UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

	For the quarterly period ended September 30, ~~2017~~2023

	Or

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

	For the transition period from _________ to _________

Commission File Number: 001-34499

GULF RESOURCES, INC.

(Exact name of registrant as specified in its charter)

Nevada		13-3637458
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

Level 11,Vegetable Building, Industrial Park of the East City, Shouguang City, Shandong, China		262700
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: ~~+86~~+86 (536) ~~567 0008~~567-0008

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol (s)	Name of each exchange on which registered
Common Stock, $0.0005 par value	GURE	NASDAQ Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically, ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files).

Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and ~~“smaller reporting~~“emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐	Accelerated filer ☐
Non-accelerated filer ☒	Smaller reporting company ☒
	Emerging Growth Company ☐
~~Non-accelerated filer (Do not check if a smaller reporting company) ☐~~	~~Smaller reporting company ☒~~

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No ☒

As of November ~~8, 2017,~~20, 2023, the registrant had outstanding ~~46,803,791~~10,431,924 shares of common stock.

Table of Contents

Part I – Financial Information
Item 1. Financial Statements	1
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	2017
Item 3. Quantitative and Qualitative Disclosures about Market Risk	4028
Item 4. Controls and Procedures	4029
Part II – Other Information
Item 1. Legal Proceedings	4029
Item 1A. Risk Factors	4130
Item 2. Unregistered ~~Shares~~Sale of Equity Securities, ~~and~~ Use of Proceeds and Issuer Purchases of Equity Securities.	4130
Item 3. Defaults Upon Senior Securities	4130
Item 4. Mine Safety Disclosures	4130
Item 5. Other Information	4130
Item 6. Exhibits	4130
Signatures	4231

~~Table of Contents~~

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

GULF RESOURCES, INC.

AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Expressed in U.S. dollars)

	September 30, 2017 Unaudited			December 31, 2016 Audited			September 30, 2023 Unaudited			December 31, 2022 Audited
Current Assets
Cash	$	193,385,686		$	163,884,574		$	103,774,977		$	108,226,214
Accounts receivable		71,792,364			51,835,218			2,150,118			5,363,166
Inventories, net		2,431,079			5,881,681			874,820			1,598,572
Prepayments and deposits		575,013			117,338			8,135,608			4,236,782
Prepaid land leases		381,588			47,255
Other receivable		2,066			1,424			2,571			637
Total Current Assets		268,567,796			221,767,490			114,938,094			119,425,371
Non-Current Assets
Property, plant and equipment, net		97,623,268			108,731,126			140,872,750			149,916,766
Property, plant and equipment under capital leases, net		345,705			554,257
Finance lease right-of use assets								155,269			163,868
Operating lease right-of-use assets								7,668,554			8,098,427
Prepaid land leases, net of current portion		4,796,415			4,754,169			9,254,124			9,508,001
Deferred tax assets		2,315,993			2,215,772			6,004,086			5,318,909
Goodwill		28,920,005			27,668,539
Total non-current assets		134,001,386			143,923,863			163,954,783			173,005,971
Total Assets	$	402,569,182		$	365,691,353		$	278,892,877		$	292,431,342

Liabilities and Stockholders’ Equity
Current Liabilities
Accounts payable and accrued expenses	$	4,342,615		$	8,682,318
Retention payable		—			733,869
Capital lease obligation, current portion		160,027			187,678
Taxes payable		2,960,147			4,341,331
Payable and accrued expenses							$	6,151,025		$	7,823,722
Taxes payable-current								521,826			699,563
Amount due to a related party								2,572,720			2,605,694
Finance lease liability, current portion								188,750			213,346
Operating lease liabilities, current portion								436,382			433,440
Total Current Liabilities		7,462,789			13,945,196			9,870,703			11,775,765
Non-Current Liabilities
Capital lease obligation, net of current portion		2,268,315			2,284,959
Finance lease liability, net of current portion								1,254,618			1,461,721
Operating lease liabilities, net of current portion								7,044,224			7,575,651
Total Non-Current Liabilities								8,298,842			9,037,372
Total Liabilities	$	9,731,104		$	16,230,155		$	18,169,545		$	20,813,137

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; 47,052,940 and 47,052,940 shares issued; and 46,803,791 and 46,793,791 shares outstanding as of September 30, 2017 and December 31, 2016, respectively		23,525			23,525
Treasury stock; 249,149 and 259,149 shares as of September 30, 2017 and December 31, 2016 at cost		(554,870	)		(577,141	)
PREFERRED STOCK; $0.001 par value; 1,000,000 shares authorized; none outstanding							$	—		$	—
COMMON STOCK; $0.0005 par value; 80,000,000 shares authorized; 10,717,754 shares issued; and 10,431,924 shares outstanding as of September 30, 2023 and December 31, 2022, respectively								24,376			24,476
Treasury stock; 285,830 shares as of September 30, 2023 and December 31, 2022 at cost								(1,372,673	)		(1,372,673	)
Additional paid-in capital		94,509,908			94,156,679			101,237,059			101,237,059
Retained earnings unappropriated		271,367,728			248,941,696			155,074,175			158,089,535
Retained earnings appropriated		25,737,372			22,910,966			26,667,097			26,667,097
Accumulated other comprehensive income/(loss)		1,754,415			(15,994,527	)
Accumulated other comprehensive loss								(20,906,802	)		(13,027,289	)
Total Stockholders’ Equity		392,838,078			349,461,198			260,723,332			271,618,205
Total Liabilities and Stockholders’ Equity	$	402,569,182		$	365,691,353		$	278,892,877		$	292,431,342

See accompanying notes to the condensed consolidated financial statements.

~~Table of Contents~~

GULF RESOURCES, INC.

AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF ~~INCOME~~LOSS AND COMPREHENSIVE ~~INCOME~~LOSS

(Expressed in U.S. dollars)

(UNAUDITED)

Three-Month Period Ended September 30, Nine-Month Period Ended September 30,
2017 2016 2017 2016

NET REVENUE
Net revenue $ 23,840,391 $ 38,811,622 $ 104,160,873 $ 120,907,839

OPERATING INCOME (EXPENSE)
Cost of net revenue (14,518,439 ) (23,107,921 ) (61,664,044 ) (76,184,822 )
Sales, marketing and other operating expenses (65,599 ) (83,087 ) (242,045 ) (269,357 )
Research and development cost (42,074 ) (68,115 ) (169,246 ) (198,330 )
Write-off/Impairment on property, plant and equipment — (90,395 ) — (90,395 )
General and administrative expenses (4,451,027 ) (1,613,933 ) (8,236,430 ) (4,539,845 )
Other operating income 72,000 108,029 281,613 328,550
(19,005,139 ) (24,855,422 ) (70,030,152 ) (80,954,199 )

INCOME FROM OPERATIONS 4,835,252 13,956,200 34,130,721 39,953,640

OTHER INCOME (EXPENSE)
Interest expense (40,092 ) (42,012 ) (124,068 ) (134,150 )
Interest income 139,801 120,054 398,382 356,828
INCOME BEFORE TAXES 4,934,961 14,034,242 34,405,035 40,176,318

INCOME TAXES (1,509,321 ) (3,518,529 ) (9,152,597 ) (9,996,622 )
NET INCOME $ 3,425,640 $ 10,515,713 $ 25,252,438 $ 30,179,696

COMPREHENSIVE INCOME:
NET INCOME $ 3,425,640 $ 10,515,713 $ 25,252,438 $ 30,179,696
OTHER COMPREHENSIVE INCOME (LOSS)
- Foreign currency translation adjustments 8,450,433 (2,637,763 ) 17,748,942 (10,505,475 )
COMPREHENSIVE INCOME $ 11,876,073 $ 7,877,950 $ 43,001,380 $ 19,674,221

EARNINGS PER SHARE:
BASIC $ 0.07 $ 0.23 $ 0.54 $ 0.65
DILUTED $ 0.07 $ 0.23 $ 0.54 $ 0.65

WEIGHTED AVERAGE NUMBER OF SHARES:

BASIC 46,794,443 46,301,217 46,794,011 46,106,194
DILUTED 46,897,995 46,309,250 46,833,030 46,560,937


	Three-Month Period Ended September 30,						Nine -Month Period Ended September 30,
	2023			2022			2023			2022

NET REVENUE
Net revenue	$	5,865,615		$	22,862,795		$	23,173,404		$	47,505,246

OPERATING INCOME (EXPENSE)
Cost of net revenue		(6,373,902	)		(8,405,694	)		(20,464,418	)		(21,056,782	)
Sales, marketing and other operating expenses		(14,428	)		(19,681	)		(42,850	)		(47,086	)
Direct labor and factory overheads incurred during plant shutdown		(1,007,689	)		(1,910,318	)		(4,471,954	)		(6,022,206	)
General and administrative expenses		(762,884	)		(584,473	)		(2,266,260	)		(3,384,063	)
Other operating income (loss)		—			(37	)		60,134			(8,441	)
Total operating income (expense)		(8,158,903	)		(10,920,203	)		(27,185,348	)		(30,518,578	)

INCOME(LOSS) FROM OPERATIONS		(2,293,288	)		11,942,592			(4,011,944	)		16,986,668

OTHER INCOME (EXPENSE)
Interest expense		(23,791	)		(27,715	)		(81,322	)		(94,703	)
Interest income		57,758			63,470			201,127			213,546
Other (income) expenses		—			—			—			—
INCOME(LOSS) BEFORE TAXES		(2,259,321	)		11,978,347			(3,892,139	)		17,105,511

INCOME TAX EXPENSE		483,524			(3,010,967	)		876,779			(4,356,283	)
NET INCOME(LOSS)	$	(1,775,797	)	$	8,967,380		$	(3,015,360	)	$	12,749,228

COMPREHENSIVE LOSS:
NET INCOME(LOSS)	$	(1,775,797	)	$	8,967,380		$	(3,015,360	)	$	12,749,228
OTHER COMPREHENSIVE LOSS
- Foreign currency translation adjustments		2,247,978			(15,930,276	)		(7,879,513	)		(30,774,686	)
COMPREHENSIVE INCOME(LOSS)	$	472,181		$	(6,962,896	)	$	(10,894,873	)	$	(18,025,458	)

INCOME(LOSS) PER SHARE:
BASIC AND DILUTED	$	(0.17	)	$	0.86		$	(0.29	)	$	1.22

WEIGHTED AVERAGE NUMBER OF SHARES:

BASIC AND DILUTED		10,431,924			10,471,924			10,431,924			10,471,924

See accompanying notes to the condensed consolidated financial statements.

~~Table of Contents~~

GULF RESOURCES, INC.

AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

NINE-MONTH PERIOD ENDED SEPTEMBER 30, ~~2017~~2023

(Expressed in U.S. dollars)


	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 JUNE 30, 2023 (Unaudited)		10,717,754		10,431,924		285,830		24,476		(1,372,673	)		101,237,059	$	156,849,972		$	26,667,097	$	(23,154,780	)	$	260,251,151
Restricted shares		—		—		—		—		—			—		—			—		—			—
Translation adjustment		—		—		—		—		—			—		—			—		2,247,978			2,247,978
Net income for three-month period ended September 30, 2023		—		—		—		—		—			—		(1,775,797	)		—		—			(1,775,797	)
BALANCE AT SEPTEMBER 30, 2023 (Unaudited)		10,717,754		10,431,924		285,830		24,476		(1,372,673	)		101,237,059	$	155,074,175		$	26,667,097	$	(20,906,802	)	$	260,723,332

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, 2016
Audited
47,052,940 46,793,791 259,149 $ 23,525 $ (577,141 ) $ 94,156,679 $ 248,941,696 $ 22,910,966 $ (15,994,527 ) $ 349,461,198
Translation adjustment — — — — — — — 17,748,942 17,748,942
Common stock
issued
— 10,000 (10,000 — 22,271 (4,471 ) — — — 17,800
Issuance of stock options to employees and directors — — — — — 357,700 — — — 357,700
Net income for nine-month period ended September 30, 2017 — — — — — — 25,252,438 — — 25,252,438
Transfer to statutory common reserve fund — — — — — — (2,826,406 ) 2,826,406 — —
BALANCE AT SEPTEMBER 30, 2017
Unaudited
47,052,940 46,803,791 249,149 $ 23,525 $ (554,870 ) $ 94,509,908 $ 271,367,728 $ 25,737,372 $ 1,754,415 $ 392,838,078

	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 JUNE 30, 2022 (Unaudited)		10,517,754		10,471,924		45,830	$	24,376	$	(510,329	)	$	100,569,159	$	154,245,486	$	24,233,544	$	(2,985,581	)	$	275,576,655
Restricted shares		—		—		—		—		—			—		—		—		—			—
Translation adjustment		—		—		—		—		—			—		—		—		(15,930,276	)		(15,930,276	)
Net income for three-month period ended September 30, 2022		—		—		—		—		—			—		8,967,380		—		—			8,967,380
BALANCE AT SEPTEMBER 30, 2022 (Unaudited)		10,517,754		10,471,924		45,830	$	24,376	$	(510,329	)	$	100,569,159	$	163,212,866	$	24,233,544	$	(18,915,857	)	$	268,613,759

	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, 2022 (Audited)		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		—		—		—		—		—			—		—			—		—			—
Translation adjustment		—		—		—		—		—			—		—			—		(7,879,513	)		(7,879,513	)
Net income for nine-month period ended September 30, 2023		—		—		—		—		—			—		(3,015,360	)		—		—			(3,015,360	)
BALANCE AT SEPTEMBER 30, 2023 (Unaudited)		10,717,754		10,431,924		285,830		24,476		(1,372,673	)		101,237,059	$	155,074,175		$	26,667,097	$	(20,906,802	)	$	260,723,332

	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, 2021 (Audited)		10,517,754		10,471,924		45,830	$	24,376	$	(510,329	)	$	100,569,159	$	150,463,638	$	24,233,544	$	11,858,829		$	286,639,217
Restricted shares		—		—		—		—		—			—		—		—		—			—
Translation adjustment		—		—		—		—		—			—		—		—		(30,774,686	)		(30,774,686	)
Net income for nine-month period ended September 30, 2022		—		—		—		—		—			—		12,749,228		—		—			12,749,228
BALANCE AT SEPTEMBER 30, 2022 (Unaudited)		10,517,754		10,471,924		45,830	$	24,376	$	(510,329	)	$	100,569,159	$	163,212,866	$	24,233,544	$	(18,915,857	)	$	268,613,759

Common Stock

Treasury Stock

Additional Paid-In Capital

Retained Earnings Unappropriated

Accumulated Other Comprehensive Income (Loss)

See accompanying notes to the condensed consolidated financial statements.

~~Table of Contents~~

GULF RESOURCES, INC.

AND SUBSIDIARIES

~~CONDENED~~CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Expressed in U.S. dollars)

(UNAUDITED)

Nine-Month Period Ended
September 30,
2017 2016
　　
CASH FLOWS FROM OPERATING ACTIVITIES 　　
Net income $ 25,252,438 $ 30,179,696
Adjustments to reconcile net income to net cash provided by operating activities:
Interest on capital lease obligation 123,795 133,504
Amortization of prepaid land leases 717,969 514,455
Depreciation and amortization 16,042,003 19,031,650
Write-off/Impairment loss on property, plant and equipment — 90,395
Unrealized translation difference 1,140,363 (729,764 )
Stock-based compensation expense-options 357,700 17,400
Shares issued from treasury stock for services 17,800 15,000
Changes in assets and liabilities:
Accounts receivable (16,557,825 ) (23,296,361 )
Inventories 3,668,582 1,219,588
Prepayments and deposits (9,126 ) (20,850 )
Other receivable (580 ) —
Accounts payable and accrued expenses (4,866,247 ) 941,315
Retention payable (739,329 ) (356,348 )
Taxes payable (1,670,121 ) 1,474,602
Net cash provided by operating activities 23,477,422 29,214,282
��
CASH FLOWS USED IN INVESTING ACTIVITIES
Payment land leases (859,219 ) (673,934 )
Purchase of property, plant and equipment (623,735 ) (16,749,192 )
Net cash used in investing activities (1,482,954 ) (17,423,126 )

CASH FLOWS USED IN FINANCING ACTIVITIES
Repayment of capital lease obligation (273,873 ) (287,387 )
Net cash used in financing activities (273,387 ) (287,387 )

EFFECTS OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS 7,780,517 (4,026,574 )
NET INCREASE IN CASH AND CASH EQUIVALENTS 29,501,112 7,477,195
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 163,884,574 133,606,392
CASH AND CASH EQUIVALENTS - END OF PERIOD $ 193,385,686 $ 141,083,587

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the periods for:
Income taxes $ 9,590,640 $ 8,740,519
SUPPLEMENTAL DISCLOSURE OF NON-CASH FLOW INVESTING

AND FINANCING ACTIVITIES

Par value of common stock issued upon cashless exercise of options $ — $ 386


	Nine-Month Period Ended September 30,
	2023			2022

CASH FLOWS FROM OPERATING ACTIVITIES
Net income(loss)	$	(3,015,360	)	$	12,749,228
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Amortization on capital lease		80,252			93,630
Depreciation and amortization		15,385,624			16,259,285
Unrealized exchange gain on translation of inter-company balances		165,444			45,195
Deferred tax asset		(1,002,511	)		3,809,038
Common stock issued for services		—			—
Issuance of stock options to employee		—			—
Changes in assets and liabilities:
Accounts receivable		3,132,796			3,451,924
Inventories		718,994			27,073
Prepayments and deposits		(3,947,311	)		324,685
Other receivables		—			—
Accounts and Other payable and accrued expenses		(1,503,845	)		1,553,583
Retention payable		—			—
Taxes payable		(229,600	)		(365,255	)
Prepaid land leases		—			—
Operating lease		85,129			(847,362	)
Net cash provided by (used in) by operating activities		9,869,612			37,101,024

CASH FLOWS USED IN INVESTING ACTIVITIES
Purchase of property, plant and equipment		(15,197,648	)		(33,217,987	)
Net cash used in investing activities		(15,197,648	)		(33,217,987	)

CASH FLOWS USED IN FINANCING ACTIVITIES
Repayment of finance lease obligation		(267,810	)		(283,915	)
Net cash used in financing activities		(267,810	)		(283,915	)

EFFECTS OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS		1,144,609			(6,728,107	)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		(4,451,237	)		(3,128,985	)
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD		108,226,214			95,767,263
CASH AND CASH EQUIVALENTS - END OF PERIOD	$	103,774,977		$	92,638,278

	Periods Ended September 30,
	2023		2022
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for:
Paid for taxes	$	4,930,601	$	6,034,948
Interest on finance lease obligation	$	80,252	$	93,630
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES

See accompanying notes to the condensed consolidated financial statements.

~~Table of Contents~~

GULF RESOURCES, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, ~~2017~~2023

(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 ~~condensed~~unaudited consolidated financial statements have been prepared by Gulf Resources, Inc. (“Gulf Resources”), a Nevada corporation and its subsidiaries (collectively, the “Company”), in accordance with the instructions to Form 10-Q and, therefore, do not necessarily include all information and footnotes necessary for a fair statement of its financial position, results of operations and cash flows in accordance with accounting principles generally accepted in the United States (“US GAAP”).

In the opinion of management, the unaudited financial information for the three and nine months ended September 30, 2017 presented reflects all adjustments, which are only normal and recurring, necessary for a fair statement of results of operations, financial position and cash flows. These condensed financial statements should be read in conjunction with the financial statements included in the Company’s 2016 Form 10-K. Operating results for the interim periods are not necessarily indicative of operating results for an entire fiscal year.

The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the amounts that are reported in the financial statements and accompanying disclosures. Although these estimates are based on management’s best knowledge of current events and actions that the Company may undertake in the future, actual results may be different from the estimates. The Company also exercises judgments in the preparation of these condensed financial statements in certain areas, including classification of leases and related party transactions. 

On September 2, 2016, the Company announced the planned merger of two of its 100% owned subsidiaries, Shouguan Yuxin Chemical Co., Limited (“SYCI”) and Shouguan Rongyuan Chemical Co., Ltd (“SCRC”). On March 24, 2017, the legal process of the merger was completed and SCRC was officially deregistered on March 28, 2017. The results of these two subsidiaries were reported as SYCI in the three and nine months ended September 30, 2017.

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"~~(“SCHC”) which owns 100% of Shouguang Yuxin Chemical Industry Co., Limited (“SYCI”) ~~and Daying~~,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) Nature of ~~the~~ Business

The Company manufactures and trades bromine ~~and crude salt~~ through its wholly-owned subsidiary, Shouguang City Haoyuan Chemical Company Limited ~~("SCHC"~~(“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 ~~antibiotics~~ for ~~use by~~ human and ~~animals~~animal antibiotics through its wholly-owned subsidiary, Shouguang Yuxin Chemical Industry Co., Limited ~~("SYCI"~~(“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 (b)(iii)).

On ~~September 1, 2017,~~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 not fully quantifiable, the Company believes this situation did not have a material adverse impact on its operating results in the year of 2021. In 2022, COVID may have a slightly larger impact. The government is conducting frequent unannounced inspections, somewhat disrupting production. In addition, the Company believes the focus on COVID may have slightly delayed the approval process for one or more of the closed factories. The virus outbreak and resulting supply chain issues has impacted the overall Chinese economy and thus impacted demand from end customers. It has delayed the delivery of machinery and other equipment for the Yuxin Chemical factory causing a postponement in its completion and opening. The Company believes the virus outbreak has delayed the finalization of the Sichuan Province environmental plan, causing a further delay for the Company’s project in Sichuan Province.

(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 an oral notification from the government for its Factory No. 8, which permits the Factory No. 8 to resume production in August 2022. The Company expects that the Factory No. 8 will generate 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.

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 temporarily stopped production at its bromine facilities during the aforesaid period and reopened the operating bromine and crude salt factories in February 2023.

(ii) Chemical Segment

On November 24, 2017, the Company received a letter from the Government of Yangkou County, Shouguang City ~~of PRC that production at all its factories be halted with immediate effect in order for~~notifying the Company to ~~perform rectification~~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 ~~improvement in accordance~~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 ~~county’s new~~requirements of the safety and environmental protection ~~requirements.~~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 were eased. Accordingly, the Company contacted its suppliers and expect to 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 governmental permit 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 is unable to estimate when the construction can be completed and the production can begin.

On March 23, 2023, the Company issued a press release detailing the delays in the opening of its Yuxin chemical factory due to COVID and stricter government regulations. As ~~such, direct labor~~noted in the press release, the Company believes that once all of the equipment is delivered, it will take 3 to 4 months to install the equipment. After installation, the testing process is anticipated to take 2 to 3 months, after which the Company will be in a position to apply for environmental and safety approval. After the Company has obtained environmental and safety approval, it will take us 4 months to conduct trial production, and then the Company may start commercial production.

