possible political or economic events in this country. The effect of these factors cannot be accurately predicted. (n) 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. (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 does not recognize operating lease ROU assets and liabilities arising from lease arrangements with lease term of twelve months or less. 9 GULF RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2025 (Expressed in U.S. dollars) (UNAUDITED) NOTE 1 – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – Continued (p) Stock-based Compensation Stock-based awards issued to employees are recorded at their fair values estimated at grant date using the Black-Scholes model and the portion that is ultimately expected to vest is recognized as compensation cost over the requisite service period. Consistent with the accounting requirement for employee stock-based awards, nonemployee stock-based awards are measured at the grant-date fair value of the equity instruments that the Company 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. (q) 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 could be reasonably estimable. Such estimates may be based on advice from third parties or on management’s judgment, as appropriate. Revisions to accruals are reflected in earnings (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 . (r) Income Tax 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 profit (loss). (s) New Accounting Pronouncements 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. Recent accounting pronouncements adopted There were no recent accounting pronouncements adopted during the three months ended March 31, 2025. 10 GULF RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2025 (Expressed in U.S. dollars) (UNAUDITED) NOTE 1 – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – Continued Recently Issued Accounting Pronouncements Not Yet 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 is currently evaluating the effect of this on the condensed consolidated financial statements and related disclosure. (t) 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 March 31, 2025 and 2024. NOTE 2 – ACCOUNTS RECEIVABLE, NET March 31, 2025 December 31, 2024 Accounts receivable $ 2,143,976 $ 594,234 Allowance for doubtful debt ( 29,754 ) ( 29,711 ) Accounts receivable, net $ 2,114,222 $ 564,523 The overall accounts receivable balance as of March 31, 2025 increased by $ 1,549,699 compared to those of December 31, 2024. 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 March 31, 2025 December 31, 2024 Raw materials $ 41,865 $ 10,610 Finished goods 413,194 1,545,521 Less: impairment — ( 1,240,760 ) Inventory, net $ 455,059 $ 315,371 The Company recorded impairment charges for slow moving inventory in the amounts of $ nil and $ 989,035 for the years ended March 31, 2025 and December 31, 2024. NOTE 4 – PREPAYMENTS AND DEPOSITS, NET Prepayments and deposits consisted of the following: Prepayments and Deposits, Net - Schedule of Prepayments and Deposits, Net March 31, 2025 December 31, 2024 Prepayments and deposits $ 8,043,985 $ 8,025,110 Provision for impairment ( 1,650,824 ) ( 1,648,454 ) Prepayments and deposits, net $ 6,393,161 $ 6,376,656 As of March 31, 2025 , the Company recorded the total prepayments and deposits, and the provision for impairment was $ 6,393,161 . 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 8. In December 2017, the Company paid a one lump sum upfront amount of $ 8,859,000 for a 50-year lease of a parcel of land at Bohai Marine Fine Chemical Industrial Park (“Bohai”) for the new chemical factory under construction. 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 March 31 2025 and December 31, 2024. As of March 31, 2025, the prepaid land lease increased to $ 9,217,790 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. 11 GULF RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2025 (Expressed in U.S. dollars) (UNAUDITED) 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 March 31, 2025 December 31, 2024 At cost: Mineral rights $ 2,686,739 $ 2,682,882 Buildings 68,575,318 68,476,868 Plant and machinery 144,046,220 143,839,420 Furniture, fixtures and office equipment 1,437,153 1,435,090 Motor vehicles 124,394 124,215 Construction in process 10,170,243 10,155,642 Total 227,040,067 226,714,117 Less: Accumulated depreciation and amortization ( 87,944,670 ) ( 83,826,560 ) Impairment ( 6,754,076 ) ( 6,744,380 ) Net book value $ 132,341,321 $ 136,143,177 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 $ 49,444,325 and $ 50,219,026 as at March 31, 2025 and December 31, 2024, respectively. During the three-month period ended March 31, 2025, depreciation and amortization expense totaled $ 3,999,026 , of which $ 2,469,771 , $ 783,472 and $ 745,783 were recorded in direct labor and factory overheads incurred during plant shutdown, administrative expenses and cost of net revenue, respectively. During the three-month period ended March 31, 2024, depreciation