On July 26, 2023, the Company announced that the delivery of the remaining equipment for its Yuxin chemical factory ~~overhead~~has been temporarily delayed and the Company will review its chemical products strategy.

The Company believes the relocation process will cost approximately $69 million in total. The Company incurred relocation costs ~~(including depreciation~~comprising prepaid land lease, professional fees related to the design of the new chemical factory, and progress payment and deposit 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 and property, plant and ~~machinery)~~equipment in the consolidated balance sheets as of September 30, 2023 and December 31, 2022. The Company does not believe the delay in opening the factory will materially impact the overall cost of the project.

(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 ~~total amount~~verbal notice from the government of ~~$1,876,462 incurred~~Tianbao Town, Daying County, Sichuan Province, whereby the Company is required to obtain project approval for its well located in ~~September 2017 which would~~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 ~~presented~~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 ~~cost of net revenue were presented as part of general~~natural gas production. The Company plans to proceed with its applications for the natural gas and ~~administrative expense in~~brine project approvals with related government departments until the ~~three-month and nine-month periods ended September 30, 2017 (Note 19).~~governmental planning has been finalized.

AsWe make estimates of ~~September 30, 2017~~the uncollectibility of accounts receivable, especially analyzing accounts receivable and ~~December 31, 2016, allowances~~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 ~~were nil. No allowances~~receivable aging report and provide an allowance in an amount we deem adequate for doubtful ~~accounts~~accounts. If management were ~~charged~~ to make different judgments or utilize different estimates, material differences in the ~~condensed consolidated statements~~amount of ~~income for the three-month and nine-month periods ended September 30, 2017 and 2016.~~our reported operating expenses could result.

(d) 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 ~~$193,385,686~~$103,774,977 and ~~$163,884,574~~$108,226,214 with these institutions as of September 30, ~~2017~~2023 and December 31, ~~2016,~~2022, 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. Approximately 38.0% and 61.6% of the balances of accounts receivable as of September 30, 2017 and December 31, 2016, respectively, are outstanding for less than three months. All outstanding receivables as of September 30, 2017 and December 31, 2016 are within the credit terms which range between 90 and 240 days. For the balances of accounts receivable aged more than 90 days as of September 30, 2017, approximately 30% were settled in October 2017. For the balances of all accounts receivable as of September 30, 2017, approximately 22% were settled in October 2017.

~~The rate of collection in October 2017 for accounts receivable aged more than 90 days as of September 30, 2017 was analyzed as follows:~~

~~Accounts Receivable Aging~~	~~Percent Collected~~
~~90-120 days~~	~~19%~~
~~121-150 days~~	~~34%~~
~~151-180 days~~	~~18%~~
~~181-210 days~~	~~34%~~
~~211-240 days~~	~~100%~~

~~Table of Contents~~

GULF RESOURCES, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, ~~2017~~2023

(Expressed in U.S. dollars)

(UNAUDITED)

NOTE 1 – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – Continued

(e) Property, Plant and Equipment ~~( including Oil and gas properties)~~

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 ~~machinery~~ and equipment. Costs incurred are capitalized and transferred to property, plant and equipment upon completion ~~at which time~~and depreciation ~~commences.~~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 vehiclesMotor Vehicles		5
Furniture, fixtures and equipment		~~3-8~~	3 - 8

Property, plant and equipment under the capital lease are depreciated over ~~the shorter of~~ their expected useful lives on the same basis as owned assets, or where shorter, the ~~remaining~~ 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~~designate 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.

(f) 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~~loss on an accrual basis when they are due. The Company’s contributions totaled ~~$288,779~~$121,941 and ~~$269,254~~$141,996 for the three-month period ended September 30, ~~2017~~2023 and ~~2016,~~2022, respectively, and totaled ~~$801,655~~$405,664 and ~~$768,870~~$488,773 for the nine-month period ended September 30, ~~2017~~2023 and ~~2016,~~2022, respectively.

(g) Revenue Recognition

~~The Company recognizes~~Net revenue is net of ~~value-added~~discount and value added tax and comprises the sale of bromine, crude salt and chemical products. Revenue is recognized when ~~persuasive evidence~~the control of the promised goods is transferred to the customers in an ~~arrangement exists, delivery~~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 ~~has occurred and customer acceptance has been obtained, which means~~by the ~~significant risks and ownership~~customers. Customers have ~~been transferred~~no rights to return the ~~customer, the price~~goods upon acknowledgement of receipt of goods. Revenue from contracts with customers is ~~fixed or determinable and collectability is reasonably assured.~~disaggregated in Note 14.

~~Table of Contents~~

GULF RESOURCES, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, ~~2017~~2023

(Expressed in U.S. dollars)

(UNAUDITED)

NOTE 1 – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – Continued

(h) 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.

~~Production in all~~For the ~~factories of~~three and nine months period ended September 30, 2023 and 2022, the Company was temporarily suspended from September 1, 2017 to allow for rectification and improvement in accordance with PRC’s new safety and environmental protection requirements. Due to this, the Company reviewed the possibility ofdetermined that there were no events or circumstances indicating possible impairment of its ~~property, plant and equipment and determined that there will be no material effect on the financial statements.~~

For the three-month and nine-month periods ended September 30, 2016, certain property, plant and machinery, with net book values of $90,395 were replaced during the enhancement project to protective shells for transmission channels, write-offs of the same amounts, were made and included in write-off/impairment on property, plant and equipment.long-lived assets.

(i) 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 increased to include the number of additional~~period. Potential common shares ~~of common stock that would have been outstanding if the potentially dilutive outstanding stock options had been exercised. Potentially dilutive outstanding stock options~~ 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 ~~are~~were greater than the market price of the common stock. ~~The number of anti-dilutive outstanding~~Anti-dilutive common stock ~~options~~equivalents which were excluded from the calculation of ~~diluted earnings was 41,944~~number of dilutive common stock equivalents amounted to 0 and ~~75,000~~0 shares for the three-month ~~period~~periods ended September 30, ~~2017~~2023 and ~~2016 respectively, and 35,366 and 136,875~~2022, respectively.

Because the Company reported a net loss for the ~~nine-month period~~three-month periods ended September 30, ~~2017~~2023 and ~~2016 respectively. These awards could be dilutive in the future if the market price of the~~2022, common stock ~~increases~~equivalents including stock options and ~~is greater than~~warrants were anti-dilutive, therefore the ~~exercise price of these awards.~~amounts reported for basic and diluted loss per share were the same.

~~Table of Contents~~

GULF RESOURCES, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, ~~2017~~2023

(Expressed in U.S. dollars)

(UNAUDITED)

NOTE 1 – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – Continued

~~(i) Basic and Diluted Earnings per Share of Common Stock – Continued~~

~~The following table sets forth the computation of basic and diluted earnings per share:~~

Three-Month Period Ended September 30, Nine-Month Period Ended September 30,
2017 2016 2017 2016
Numerator
Net income $ 3,425,640 $ 10,515,713 $ 25,252,438 $ 30,179,696

Denominator
Basic: Weighted-average common shares outstanding during the period 46,794,443 46,301,217 46,794,011 46,106,194
Add: Dilutive effect of stock options 103,552 8,033 39,019 454,743
Diluted 46,897,995 46,309,250 46,833,030 46,560,937

Earnings per share
Basic $ 0.07 $ 0.23 $ 0.54 $ 0.65
Diluted $ 0.07 $ 0.23 $ 0.54 $ 0.65

(j) 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.~~loss. The statement of ~~income~~loss and comprehensive ~~income~~loss is translated at average ~~rates~~rate during the reporting period. Gains or losses resulting from transactions in currencies other than the functional currencies are recognized in net ~~income~~loss for the reporting periods as part of general and administrative expense. The statement of cash flows is translated at average ~~rates~~rate during the reporting period, with the exception of ~~issuance~~the consideration paid for the acquisition of ~~shares and payment of dividends~~business which ~~are~~is translated at historical rates.

(k) 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.

(l) ~~Exploration Costs~~Inventories.

~~Exploration~~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 ~~including the cost of researching for appropriate places~~ to ~~drill wells~~complete and the cost of well drilling in search of potential natural brine, are charged to the income statement as incurred. Once the commercial viability of a project has been confirmed, all subsequent costs are capitalized.

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 toselling 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.

(m) ~~Goodwill~~Leases

~~Goodwill represents~~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 ~~excess~~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 ~~the purchase price~~lease payments over the ~~net~~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.

(n) 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 ~~identifiable tangible~~equity instruments that the Company is obligated to issue when the good has been delivered or the service has been rendered and ~~intangible assets acquired~~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.

(o) Loss Contingencies

The Company accrues for loss contingencies relating to legal matters, including litigation defense costs, claims and ~~the fair value of~~other contingent matters, including liquidated damage liabilities, ~~assumed in business acquisitions. Goodwill impairment is assessed~~when such liabilities become probable and could be reasonably estimable. Such estimates may be based on ~~qualitative factors~~advice from third parties or on management’s judgment, as appropriate. Revisions to ~~determine whether~~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.

(p) 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 ~~the fair value~~some portion or all of a ~~reporting entity~~deferred tax asset will not be realized, a valuation allowance is ~~less than its carrying amount, including goodwill. If~~recognized. The guidance also provides criteria for the ~~Company determines that~~recognition, measurement, presentation and disclosures of uncertain tax positions. A tax benefit from an uncertain tax position may be recognized if it is ~~more~~“more likely than ~~not~~not” that the ~~fair value~~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 ~~a reporting entity is less than its carrying amount,~~income (loss).

(q) New Accounting Pronouncements

Recent accounting pronouncements adopted

There were no recent accounting pronouncements adopted during the two-step goodwill impairment test will be performed. The Company performs its impairment assessment annually and between annual tests in certain circumstances and determined that the two-step goodwill impairment test is not required to be carried out as ofnine months ended September 30, ~~2017.~~2023.

~~(n) New~~Recently Issued Accounting Pronouncements

~~Recently~~ Not Yet Adopted ~~Accounting Pronouncements~~

In ~~March~~June 2016, the FASB issued ASU No. ~~2016-09, Compensation~~2016-13, Financial Instruments – ~~Stock Compensation~~Credit Losses (Topic ~~718): Improvements to Employee Share-Based Payment Accounting, which simplifies several aspects~~326), Measurement of ~~the accounting for share-based payment award transactions, including: (1) income tax consequences; (2) classification of awards as either equity or liabilities, and (3) classification~~Credit Losses on the statement of cash flows. For public companies, the amendments in this ASU are effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. The Company adopted the amendments in this Update as of January 1, 2017. There is no impact on the financial statements since any excess tax benefits were fully offset by a valuation allowance and not recognized for financial statement purposes.

~~Recently Issued Accounting Pronouncements Not Yet Adopted~~

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In August 2015, FASB issued ASU 2015-14 which deferred the effective date of Update 2014-09 to annual reporting periods beginning after December 15, 2017. Early application is permitted only as of annual reporting periods beginning after December 15, 2016. The Company expects to adopt the new standard in the first quarter of 2018. The Company does not expect the adoption of this Update to have a material effect on the financial statements.

~~In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842).~~Financial Instruments. The amendments in this Update ~~specify~~affect loans, debt securities, trade receivables, and any other financial assets that have the ~~accounting~~contractual right to receive cash. The ASU requires an entity to recognize expected credit losses rather than incurred losses for ~~leases. The core principle of Topic 842 is that a lessee should recognize the assets and liabilities that arise from leases.~~financial assets. For public ~~business~~ entities, the amendments ~~in this Update~~ are effective for fiscal years beginning after December 15, ~~2018,~~2019, including interim periods within those fiscal years. ~~The~~For the Company which is ~~evaluating the impact of this on the consolidated financial statements and related disclosures.~~

~~In August 2016, the FASB issued~~a smaller reporting company, ASU No. 2016-15, Statement of Cash Flows (Topic 230), Classification of Certain Cash Receipts and Cash Payments. The Update addresses eight specific changes to how cash receipts and cash payments are presented and classified in2019-10 extends the ~~statement of cash flows. The amendments in this Update are~~ effective dates for ~~public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal~~two years. Early adoption is permitted. An entity that elects early adoption must adopt all of the amendments in the same period. The amendments in this Update should be applied using a retrospective transition method to each period presented. If it is impracticable to apply the amendments retrospectively for some of the issues, the amendments for those issues would be applied prospectively as of the earliest date practicable. The Company does not expect the adoption of this Update to have a material effect on the financial statements.

In January 2017, the FASB issued ASU No. 2017-01, Business Combinations (Topic 805), Clarifying the Definition of a Business. The amendments in this Update provide a more robust framework to use in determining when a set of assets and activities is a business. The amendments in this Update are effective for annual periods beginning after December 15, 2017, including interim periods within those periods. The Company does not expect the adoption of this Update to have a material effect on the financial statements.

In January 2017, the FASB issued ASU No. 2017-04, Intangibles – Goodwill and Other (Topic 350), Simplifying the Test for Goodwill Impairment. To simplify the subsequent measurement of goodwill, the Board eliminated Step 2 from the goodwill impairment test. Instead, under the amendments in this Update, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. A public business entity that is a U.S. Securities and Exchange Commission (SEC) filer should adopt the amendments in this Update for its annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. The Company is currently evaluating the effect of this on the ~~adoption of this Update.~~condensed consolidated financial statements and related disclosure.

In May 2017, the FASB issued ASU 2017-09, Compensation – Stock Compensation (Topic 718), Scope of Modification Accounting. The amendments in this Update provide guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting. The amendments in this Update are effective for all entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. The amendments in this Update should be applied prospectively to an award modified on or after the adoption date.

~~Table of Contents~~

GULF RESOURCES, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, ~~2017~~2023

(Expressed in U.S. dollars)

(UNAUDITED)

NOTE 2 – ACCOUNTS RECEIVABLE, NET

Accounts receivable net consist of:

Accounts Receivable, Net - Schedule of Accounts, Notes, Loans and Financing Receivables

	September 30, 2023			December 31, 2022

Accounts receivable	$	2,174,443		$	5,388,213
Allowance for doubtful debt		(24,325	)		(25,047	)
Accounts receivable, net	$	2,150,118		$	5,363,166

The overall accounts receivable balance as of September 30, 2023 decreased by $3,213,048, as compared to those of December 31, 2022. 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

September 30, 2017 December 31, 2016

Raw materials $ 449,575 $ 818,500
Finished goods 1,981,504 4,370,331
Work-in-process — 692,850
$ 2,431,079 $ 5,881,681

	September 30, 2023			December 31, 2022

Raw materials	$	30,413		$	26,192
Finished goods		936,572			1,667,281
Less: impairment		(92,165	)		(94,901	)
Inventory, net	$	874,820		$	1,598,572

The inventory valuation allowance, representing a write-down of inventory, was $92,165 and $0 as of as of September 30, 2023 and 2022.

NOTE 34 – PREPAID LAND LEASES

The Company prepaid its land leases with lease terms for periods ranging from one to fifty years to use the land on which the production facilities and warehouses of the Company are situated. The prepaid land lease is amortized on a straight line basis.

During the three-month period ended September 30, 2017, amortization of prepaid land leases totaled $488,848, of which $400,605 and $88,243 were recorded as cost of net revenue and administrative expenses, respectively. During the three-month period ended September 30, 2016, amortization of prepaid land leases totaled $259,194, respectively, which amounts were recorded as cost of net revenue. During the nine-month period ended September 30, 2017, amortization of prepaid land leases totaled $717,969, of which $629,727 and $88,243 were recorded as cost of net revenue and administrative expenses, respectively. During the nine-month period ended September 30, 2016, amortization of prepaid land leases totaled $514,454, respectively, which amounts were recorded as cost of net revenue.

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. ~~For~~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 ~~that are collectively owned by local townships,~~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 6.

In December 2017, the Company ~~cannot obtain~~paid a one lump sum upfront amount of $ 8,867,267 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 September 30 2023 and December 31, 2022. As of September 30, 2023, the prepaid land lease increased to $9,254,124 due to an additional amount paid for stamp duty and related land use rights ~~certificates. The parcels~~fees. Amortization of this prepaid land ~~that~~lease will commence when the ~~Company cannot obtain land use rights certificates cover a total of approximately 54.97 square kilometers with an aggregate carrying value of $876,461~~chemical factory is completed and ~~approximately 54.97 square kilometers with an aggregate carrying value of $620,978 as at September~~placed in service.

GULF RESOURCES, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, ~~2017 and December 31, 2016, respectively.~~2023

(Expressed in U.S. dollars)

(UNAUDITED)

NOTE 45 – 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

September 30, 2017 December 31, 2016
At cost:
Mineral rights $ 4,638,854 $ 4,438,115
Buildings 66,796,949 63,601,451
Plant and machinery 191,789,494 183,243,077
Motor vehicles 8,656 8,282
Furniture, fixtures and office equipment 4,086,312 3,909,483
Construction in process — 374,790
Total 267,320,265 255,575,198
Less: Accumulated depreciation and amortization (169,696,997 ) (146,844,072 )
Net book value $ 97,623,268 $ 108,731,126

	September 30, 2023			December 31, 2022
At cost:
Mineral rights	$	2,689,246		$	2,769,091
Buildings		28,965,369			31,503,908
Plant and machinery		180,609,821			185,972,160
Motor vehicles		121,680			125,293
Furniture, fixtures and office equipment		2,215,474			2,281,251
Construction in process		21,328,718			11,356,546
Total		235,930,308			234,008,249
Less: Accumulated depreciation and amortization		(95,057,558	)		(84,091,483	)
Impairment		—			—
Net book value	$	140,872,750		$	149,916,766

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.~~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 ~~$34,822,905~~$13,636,724 and ~~$35,184,613~~$14,713,101 as at September 30, ~~2017~~2023 and December 31, ~~2016,~~2022, respectively.

~~Table of Contents~~

~~GULF RESOURCES, INC.~~

~~AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~SEPTEMBER 30, 2017~~

~~(Expressed in U.S. dollars)~~

~~(UNAUDITED)~~

~~NOTE 4 – PROPERTY, PLANT AND EQUIPMENT, NET – Continued~~

During the three-month period ended September 30, ~~2017,~~2023, depreciation and amortization expense totaled ~~$5,155,187,~~$4,787,568 of which ~~$3,356,534~~$760,400, $166,042 and ~~$1,798,653~~$3,861,126 were recorded asin direct labor and factory overheads incurred during plant shutdown, administrative expenses and cost of net revenue. During the nine-month period ended September 30, 2023,depreciation and amortization expense totaled $15,381,658 of which $3,502,188, $765,921 and $11,113,549 were recorded in direct labor and factory overheads incurred during plant shutdown, administrative expenses ~~respectively.~~ and cost of net revenue.

During the three-month period ended September 30, ~~2016,~~2022, depreciation and amortization expense totaled ~~$5,435,740,~~$5,982,055 of which ~~$5,104,288~~$1,523,855, $165,992 and ~~$331,452~~$4,292,208 were recorded asin direct labor and factory overheads incurred during plant shutdown, administrative expenses and cost of net revenue ~~and administrative expenses, respectively.~~ . During the nine-month period ended September 30, ~~2017,~~2022, depreciation and amortization expense totaled ~~$15,814,006,~~$16,255,069 of which ~~$13,430,768~~$4,817,711, $1,534,387 and ~~$2,383,238~~$9,902,971 were recorded asin direct labor and factory overheads incurred during plant shutdown, administrative expenses and cost of net revenue.

The Company has commenced a flood prevention initiative. The Company’s strategy involves the renovation of the channels of four major rivers within its mining area, encompassing the tributary of the Mihe River. The aim is to prevent flooding that could harm the wells, aqueducts, and ~~administrative expenses respectively. During~~crude salt pans at the ~~nine-month period ended~~Company’s plant. The projected expenditure for this initiative amounts to $50,497,652. As of September 30, ~~2016, depreciation and amortization expense totaled $18,783,424,~~2023, the Company disbursed $15,149,296 for the initial phase of ~~which $17,765,477 and $1,017,948 were recorded as cost of net revenue and administrative expenses respectively.~~this project.

NOTE 56 – ~~PROPERTY, PLANT AND EQUIPMENT UNDER CAPITAL LEASES, NET~~FINANCE LEASE RIGHT-OF-USE ASSETS

Property, plant and equipment under ~~capital~~finance leases, net consist of the following:

Finance Lease Right-Of-Use Assets - Schedule of Property, Plant and Equipment Under Finance Leases

September 30, 2017 December 31, 2016
At cost:
Buildings $ 123,988 $ 118,623
Plant and machinery 2,330,629 2,229,775
Total 2,454,617 2,348,398
Less: Accumulated depreciation and amortization (2,108,912 ) (1,794,141 )
Net book value $ 345,705 $ 554,257

	September 30, 2023			December 31, 2022
At cost:
Buildings Buildings	$	114,748		$	118,154
Plant and machinery Plant and Machinery		110,085			2,161,461
Total		224,833			2,279,615
Less: Accumulated depreciation and amortization		(69,564	)		(2,115,747	)
Net book value	$	155,269		$	163,868

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~~three and nine months period ended September 30, ~~2017 and 2016,~~2023, depreciation and amortization expense totaled ~~$77,527~~$1,291 and ~~$81,618,~~$3,966, respectively, which was recorded ~~as cost of net revenue.~~ in direct labor and factory overheads incurred during plant shutdown.

During the ~~nine-month~~three and nine months period ended September 30, ~~2017 and 2016,~~2022, depreciation and amortization expense totaled ~~$227,998~~$1,356 and ~~$248,226,~~$4,216, respectively, which was recorded ~~as cost of net revenue.~~in direct labor and factory overheads incurred during plant shutdown.

~~NOTE 6 – ACCOUNTS PAYABLE AND ACCRUED EXPENSES~~

~~Accounts payable and accrued expenses consist of the following:~~

September 30, 2017 December 31, 2016
Accounts payable $ 3,437,703 $ 7,513,075
Salary payable 385,686 319,489
Social security insurance contribution payable 133,109 119,444
Other payables 386,117 730,310
Total $ 4,342,615 $ 8,682,318

~~Table of Contents~~

GULF RESOURCES, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, ~~2017~~2023

(Expressed in U.S. dollars)

(UNAUDITED)

NOTE 7 – OPERATING LEASE RIGHT–OF USE ASSETS

As of September 30, 2023, the total operating lease ROU assets was $7,668,554.

The total operating lease cost for the nine-month period ended September 30, 2023 and 2022 was $706,033 and $746,731.

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 (See Note 3). 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 38.6 square kilometers of aggregate carrying value of $8,452,893 as at September 30, 2023.