and amortization expense totaled $ 4,729,242 , of which $ 3,106,788 , $ 201,504 and $ 1,420,950 were recorded in direct labor and factory overheads incurred during plant shutdown, administrative expenses and cost of net revenue, respectively. NOTE 7 – FINANCE LEASE RIGHT-OF-USE ASSETS Property, plant and equipment under finance lease, net consist of the following: Finance Lease Right-Of-Use Assets - Schedule of Property, Plant and Equipment Under Finance Leases March 31, 2025 December 31, 2024 At cost: Buildings Buildings $ 208,772 $ 208,473 Total 208,772 208,473 Less: Accumulated depreciation and amortization ( 133,051 ) ( 131,605 ) Net book value $ 75,721 $ 76,868 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 three-month period ended March 31, 2025, depreciation and amortization expense totaled $ 1,258 , which was recorded in direct labor and factory overheads incurred during plant shutdown. During the three-month period ended March 31, 2024, depreciation and amortization expense totaled $ 1,270 , which was recorded in direct labor and factory overheads incurred during plant shutdown. 12 GULF RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2025 (Expressed in U.S. dollars) (UNAUDITED) 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 $ 7,190,872 as of March 31, 2025. As of March 31, 2025, the total operating lease ROU assets was $ 6,050,429 . The total operating lease cost for the three-month period ended March 31, 2025 and 2024 was $ 217,801 and $ 217,345 . 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 March 31, December 31, 2025 2024 Accounts payable $ 390,250 $ 30,003 Salary payable 231,442 323,655 Social security insurance contribution payable 286,083 169,858 Other payable-related party — — Accrued expense for construction 5,317,674 5,310,040 Accrued expense-others 5,431,216 8,489,902 Total $ 11,656,665 $ 14,323,458 Accrued expense-others mainly include the purchase of the unpaid portion of salt Pans of $ 4,788,641 , and others. 13 GULF RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2025 (Expressed in U.S. dollars) (UNAUDITED) 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, who was the Chairman of the Company then, had a 99 % equity interest in the Seller. 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 $ 86,911 for five years from January 1, 2023 to December 31, 2027 . The expense associated with this agreement for the three months ended March 31, 2025 and 2024 was approximately $ 21,728 and $ 21,982 . NOTE 10 – RELATED PARTY TRANSACTIONS – Continued a) Related parties Name of related parties Position Yang Ming Chairman Of the Board Liu XiaoBin Chief Executive Officer Li Min Chief Financial Officer Miao NaiHui Chief Operating Officer Chengdu Dianjinshi Culture media Co., LTD Affiliated with company officers b) March 31, December 31, 2025 2024 Amount due to related parties: Yang Ming $ 410,940 $ 410,350 Liu XiaoBin 887,214 887,214 Li Min 651,502 636,264 Miao NaiHui 636,766 650,980 Total $ 2,586,422 $ 2,584,808 c) March 31, 2025 December 31, 2024 Due from related party: Chengdu Dianjinshi Culture media Co., LTD $ 25,076 $ 25,040 Total $ 25,076 $ 25,040 NOTE 11 – TAXES PAYABLE March 31, December 31, 2025 2024 Land use tax payable 19,345 19,318 Value added tax and other taxes payable 257,171 94,681 Total $ 276,516 $ 113,999 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 March 31, December 31, Interest rate 2025 2024 Total finance lease liability 6.7 % $ 1,317,183 $ 1,293,608 Less: Current portion ( 239,771 ) ( 217,743 ) Finance lease liability, net of current portion $ 1,077,412 $ 1,075,865 Interest expenses from a finance lease liability amounted to $ 21,722 and $ 24,830 for the three-month periods ended March 31, 2025 and 2024, respectively, were charged to the condensed consolidated statement of loss. The components of operating lease liabilities as follows: Imputed March 31, December 31, Interest rate 2025 2024 Total operating lease liabilities 4.89 % $ 7,308,326 $ 7,433,452 Less: Current portion ( 498,483 ) ( 491,850 ) Operating lease liabilities, net of current portion $ 6,809,843 $ 6,941,602 The weighted average remaining operating lease term on March 31, 2025 was 17 years and the weighted average discount rates 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 payment in the three-months ended March 31, 2025 and 2024 was $ 225,321 and $ 226,259 . Maturities of lease liabilities were as follows: Lease Liabilities - Finance and Operating Lease - Schedule of Financing and Operating Lease Maturities Financial lease Operating Lease Payable within: the next 12 months $ 261,485 $ 822,692 the next 13 to 24 months 261,485 828,555 the next 25 to 36 months 261,485 834,455 the next 37 to 48 months 261,485 840,733 the next 49 to 60 months 261,485 847,059 thereafter 261,485 8,063,578 Total 1,568,910 12,237,072 Less: Amount representing interest ( 251,727 ) ( 4,928,746 ) Present value of net minimum lease payments 1,317,183 $ 7,308,326 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. 