NOTE 8 – ACCOUNTS PAYABLE, OTHER PAYABLE AND ACCRUED EXPENSES

Accounts payable, other payable and accrued expenses consist of the following:

Accounts and Other Payable and Accrued Expenses - Schedule of Accounts Payable and Accrued Liabilities

	September 30,		December 31,
	2023		2022
Accounts payable	$	229,260	$	57,649
Salary payable		239,322		250,610
Other payable		—		89,577
Accrued expense for construction		5,322,637		6,403,742
Accrued expense-others		359,806		1,022,144
Total	$	6,151,025	$	7,823,722

NOTE ~~7 –~~ 9– RELATED PARTY TRANSACTIONS

~~During the three-month and nine-month periods ended~~On September ~~30, 2017,~~25, 2012, the Company ~~borrowed $100,000 and $350,000, respectively,~~purchased five floors of a commercial building in the PRC, through SYCI, from ~~Jiaxing Lighting Appliance Company Limited (Jiaxing Lighting”)~~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, ~~a shareholder and~~ the Chairman of the Company, ~~has~~had a ~~100%~~99% equity interest in ~~Jiaxing Lighting. The amounts due to Jiaxing Lighting were unsecured, interest free and repayable on demand and were fully settled in~~ the ~~three-month period ended September 30, 2017. There was no balance owing to Jiaxing Lighting as of September 30, 2017 and December 31, 2016.~~

Seller. During the ~~fiscal year 2013,~~first quarter of 2018, the Company entered into an agreement with the ~~Shandong Shouguang Vegetable Seed Industry Group Co., Ltd,~~Seller, a related party, to provide property management services for an annual amount of approximately ~~$100,000~~$90,785 for five years from January 1, ~~2013~~2023 to December 31, ~~2017.~~2027. The ~~expenses~~expense associated with this agreement for the three ~~month period~~and nine months ended September 30, ~~2017~~2023 was approximately $21,748 and ~~2016 were $23,395 and $23,401.~~$66,028. The ~~expenses~~expense associated with this agreement for the three and nine ~~month period~~months ended September 30, ~~2017~~2022 was approximately $21,968 and ~~2016 were $68,801 and $71,170.~~$69,775.

NOTE 8 – ~~TAXES PAYABLE~~RELATED PARTY TRANSACTIONS – Continued

~~Taxes payable consists of the following:~~

Related parties

September 30, 2017 December 31, 2016
Income tax payable $ 1,582,939 $ 1,849,535
Natural resource tax 18,599 651,230
Value added tax payable 456,166 887,913
Land use right tax payable 798,285 818,921
Other tax payables 104,158 133,732
Total $ 2,960,147 $ 4,341,331

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

	September 30,		December 31,
	2023		2022
Amount due to related parties:
Yang Ming	$	411,323	$	423,534
Liu Xiao Bin		887,213		887,214
Li Min		637,092		647,473
Miao Nai Hui		637,092		647,473
Total	$	2,572,720	$	2,605,694

Considering that the Company has not performed well in recent years, the Company and its executive officers mutually agreed and to returned all, or a portion of their cash compensation earned for their services with the Company, which may be considered for future compensation should the Company improve its results of operations.

NOTE 910– TAXES PAYABLE

	September 30,		December 31,
	2023		2022
Land use tax payable	$	24,383	$	25,107
Value added tax and other taxes payable		497,443		674,456
Total	$	521,826	$	699,563

NOTE 11 – ~~CAPITAL~~ LEASE ~~OBLIGATIONS~~LIABILITIES-FINANCE AND OPERATING LEASE

The components of ~~capital~~finance lease ~~obligations are~~liabilities were as follows:

Lease Liabilities - Finance and Operating Lease - Schedule of Finance Leased Liabilities

Imputed September 30, December 31,
Interest rate 2017 2016
Total capital lease obligations 6.7% $ 2,428,342 $ 2,472,637
Less: Current portion (160,027 ) (187,678 )
Capital lease obligations, net of current portion $ 2,268,315 $ 2,284,959

	Imputed		September 30,			December 31,
	Interest rate		2023			2022
Total finance lease liability		6.7%	$	1,443,368		$	1,675,067
Less: Current portion				(188,750	)		(213,346	)
Finance lease liability, net of current portion			$	1,254,618		$	1,461,721

Interest expenses from capital lease obligations amounted to ~~$40,667~~$23,791 and ~~$41,740~~$23,934 for the three-month period ended September 30, ~~2017~~2023 and ~~2016,~~2022, respectively, which were charged to the condensed consolidated statement of ~~income.~~income (loss). Interest expenses from capital lease obligations amounted to ~~$123,795~~$80,252 and ~~$133,504~~$93,630 for the nine-month period ended September 30, ~~2017~~2023 and ~~2016,~~2022, respectively, which were charged to the condensed consolidated statement of ~~income.~~income (loss).

The components of operating lease liabilities as follows:

Lease Liabilities - Finance and Operating Lease - Schedule of Operating Leased Liabilities

	Imputed		September 30,			December 31,
	Interest rate		2023			2022
Total Operating lease liabilities		4.89%	$	7,480,606		$	8,009,091
Less: Current portion				(436,382	)		(433,440	)
Operating lease liabilities, net of current portion			$	7,044,224		$	7,575,651

The weighted average remaining operating lease term at September 30, 2023 was 19 years and the weighted average discounts rate was 4.89%. Lease payments for the three-month period ended September 30, 2023 and 2022, respectively, were $64,866 and $64,896. Lease payments for the nine-month period ended September 30, 2023 and 2022, respectively, were $824,572 and $888,692.

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	$	261,729		$	816,349
the next 13 to 24 months		261,729			823,459
the next 25 to 36 months		261,729			827,647
the next 37 to 48 months		261,729			835,232
the next 49 to 60 months		261,729			839,755
thereafter		523,458			9,147,846
Total		1,832,103			13,290,288
Less: Amount representing interest		(388,735	)		(5,809,682	)
Present value of net minimum lease payments	$	1,443,368		$	7,480,606

GULF RESOURCES, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2023

(Expressed in U.S. dollars)

(UNAUDITED)

NOTE ~~10 –EQUITY~~12 ––EQUITY

~~(a)~~

~~Authorized shares~~

Restricted Shares

~~During~~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 ~~annual general meeting held on June 18, 2013, the shareholders~~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 ~~approved~~expenses the ~~amendment to the Certificate of Incorporation to decrease the number~~cost of the ~~authorized shares~~restricted stock awards, which is determined to be the fair market value of the ~~Company’s~~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 ~~to 80,000,000. The Company has completed~~on the filing of the amendment and restatement of the Certificate of Incorporation with the Secretary of the State of Delaware to decrease the number of authorized shares of the Company’s common stock. Accordingly, 80,000,000 is disclosed as the authorized shares of the Company’s common stock in the consolidated balance sheets as of September 30, 2017 and December 31, 2016.grant date.

~~(b)~~

~~Retained Earnings - Appropriated~~

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 ~~a portion of~~ its profit after tax to the following reserve:

Statutory Common Reserve Funds

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. The Statutory Common Reserve Fund as of September 30, ~~2017~~2023 for SCHC, SYCI, SHSI, and DCHC is ~~47%~~16%, ~~17%~~14%, 0% and 0% of its registered capital, respectively.

NOTE 1113 – TREASURY STOCK

InAs of September ~~2017,~~30, 2023 and December 31, 2022, the number of treasury stock of the Company ~~issued 10,000 shares of common stock from the treasury shares to one of its consultants. The shares were valued at the closing market price on the date of the agreement~~was 285,830 and recorded as general and administrative expense in the condensed consolidated statements of income and comprehensive income for the three and nine months ended September 30, 2017. The shares issued were deducted from the treasury shares at weighted average cost and the excess of the cost over the closing market price was charged to additional paid-in-capital.285,830, respectively.

~~Table of Contents~~

~~GULF RESOURCES, INC.~~

~~AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~SEPTEMBER 30, 2017~~

~~(Expressed in U.S. dollars)~~

~~(UNAUDITED)~~

NOTE 1214 – STOCK-BASED COMPENSATION

Pursuant to the Company’s ~~Amended~~2019 Omnibus Equity Incentive Plan adopted and ~~Restated~~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, ~~approved in 2011(“~~as amended (the “2007 Plan”),. Upon adoption and approval of the ~~aggregate~~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 September 30, 2023, the number of shares of the Company’s common stock available for grant ~~and issuance~~ of ~~stock options is 4,341,989 shares. On October 5, 2015, during~~awards under the ~~annual meeting of the Company’s stockholders, the aggregate number of shares reserved and available for grant and issuance pursuant to the~~2019 Plan was ~~increased to 10,341,989. As of September 30, 2017, the number of shares of the Company’s common stock available for issuance under the Plan is 6,757,489.~~856,801 shares.

The fair value of each option award ~~below~~ 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.

On March 2, 2017, the Company granted to an independent director an option to purchase 12,500 shares of the Company’s common stock at an exercise price of $1.98 per share and the options vested immediately. The options were valued at $9,000 fair value, with assumed 57.42% volatility, a three-year expiration term, with an expected tenor of 1.69 years, a risk free rate of 1.59% and no dividend yield. For the ~~three-month period ended March 31, 2017, $9,000 was recognized as general and administrative expenses.~~

On May 7, 2017, the Company granted to an independent director an option to purchase 12,500 shares of the Company’s common stock at an exercise price of $1.90 per share and the options vested immediately. The options were valued at $5,700 fair value, with assumed 45.71% volatility, a three-year expiration term with an expected tenor of 1.70 years, a risk free rate of 1.25% and no dividend yield. For the three-month period ended June 30, 2017, $5,700 was recognized as general and administrative expenses.

On July 1, 2017, the Company granted to an independent director an option to purchase 12,500 shares of the Company’s common stock at an exercise price of $1.62 per share and the options vested immediately. The options were valued at $4,500 fair value, with assumed 43.45% volatility, a three-year expiration term with expected tenor of 1.70 years, a risk free rate of 1.34% and no dividend yield. For the three-month periodthree months ended September 30, ~~2017, $4,500 was recognized as general~~2023 and ~~administrative expenses.~~2022, total compensation costs for options issued recorded in the consolidated statement of loss were $0.

~~On August 23, 2017,~~During the ~~Company granted to 28 members of the management staff options to purchase 281,000 shares of the Company’s common stock, at an exercise price of $1.454 per share~~three and the options vested immediately. The options were valued at $146,700 fair value, with assumed 42.65% volatility, a four-year expiration term with an expected tenor of 1.41 years, a risk free rate of 1.26% and no dividend yield. For the three-month periodnine months ended September 30, ~~2017, $146,700 was recognized as general and administrative expenses~~2023, there were no options granted to employees or non-employees.

On August 23, 2017, the Company granted to three directors options to purchase 300,000 shares of the Company’s common stock, at an exercise price of $1.454 per share and the options vested immediately. The options were valued at $191,800 fair value, with assumed 46.47% volatility, a four-year expiration term with an expected tenor of 2.26 years, a risk free rate of 1.34% and no dividend yield. For the three-month period ended September 30, 2017, $191,800 was recognized as general and administrative expenses

The following table summarizes all Company stock option transactions between January 1, ~~2017~~2023 and September 30, ~~2017.~~2023.

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, 2017 185,000 $ 2.19 $1.54 - $4.80
Granted and vested during the period
Ended September 30, 2017
618,500 $ 1.48 $1.45-$1.98
Expired during the period ended
September 30, 2017
(37,500 ) $ 2.18 $1.83-$2.55
Balance, September 30, 2017 766,000 $ 1.62 $1.45 - $4.80

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, 2023

—

Granted during the period

—

Exercised during the period

—

Expired during the period

—

Balance, September 30, 2023

—

Stock Options and Warrants Outstanding and Exercisable

Weighted Average

Remaining

Outstanding at September 30, 2023

Range of

Exercise Prices

Contractual Life

(Years)

Outstanding and exercisable

—

~~Table~~All options exercisable and outstanding at September 30, 2023 are fully vested. As of ~~Contents~~September 30, 2023 there was no unrecognized compensation cost related to outstanding stock options,

The aggregate intrinsic value of options outstanding and exercisable as of September 30, 2023 was $0.

During the three and nine months ended September 30, 2023 and 2022, there were no options exercised.

GULF RESOURCES, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, ~~2017~~2023

(Expressed in U.S. dollars)

(UNAUDITED)

NOTE 1215 – ~~STOCK-BASED COMPENSATION – Continued~~

Stock and Warrants Options Exercisable and Outstanding
Weighted Average
Remaining
Outstanding at September 30, 2017
Range of
Exercise Prices
Contractual Life
(Years)

Exercisable and outstanding
766,000 $1.45 - $4.80 3.37

~~The aggregate intrinsic value of options outstanding and exercisable as of September 30, 2017 was $267,966.~~

~~NOTE 13 –~~ INCOME TAXES

The Company utilizes the asset and liability method of accounting for income taxes in accordance with FASB ASC 740-10.

(a) United States (“US”)

United States

Gulf Resources, Inc. may be subject to the United States of America Tax ~~law~~laws at a tax rate of ~~35%~~21%. No provision for the US federal income taxes has been made as the Company had no US taxable income for the three-month and nine-month periods ended September 30, ~~2017~~2023 and ~~2016,~~2022, and management believes that its earnings are permanently invested in the PRC.

(b) ~~BVI~~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 and nine-month periods ended September 30, ~~2017~~2023 and ~~2016.~~2022.

Hong Kong

~~Hong Kong Jiaxing Industrial Limited,~~HKJI, a subsidiary of Upper Class Group Limited, was incorporated in Hong Kong and ~~is subject to Hong Kong profits tax. The Company~~ 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 ~~profits~~income tax has been made as ~~the Company~~it has no ~~assessable~~taxable income for the three-month and nine-month periods ended September 30, ~~2017~~2023 and ~~2016.~~2022. The applicable statutory tax rates for the three-month and nine-month periods ended September 30, ~~2017~~2023 and ~~2016~~2022 are ~~16.5%~~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%~~25% of the assessable profits.

The operating subsidiaries SCHC ~~SYCI and DCHC are~~is a wholly foreign-owned enterprises (“FIE”), SYCI, DCHC, and SHSI are incorporated in the PRC and are subject to PRC ~~Foreign Enterprise~~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 September 30, ~~2017~~2023 and December 31, ~~2016,~~2022, the accumulated distributable earnings under the Generally Accepted Accounting Principles (GAAP”) of PRC that are ~~$312,552,128~~subject to WHT are $138,933,575 and ~~$274,769,840,~~$147,686,099, 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 September 30, ~~2017~~2023 and December 31, ~~2016,~~2022, 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 September 30, ~~2017~~2023 and December 31, ~~2016,~~2022, the unrecognized WHT are ~~$14,601,406~~$5,996,965 and ~~$12,756,698,~~$6,406,394, respectively.

~~Table of Contents~~

~~GULF RESOURCES, INC.~~

~~AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~SEPTEMBER 30, 2017~~

~~(Expressed in U.S. dollars)~~

~~(UNAUDITED)~~

~~NOTE 13 – INCOME TAXES – Continued~~

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 ~~2013~~2016 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 ~~Company’s~~tax returns for 2014 and 2018 have been examined, and there is no Hong Kong ~~tax returns since 2010 are currently subject to examination.~~Profits Tax was charged.

The components of the ~~provision for~~ income ~~taxes~~tax benefit from continuing operations are:

Income Taxes - Schedule of Components of Income Tax Expense Benefit

Three-Month Period
Ended September 30, Nine-Month Period
Ended September 30,
2017 2016 2017 2016
Current taxes – PRC $ 1,509,321 $ 3,518,529 $ 9,152,597 $ 9,996,622
Deferred taxes – PRC — — — —
$ 1,509,321 $ 3,518,529 $ 9,152,597 $ 9,996,622

~~The effective income tax expenses differ from the PRC statutory income tax rate of 25% from continuing operations in the PRC as follows:~~

Three-Month Period
Ended September 30, Nine-Month Period
Ended September 30,
Reconciliations 2017 2016 2017 2016
Statutory income tax rate 25 % 25 % 25 % 25 %
Non-deductible (Non-taxable)item 3 % — 1 % —
Change in valuation allowance - US federal net operating loss 3 % — 1 % —
Effective tax rate 31 % 25 % 27 % 25 %


	Three-Month Period Ended September 30,					Nine-Month Period Ended September 30,
	2023		2022			2023		2022
Current taxes – PRC	$	—	$	—		$	—	$	—
Deferred tax – PRC entities		483,524		(3,010,967	)		876,779		(4,356,283	)
Income Tax (Expense) Benefit	$	483,524	$	(3,010,967	)	$	876,779	$	(4,356,283	)

Significant components of the Company’s deferred tax assets and liabilities at September 30, ~~2017~~2023 and December ~~30, 2016~~31, 2022 are as follows:

Income Taxes - Schedule of Deferred Tax Assets and Liabilities

September 30, 2017 December 31, 2016
Deferred tax liabilities $ — $ —

Deferred tax assets:
Allowance for obsolete and slow-moving inventories $ — $ —
Impairment on property, plant and equipment 440,152 421,106
Exploration costs 1,875,841 1,794,666
Compensation costs of unexercised stock options 452,386 120,986
US federal net operating loss 11,723,000 11,575,000
Total deferred tax assets 14,491,379 13,911,758
Valuation allowance (12,175,386 ) (11,695,986 )
Net deferred tax asset $ 2,315,993 $ 2,215,772

	September 30,			December 31,
	2023			2022
Deferred tax liabilities	$	—		$	—

Deferred tax assets:
Exploration costs		1,736,028			1,787,571
PRC tax losses		12,948,587			12,211,867
US federal net operating loss		1,569,617			1,336,405
Total deferred tax assets		16,254,232			15,335,843
Valuation allowance		(10,250,146	)		(10,016,934	)
Net deferred tax asset	$	6,004,086		$	5,318,909

~~Table of Contents~~

~~GULF RESOURCES, INC.~~

~~AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~SEPTEMBER~~The decrease in valuation allowance for the three-month period ended September 30, ~~2017~~

~~(Expressed in U.S. dollars)~~

~~(UNAUDITED)~~

~~NOTE 13 – INCOME TAXES – Continued~~2023 is $12,974.

The increase in valuation allowance for ~~each of~~ the three-month ~~periods~~period ended September 30, ~~2017 and 2016~~2022 is ~~$406,000 and $227,574, respectively.~~$0.

The decrease in valuation allowance for the nine-month period ended September 30, 2023 is $233,212.

The increase in valuation allowance for the nine-month period ended September 30, ~~2017~~2022 is ~~$479,400.~~

~~The increase in valuation allowance for the nine-month period ended September 30, 2016 is $127,424.~~$34,176.

There were no unrecognized tax benefits and accrual for uncertain tax positions as of September 30, ~~2017~~2023 and December 31, ~~2016.~~2022 and no amounts accrued for penalties and interest for the three and nine months ended September 30, 2023 and 2022.

GULF RESOURCES, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2023

(Expressed in U.S. dollars)

(UNAUDITED)

NOTE 1416 – 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 September 30, 2017	Bromine*		Crude Salt*			Chemical Products		Natural Gas			Segment Total		Corporate			Total
Three-Month Period Ended September 30, 2023																		Bromine*			Crude Salt*			Chemical Products			Natural Gas		Segment Total			Corporate			Total
Net revenue (external customers)	$	9,549,777	$	2,054,729		$	12,235,885	$	—		$	23,840,391	$	—		$	23,840,391	$	4,908,152		$	889,556		$	—		$	67,907	$	5,865,615		$	—		$	5,865,615
Net revenue (intersegment)		1,216,406		—			—		—			1,216,406		—			1,216,406		—			—			—			—		—			—			—
Income from operations before taxes		2,257,069		497,783			3,176,458		(33,184	)		5,898,126		(1,062,874	)		4,835,252
Income taxes		564,267		117,494			827,560		—			1,509,321		—			1,509,321
Income from operations after taxes		1,692,802		380,289			2,348,898		(33,184	)		4,388,805		(1,062,874	)		3,325,931
Income(loss) from operations before income tax benefit																			(2,143,203	)		500,469			(397,410	)		4,156		(2,035,988	)		(257,300	)		(2,293,288	)
Income tax benefit (expense)																			516,927			(125,731	)		92,328			—		483,524			—			483,524
Income (loss) from operations after income tax benefit (expense)																			(1,626,276	)		374,738			(305,082	)		4,156		(1,552,464	)		(257,300	)		(1,809,764	)
Total assets		161,722,622		36,586,589			202,404,825		1,815,010			402,529,046		40,136			402,569,182		159,846,002			11,983,765			105,533,526			1,244,427		278,607,720			285,157			278,892,877
Depreciation and amortization		3,556,296		765,183			911,235		—			5,232,714		—			5,232,714		4,507,616			180,121			67,692			33,430		4,788,859			—			4,788,859
Capital expenditures		466,636		95,864			—		1,260			563,760		—			563,760		15,149,296			—			—			—		15,149,296			—			15,149,296
Goodwill		—		—			28,920,005		—			28,920,005		—			28,920,005

Three-Month Period Ended September 30, 2016		Bromine*		Crude Salt*			Chemical Products		Natural Gas			Segment Total		Corporate			Total
Net revenue (external customers)	$	15,971,847	$	2,310,799		$	20,528,976	$	—		$	38,811,622	$	—		$	38,811,622
Net revenue (intersegment)		2,008,397		—			—		—			2,008,397		—			2,008,397
Income from operations before taxes		7,898,302		(382,917	)		6,442,708		(2,476	)		13,955,617		583			13,956,200
Income taxes		1,974,576		(97,982	)		1,641,935		—			3,518,529		—			3,518,529
Income from operations after taxes		5,923,726		(284,935	)		4,800,773		(2,476	)		10,437,088		583			10,437,671
Total assets		150,950,225		32,757,666			192,128,326		1,687,960			377,524,177		183,416			377,707,593
Depreciation and amortization		3,121,243		1,315,140			1,080,975		—			5,517,358		—			5,517,358
Capital expenditures		12,890,713		2,336,309			—		651,295			15,878,317		—			15,878,317
Goodwill		—		—			28,743,418		—			28,743,418		—			28,743,418