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 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. During the three months ended March 31, 2025, the Company granted in the aggregate, 265,000 restricted shares of common stock on March 21, 2025 to a consultant, the company's directors, officers and an employee as compensation for services rendered for the current year. The restricted shares award were granted under the 2019 Omnibus Equity Incentive Plan and vested immediately. The fair value of the award on the date of grant was $ 196,100 which was expensed in full during the three months period ended March 31, 2025. 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 Common Reserve Funds 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 March 31, 2025, the Company’s statutory provident fund stood at $ 26.67 million. 14 GULF RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2025 (Expressed in U.S. dollars) (UNAUDITED) NOTE 14 – TREASURY STOCK As of March 31, 2025 and December 31, 2024, 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 March 31, 2025, the number of shares of the Company’s common stock available for grant of stock options and issuance under the 2019 Plan was 1,801 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 three months ended March 31, 2025 and 2024, total compensation costs for options issued recorded in the consolidated statement of loss were $ 0 . There were no related tax benefits as a full valuation allowance was recorded in the three months ended March 31, 2025 and 2024. The following table summarizes all Company stock option transactions between January 1, 2025 and March 31, 2025. 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, 2025 — $ — $ — Granted during the period — — — Exercised during the period — — — Expired during the period — $ — $ — Balance, March 31, 2025 — $ — $ — Stock Options and Warrants Outstanding and Exercisable Weighted Average Remaining Outstanding at March 31, 2025 Range of Exercise Prices Contractual Life (Years) Outstanding and exercisable — — — All options exercisable and outstanding at March 31, 2025 are fully vested. As of March 31, 2025 there was no unrecognized compensation cost related to outstanding stock options, The aggregate intrinsic value of options outstanding and exercisable as of March 31, 2025 and 2024 was $ 0 . 15 GULF RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2025 (Expressed in U.S. dollars) (UNAUDITED) NOTE 16 – 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 three-month periods ended March 31, 2025 and 2024, 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 three-month periods ended March 31, 2025 and 2024. (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 three-month periods ended March 31, 2025 and 2024. The applicable statutory tax rates for the three-month periods ended March 31, 2025 and 2024 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, SYCI, DCHC, and SHSI are wholly foreign-owned enterprises (“FIE”) 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 Cai Shui [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 March 31, 2025 and December 31, 2024, the accumulated distributable earnings under the Generally Accepted Accounting Principles (GAAP”) of PRC that are subject to WHT are $ 35,315,678 and $ 40,524,183 , 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 March 31, 2025 and December 31, 2024, 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 March 31, 2025 and December 31, 2024, the unrecognized WHT are $ 816,956 and $ 1,078,743 , 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 2019, 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. The components of the provision for income tax benefit (expense) from continuing operations are: Income Taxes - Schedule of Components of Income Tax Expense Benefit Three-Month Period Ended March 31, 2025 2024 Current taxes – PRC $ — $ — Deferred tax – PRC entities — ( 1,270,060 ) Total Income tax (expenses) benefits $ — $ ( 1,270,060 ) Significant components of the Company’s deferred tax assets and liabilities at March 31, 2025 and December 31, 2024 are as follows: Income Taxes - Schedule of Deferred Tax Assets and Liabilities March 31, December 31, 2025 2024 Deferred tax liabilities $ — $ — Deferred tax assets: Exploration costs 1,734,410 1,731,920 Allowance 420,144 729,731 Impairment of property plant and equipment 1,688,519 1,686,095 PRC tax losses 10,455,188 9,125,871 US federal net operating loss 1,720,637 1,661,464 Total deferred tax assets 16,018,898 14,935,081 Valuation allowance ( 16,018,898 ) ( 14,935,081 ) Net deferred tax asset $ — $ — 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 March 31, 2025 and 2024, valuation allowances were mainly provided against deferred tax assets caused by exploration costs 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 three-month period ended March 31, 2025 is $ 1,083,817 . The increase in valuation allowance for the three-month period