~~Table of Contents~~

~~GULF RESOURCES, INC.~~

~~AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~SEPTEMBER 30, 2017~~

~~(Expressed in U.S. dollars)~~

~~(UNAUDITED)~~

~~NOTE 14 – BUSINESS SEGMENTS – Continued~~

Nine-Month Period Ended September 30, 2017	Bromine*		Crude Salt*			Chemical Products		Natural Gas				Segment Total		Corporate			Total
Three-Month Period Ended September 30, 2022																			Bromine*			Crude Salt*			Chemical Products			Natural Gas		Segment Total			Corporate			Total
Net revenue (external customers)	$	41,895,304	$	6,390,390		$	55,875,179	$	—			$	104,160,873	$	—		$	104,160,873	$	19,845,773		$	2,934,707		$	—		$	82,315	$	22,862,795		$	—		$	22,862,795
Net revenue (intersegment)		6,305,642		—			—		—				6,305,642		—			6,305,642		—			—			—			—		—			—			—
Income (loss) from operations before taxes		17,269,984		2,434,872			16,441,115		(90,471	)			36,055,500		(1,924,779	)		34,130,721
Income taxes		4,358,455		586,240			4,207,902		—				9,152,597		—			9,152,597
Income (loss) from operations after taxes		12,911,529		1,848,632			12,233,213		(90,471	)			26,902,903		(1,924,779	)		24,978,124
Income(loss) from operations before income tax benefit (expense)																				10,552,343			1,876,161			(447,960	)		19,500		12,000,044			(57,452	)		11,942,592
Income tax benefit(expense)																				(2,642,167	)		(469,197	)		100,397			—		(3,010,967	)		—			(3,010,967	)
Income (loss) from operations after income tax benefit (expense)																				7,910,176			1,406,964			(347,563	)		19,500		8,989,077			(57,452	)		8,931,625
Total assets		161,722,622		36,586,589			202,404,825		1,815,010				402,529,046		40,136			402,569,182		168,912,333			11,286,079			108,653,553			1,389,190		290,241,155			303,226			290,544,381
Depreciation and amortization		11,349,477		1,843,856			2,848,670		—				16,042,003		—			16,042,003		5,055,864			821,269			71,120			35,158		5,983,411			—			5,983,411
Capital expenditures		466,636		95,864			61,235		—				623,735		—			623,735		—			—			—			—					—			—
Goodwill		—		—			28,920,005		—				28,920,005		—			28,920,005

Nine-Month Period Ended September 30, 2016		Bromine*		Crude Salt*			Chemical Products		Natural Gas				Segment Total		Corporate			Total
Net revenue (external customers)	$	47,621,980	$	6,383,095		$	66,902,764	$	—		��	$	120,907,839	$	—		$	120,907,839
Net revenue (intersegment)		6,501,530		—			—		—				6,501,530		—			6,501,530
Income (loss) from operations before taxes		19,103,472		(165,403	)		20,698,116		(2,501	)			39,633,684		319,956			39,953,640
Income taxes		4,775,868		(46,369	)		5,267,123		—				9,996,622		—			9,996,622
Income (loss) from operations after taxes		14,327,604		(119,034	)		15,430,993		(2,501	)			29,637,062		319,956			29,957,018
Total assets		150,950,225		32,757,666			192,128,326		1,687,960				377,524,177		183,416			377,707,593
Depreciation and amortization		11,633,581		3,847,502			3,550,567		—				19,031,650		—			19,031,650
Capital expenditures		12,943,491		2,340,817			—		1,464,884				16,749,192		—			16,749,192
Goodwill		—		—			28,743,418		—				28,743,418		—			28,743,418

* ~~Common~~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.~~segment until April 2022. Commencing May 2022, costs were assigned to the two subsidiaries (SCHC and SHSI) by independent accounting.

Three-Month Period
Ended September 30, Nine-Month Period
Ended September 30,
Reconciliations 2017 2016 2017 2016
Total segment operating income $ 5,898,126 $ 13,955,617 $ 36,055,500 $ 39,633,684
Corporate costs (526,421 ) (180,447 ) (784,416 ) (409,808 )
Unrealized translation difference (536,453 ) 181,030 (1,140,363 ) 729,764
Income from operations 4,835,252 13,956,200 34,130,721 39,953,640
Other income, net of expense 99,709 78,042 274,314 222,678
Income before taxes $ 4,934,961 $ 14,034,242 $ 34,405,035 $ 40,176,318

~~Table of Contents~~

GULF RESOURCES, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, ~~2017~~2023

(Expressed in U.S. dollars)

(UNAUDITED)

NOTE 1416 – BUSINESS SEGMENTS – Continued

Nine-Month Period Ended September 30, 2023	Bromine*			Crude Salt*			Chemical Products			Natural Gas		Segment Total			Corporate			Total
Net revenue (external customers)	$	20,734,871		$	2,287,672		$	—		$	150,861	$	23,173,404		$	—		$	23,173,404
Net revenue (intersegment)		—			—			—			—		—			—			—
Income(loss) from operations before income tax benefit		(3,340,404	)		904,482			(1,231,302	)		14,011		(3,653,213	)		(358,731	)		(4,011,944	)
Income tax benefit (expense)		800,170			(228,002	)		304,611			—		876,779			—			876,779
Income (loss) from operations after income tax benefit (expense)		(2,540,234	)		676,480			(926,691	)		14,011		(2,776,434	)		(358,731	)		(3,135,165	)
Total assets		159,846,002			11,983,765			105,533,526			1,244,427		278,607,720			285,157			278,892,877
Depreciation and amortization		14,521,943			553,141			207,878			102,662		15,385,624			—			15,385,624
Capital expenditures		15,197,648			—			—			—		15,197,648			—			15,197,648

Nine-Month Period Ended September 30, 2022	Bromine*			Crude Salt*			Chemical Products			Natural Gas			Segment Total			Corporate			Total
Net revenue (external customers)	$	41,865,598		$	5,506,655		$	—		$	132,993		$	47,505,246		$	—		$	47,505,246
Net revenue (intersegment)		—			—			—			—			—			—			—
Income(loss) from operations before income tax benefit (expense)		17,226,718			1,497,208			(1,436,443	)		(68,938	)		17,218,545			(231,877	)		16,986,668
Income tax benefit(expense)		(4,304,623	)		(374,822	)		323,162			—			(4,356,283	)		—			(4,356,283	)
Income (loss) from operations after income tax benefit (expense)		12,922,095			1,122,386			(1,113,281	)		(68,938	)		12,862,262			(231,877	)		12,630,385
Total assets		168,912,333			11,286,079			108,653,553			1,389,190			290,241,155			303,226			290,544,381
Depreciation and amortization		12,667,791			3,261,180			221,017			109,297			16,259,285			—			16,259,285
Capital expenditures		33,217,987			—						—			33,217,987			—			33,217,987

* 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 each respective segment through April 2022. Commencing May 2022, costs were assigned to the two subsidiaries (SCHC and SHSI) by independent accounting.

GULF RESOURCES, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2023

(Expressed in U.S. dollars)

(UNAUDITED)

NOTE 16 – BUSINESS SEGMENTS – Continued


	Three-Month Period Ended September 30,						Nine-Month Period Ended September 30,
Reconciliations	2023			2022			2023			2022
Total segment operating Income (loss)	$	(2,035,988	)	$	12,000,044		$	(3,653,213	)	$	17,218,545
Corporate costs		(65,148	)		(50,505	)		(193,287	)		(186,682	)
Unrealized gain on translation of intercompany balance		(192,152	)		(6,947	)		(165,444	)		(45,195	)
Income (loss) from operations		(2,293,288	)		11,942,592			(4,011,944	)		16,986,668
Other income, net of expense		33,967			35,755			119,805			118,843
Income (loss) before taxes	$	(2,259,321	)	$	11,978,347		$	(3,892,139	)	$	17,105,511

The following table shows the major customer(s) (10% or more) for the three-month period ended September 30, ~~2017.~~2023.

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 $ 1,938 $ 809 $ 695 $ 3,442 14.4%

Revenue

Customer

Number	Customer	Bromine (000’s)		Crude Salt (000’s)		Chemical Products (000’s)		Total Revenue (000’s)		Percentage of Total Revenue (%)
1	Shandong Brother Technology Limited	$	766	$	309	$	—	$	1,075		18.5	%
2	Shandong Morui Chemical Company Limited	$	769	$	298	$	—	$	1,067		18.4	%
3	Shouguang Weidong Chemical Company Limited	$	772	$	282	$	—	$	1,054		18.2	%

The following table shows the major customer(s) (10% or more) for the nine-month period ended September 30, ~~2017.~~2023.

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	$	3,166	$	842	$	—	$	4,008		17.4	%
2	Shandong Brother Technology Limited	$	3,077	$	768	$	—	$	3,845		16.7	%
3	Shouguang Weidong Chemical Company Limited	$	3,087	$	677	$	—	$	3,764		16.4	%
4	Shandong Shouguangshen Runfa Marine Chemical Company Limited	$	2,532	$	—	$	—	$	2,532		11	%

The following table shows the major customer(s) (10% or more) for the three-month period ended September 30, ~~2016.~~2022.

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	$	2,190	$	1,123	$	—	$	3,313		14.8	%
2	Shouguang Weidong Chemical Company Limited	$	2,041	$	885	$	—	$	2,926		12.8	%
3	Shandong Brother Technology Limited	$	2,339	$	927	$	—	$	3,266		14	%

The following table shows the major customer(s) (10% or more) for the nine-month period ended September 30, ~~2016.~~2022.

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	$	4,942	$	2,088	$	—	$	7,030		14.8	%
2	Shouguang Weidong Chemical Company Limited	$	4,169	$	1,583	$	—	$	5,752		12.1	%
3	Shandong Brother Technology Limited	$	4,782	$	1,836	$	—	$	6,618		14	%

NOTE ~~15 –~~ 17– CUSTOMER CONCENTRATION

Sale of Products

~~The Company sells a substantial portion of its products to a limited number of customers.~~ Product Concentration

During the ~~three-month and~~ nine-month ~~periods~~period ended September 30, ~~2017,~~2023, the Company sold ~~36.0% and 35.2%~~68.4% of its products to its top five ~~customers, respectively.~~customers. As of September 30, ~~2017,~~2023, amounts due from these customers were ~~$39,124,728.~~ $1,485,777.

During the ~~three-month and~~ nine-month ~~periods~~period ended September 30, ~~2016,~~2022, the Company sold ~~34.6% and 34.3%~~52.9% of its products to its top five ~~customers, respectively.~~customers. As of September 30, ~~2016,~~2022, amounts due from these customers were ~~$31,621,828. This concentration makes the Company vulnerable to a near-term severe impact, should the relationships be terminated.~~

~~Table of Contents~~

~~GULF RESOURCES, INC.~~

~~AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~SEPTEMBER 30, 2017~~

~~(Expressed in U.S. dollars)~~

~~(UNAUDITED)~~$6,095,578.

NOTE ~~16 –~~ 18– MAJOR SUPPLIERS

Purchase of Raw Materials

Supplier Concentration

During the ~~three-month and~~ nine-month ~~periods~~period ended September 30, ~~2017,~~2023 the Company purchased ~~71.6% and 68.2%~~100% of its raw materials from its top five ~~suppliers, respectively.~~suppliers. As of September 30, ~~2017,~~2023, amounts due to those suppliers ~~included in accounts payable~~ were ~~$1,353,182.~~ $229,260.

During the ~~three-month and~~ nine-month ~~periods~~period ended September 30, ~~2016,~~2022 the Company purchased ~~56.2% and 55.2%~~100% of its raw materials from its top five ~~suppliers, respectively.~~suppliers. As of September 30, ~~2016,~~2022, amounts due to those suppliers ~~included in accounts payable~~ were ~~$4,104,237. This concentration makes the Company vulnerable to a near-term severe impact, should the relationships be terminated.~~$219,646.

NOTE 1719 – FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying values of financial instruments, which consist of cash, accounts receivable and accounts payable and other payables, approximate their fair values due to the short-term nature of these instruments. There were no material unrecognized financial assets and liabilities as of September 30, ~~2017~~2023 and December 31, ~~2016.~~2022.