ended March 31, 2024 is $ 14,473 . There were no unrecognized tax benefits and accrual for uncertain tax positions as of March 31, 2025 and December 31, 2024 and no amounts accrued for penalties and interest for the three months ended March 31, 2025 and 2024. NOTE 17 – BUSINESS SEGMENTS The Company has four reportable segments: bromine, crude salt, chemical products and natural gas. The reportable segments are consistent with how management views the markets served by the Company and the financial information that is reviewed by its chief operating decision maker. An 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 (income) 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. Three-Month Period Ended March 31, 2025 Operating Segment Bromine * Crude Salt * Chemical Products Natural Gas Segment Total Corporate Corporate Total Net revenue (external customers) $ 1,481,869 $ 122,578 $ — $ — $ 1,604,447 $ — $ 1,604,447 Net revenue (intersegment) — — — — — — — Loss from operations before income expense ( 3,370,836 ) ( 554,062 ) ( 358,629 ) ( 44,844 ) ( 4,328,371 ) ( 281,836 ) ( 4,610,207 ) Income tax (expense) benefit — — — — — — — Loss from operations after income taxes(expense) benefit ( 3,370,836 ) ( 554,062 ) ( 358,629 ) ( 44,844 ) ( 4,328,371 ) ( 281,836 ) ( 4,610,207 ) Total assets 79,995,961 46,300,814 38,410,493 929,031 165,636,299 93,640 165,729,939 Depreciation and amortization 3,258,222 644,677 67,663 32,962 4,003,524 — 4,003,524 Capital expenditures — — — — — — — Three-Month Period Ended March 31, 2024 Bromine * Crude Salt * Chemical Products Natural Gas Segment Total Corporate Total Net revenue (external customers) $ 1,146,197 $ 116,671 $ — $ 44,194 $ 1,307,062 $ — $ 1,307,062 Net revenue (intersegment) — — — — — — — Loss from operations before income expense ( 4,782,815 ) ( 75,092 ) ( 314,824 ) ( 27,709 ) ( 5,200,440 ) ( 68,979 ) ( 5,269,419 ) Income tax (expense) benefit 1,198,071 — 71,989 — 1,270,060 — 1,270,060 Loss from operations after income taxes(expense) benefit ( 3,584,744 ) ( 75,092 ) ( 242,835 ) ( 27,709 ) ( 3,930,380 ) ( 68,979 ) ( 3,999,359 ) Total assets 100,370,933 11,517,576 107,776,242 1,912,377 221,577,128 250,287 221,827,415 Depreciation and amortization 4,449,468 181,891 68,357 33,759 4,733,475 — 4,733,475 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. 16 GULF RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2025 (Expressed in U.S. dollars) (UNAUDITED) NOTE 17 – BUSINESS SEGMENTS – Continued Three-Month Period Ended March 31, Reconciliations 2025 2024 Total segment operating loss $ ( 4,328,371 ) $ ( 5,200,440 ) Corporate costs ( 281,836 ) ( 68,979 ) Unrealized gain (loss) on translation of intercompany balance — — Loss from operations ( 4,610,207 ) ( 5,269,419 ) Other income ( 19,293 ) 11,230 Other Expenses — ( 4,003 ) Loss before taxes $ ( 4,629,500 ) $ ( 5,262,192 ) The following table shows the major customers (10% or more) for the three-month period ended March 31, 2025. Business Segments - Schedule of Revenue by Major Customers Number Customer Bromine (000’s) Crude Salt (000’s) Chemical Products (000’s) Total Revenue (000’s) Percentage of Total Revenue (%) 1 Shandong Morui Chemical Company Limited $ 196 $ 58 $ — $ 254 15.8 % 2 Shandong Brother Technology Limited 193 36 — 229 14.3 % 3 Shouguang Weidong Chemical Company Limited 197 28 — 225 14.0 % 4 Shandong Shouguangshen Runfa Marine Chemical Company Limited $ 195 $ — $ — $ 195 12.1 % The following table shows the major customers (10% or more) for the three-month period ended March 31, 2024. Number Customer Bromine (000’s) Crude Salt (000’s) Chemical Products (000’s) Total Revenue (000’s) Percentage of Total Revenue (%) 1 Shandong Morui Chemical Company Limited $ 134 $ 63 $ — $ 197 15.1 % 2 Shouguang Weidong Chemical Company Limited 135 26 — 161 12.3 % 3 Shandong Brother Technology Limited 133 28 — 161 12.3 % 4 Shandong Shouguangshen Runfa Marine Chemical Company Limited $ 135 $ — $ — $ 135 10.3 % NOTE 18 – CUSTOMER CONCENTRATION Revenue Customer Concentration Product During the three-month period ended March 31, 2025, the Company sold 62.4 % of its products to its top five customers. As of March 31, 2025, amounts due from these customers were $ 1,462,756 . During the three-month period ended March 31, 2024, the Company sold 55 % of its products to its top five customers. As of March 31, 2024, amounts due from these customers were $ 2,803,534 . NOTE 19 – MAJOR SUPPLIERS Product Concentration Cost of Goods During the three-month period ended March 31, 2025, the Company purchased 100 % of its raw materials from its top three suppliers. As of March 31, 2025, amounts due to those suppliers were $ 390,250 . During the three-month period ended March 31, 2024, the Company purchased 100 % of its raw materials from its top three suppliers. As of March 31, 2024, amounts due to those suppliers were $ 207,431 . NOTE 20 – 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 March 31, 2025. NOTE 21 - SUBSEQUENT EVENT Not Applicable . 17