NOTE 1820 – CAPITAL COMMITMENT AND ~~OPERATING LEASE COMMITMENTS~~

As of September 30, 2017, the Company leased real property adjacent to Factory No. 1, with the related production facility, channels and ducts, other production equipment and the buildings located on the property, undera~~capital lease. The future minimum lease payments required under the capital lease, together with the present value of such payments, are included in the table shown below.~~

The Company has leased nine parcels of land under non-cancelable operating leases, which are fixed rentals and expire through December 2021, December 2023,December 2030, December 2031, December 2032, December 2040, February 2059, August 2059 and June 2060, respectively.OTHER SERVICE CONTRACTUAL OBLIGATIONS

The following table sets forth the Company’s contractual obligations as of September 30, ~~2017:~~2023:

Capital Commitment and Other Service Contractual Obligations - Schedule of Contractual Obligations

Capital Lease Obligations Operating Lease Obligations Property Management Fees
Payable within:
the next 12 months $ 282,808 $ 973,544 $ 23,499
the next 13 to 24 months 282,808 996,682 —
the next 25 to 36 months 282,808 1,017,918 —
the next 37 to 48 months 282,808 1,043,191 —
the next 49 to 60 months 282,808 897,662 —
thereafter 2,262,459 16,326,743 —
Total $ 3,676,499 $ 21,255,740 $ 23,499

Less: Amount representing interest
(1,248,157 )
Present value of net minimum lease payments $ 2,428,342

~~Table of Contents~~

~~GULF RESOURCES, INC.~~

~~AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~SEPTEMBER 30, 2017~~

~~(Expressed in U.S. dollars)~~

~~(UNAUDITED)~~

	Property Management Fees		Capital Expenditure
Payable within:
the next 12 months	$	86,992	$	49,575,927
the next 13 to 24 months		86,992		961,171
the next 25 to 36 months		86,992		—
the next 37 to 48 months		86,992		—
the next 49 to 60 months		—		—
Total	$	347,968	$	50,537,098

NOTE 1821 – ~~CAPITAL COMMITMENT AND OPERATING LEASE COMMITMENTS – Continued~~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.

~~Rental expenses related~~In the last twenty years, to ~~operating leases~~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 ~~amounted~~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 ~~$264,113~~seek reliefs and, ~~$259,196, which were charged~~based on verbal confirmation by local government authorities, believes the administrative penalties imposed by the Bureau according to the ~~condensed consolidated statements of income~~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 ~~three months ended September 30, 2017~~enforcement proceedings regarding the administrative penalty imposed on Factory No. 7, Factory No. 8 and ~~2016, respectively. Rental expenses related~~Factory No. 10. Pursuant to ~~operating leases~~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 ~~amounted to $775,680 and $783,820, which were charged to the income statements for the nine months ended September 30, 2017 and 2016, respectively.~~

~~NOTE 19 – SUBSEQUENT EVENTS~~

~~On September 1, 2017 the Company announced it~~ received a notification from the ~~government of Yangkou County,~~ Shouguang City ~~that production at its factories had to be halted~~Government in ~~order for~~February 2019 informing the Company that Factory No. 1, No. 4, No. 7 and No. 9 have passed inspection and were approved to ~~perform rectification and improvement in accordance with the country's new safety, environmental protection requirements.~~resume operation

~~On October 27, 2017,~~In addition, on August 28, 2019, the ~~Company~~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 ~~the government agreed on a plan for SCHC which the Company believes will cost approximately US$35 million to undertake and complete all the rectification steps.~~other chemical industry-related types of projects (clause 11 of section 3). The Company believes that the ~~rectification for all~~goal of the ~~bromine business will be completed~~government is to standardize and ~~that operations will recommence by~~regulate the ~~end of March 2018. However,~~industry and not to demolish the ~~Company will try its best to implement~~facilities or penalize the ~~measures quickly to commence production for part of its bromine factories before this date.~~manufacturers. As of the date of ~~filing 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 ~~discussion with the government to arrive at a rectification plan for its chemical business.~~further liabilities, penalties and operational disruption.

~~Table~~In view of ~~Contents~~the above facts and circumstances, the Company believes that it is not necessary to accrue for any estimated losses or impairment as of September 30, 2023.

NOTE 22 - SUBSEQUENT EVENT

Not Applicable.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Cautionary Note Regarding Forward-Looking Statements

The discussion below contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act, and Section 21E of the Exchange Act. We have used words such as “believes,” “intends,” “anticipates,” “expects” and similar expressions to identify forward-looking statements. These statements are based on information currently available to us and are subject to a number of risks and uncertainties that may cause our actual results of operations, financial condition, cash flows, performance, business prospects and opportunities and the timing of certain events to differ materially from those expressed in, or implied by, these statements. ~~These risks, uncertainties and other factors include, without limitation, those matters discussed in Item 1A of Part I of our 2016 Form 10-K.~~ Except as expressly required by the federal securities laws, we undertake no obligation to update such factors or to publicly announce the results of any of the forward-looking statements contained herein to reflect future events, developments, or changed circumstances, or for any other reason. The following discussion should be read in conjunction with our consolidated financial statements and notes thereto appearing in our 2016 Form 10-K and Item 1A, “Risk Factors” for the year ended December 31, 2016.

Overview

We are a Nevada holding company which conducts operations through our wholly-owned China-based subsidiaries. Our business is conducted and reported in four segments, namely, bromine, crude salt, chemical products and natural gas.

Through our wholly-owned subsidiary, SCHC we produce and trade ~~bromine~~bromine; and through our wholly-owned subsidiary, SHSI, we manufacture and sell crude salt. We are one of the largest producers of bromine in China, as measured by production output. Elemental bromine is used to manufacture a wide variety of bromine compounds used in industry and agriculture. Bromine also is used to form intermediary chemical compounds such as Tetramethylbenzidine. Bromine is commonly used in brominated flame retardants, fumigants, water purification compounds, dyes, medicines and disinfectants. Crude salt is the principal material in alkali production as well as chlorine alkali production and is widely used in the chemical, food and beverage, and other industries.

Through our wholly-owned subsidiary, SYCI, we manufacture and sell chemical products used in oil and gas field exploration, oil and gas distribution, oil field drilling, ~~wastewater processing,~~ papermaking chemical agents, inorganic chemicals and ~~manufacture and sell chemical products~~materials that are used for human and animal antibiotics.

On December 12, 2006, we acquired, through a share exchange, Upper Class Group Limited, a British Virgin Islands holding corporation which then owned all of the outstanding shares of SCHC. Under accounting principles generally accepted in the United States, the share exchange is considered to be a capital transaction in substance, rather than a business combination. That is, the share exchange is equivalent to the issuance of stock by Upper Class for the net assets of our Company, accompanied by a recapitalization, and is accounted for as a change in capital structure. Accordingly, the accounting for the share exchange was identical to that resulting from a reverse acquisition, except no goodwill was recorded. Under reverse takeover accounting, the post reverse acquisition comparative historical consolidated financial statements of the legal acquirer, our Company, are those of the legal acquiree, Upper Class Group Limited, which is considered to be the accounting acquirer. Share and per share amounts reflected in this report have been retroactively adjusted to reflect the merger.

On February 5, 2007, the Company, acting through SCHC, acquired SYCI. Since the ownership of the Company and SYCI was then substantially the same, the transaction was accounted for as a transaction between entities under common control, whereby we recognized the assets and liabilities of SYCI at their carrying amounts. Share and per share amounts stated in this report have been retroactively adjusted to reflect the merger.

On August 31, 2008, SYCI completed the construction of a new chemical production line. It passed the examination by Shouguang City Administration of Work Safety and local fire department. This new production line focuses on producing environmental friendly additive products, solid lubricant and polyether lubricant, for use in oil and gas exploration. The line has an annual production capacity of 5,000 tons. Formal production of this chemical production line started on September 15, 2008. The total annual production capacity of SYCI is 36,300 tons (exclude SCRC which was merged with SYCI on January 1, 2017).

~~Table of Contents~~

On October 12, 2009 we completed a 1-for-4 reverse stock split of our common stock, such that for each four shares outstanding prior to the stock split there was one share outstanding after the reverse stock split. All shares of common stock referenced in this report have been adjusted to reflect the stock split figures. On October 27, 2009 our shares began trading on the NASDAQ Global Select Market under the ticker symbol “GFRE” and on June 30, 2011 we changed our ticker symbol to “GURE” to better reflection of our corporate name.

On January 12, 2015, the Company and SCHC entered into an Equity Interest Transfer Agreement with SCRC pursuant to which SCHC agreed to acquire SCRC and all rights, title and interest in and to all assets owned by SCRC, a leading manufacturer of materials for human and animal antibiotics in China and other parts of Asia.

~~On February 4, 2015 the Company closed the transactions contemplated by the agreement between the Company, SCHC and SCRC.~~

On the closing date, the Company issued 7,268,011 shares of its common stock, par value $0.0005 per share (the “Shares”), at the closing market price of $1.84 per Share on the closing date to the four former equity owners of SCRC .The issuance of the Shares was exempt from registration pursuant to Regulation S of the Securities Act of 1933, as amended. On the closing date, the Company entered into a lock-up agreement with the four former equity owners of SCRC. In accordance with the terms of the lock-up agreement, the shareholders agreed not to sell or transfer the Shares for five years from the date the stock certificates evidencing the Shares were issued.

The sellers of SCRC agreed as part of the purchase price to accept the Shares, based on a valuation of $2.00, which was a 73% premium to the price on the day the agreement was entered into. For accounting purposes, the Shares are now being valued at $1.84, which was the closing price of our stock on the day of the closing date of the agreement. The price difference between the original $2.00 and the current $1.84 is solely for accounting purposes. There has been no change in the number of shares issued.

~~On November 24, 2015, Gulf Resources, Inc., a Delaware corporation consummated a merger with and into its~~Our wholly-owned subsidiary, ~~Gulf Resources, Inc., a Nevada corporation. As a result of the reincorporation, the Company is now a Nevada corporation.~~

On December 15, 2015, the Company registered a new subsidiary in the Sichuan Province of the PRC named Daying County Haoyuan Chemical Company Limited (“DCHC”) with registered Capital of RMB50,000,000, and there was RMB11,833,535 capital contributed by SCHC as of September 30, 2017. DCHC, was established to ~~further~~ explore and develop natural gas and brine resources (including bromine and crude salt) in Sichuan Province, China.

As disclosed in the Company’s Current Report on Form 8-K filed on September 8, 2017, the Company ~~disclosed that~~received, on September 1, 2017, ~~the Company received~~ letters from the Yangkou County, Shouguang City government addressed to each of its subsidiaries, SCHC and SYCI, which stated that in an effort to improve the safety and environmental protection management level of chemical enterprises, the plants are requested to immediately stop production and perform rectification and improvements in accordance with the ~~country's~~country’s new safety and environmental protection requirements. In the Company’s press release of August 11, 2017 and on its conference call of August 14, 2017, the Company addressed concerns that increased government enforcement of stringent environmental rules that were adopted in early 2017 to insure corporations bring their facilities up to necessary standards so that pollution and other negative environmental issues are limited and remediated, could have an impact on our business in both the short and long-term. The Company also expressed that although it believed its facilities were fully compliant at the time, the Company did not know how its facilities would fare under the new ~~rules and that the Company expected to have a full understanding of the implications within the next two months.~~rules. Teams of inspectors from the government were sent to many provinces to inspect all mining and manufacturing facilities. The local government requested that facilities be closed, so that the facilities ~~can~~could undergo the inspection and analysis in the most efficient manner by inspectors’ team. As a result, our facilities were closed on September 1, 2017.

~~All direct labor~~The Company believes that this is another step by the government to improve the environment. It further believes the goal of the government is not to close all plants, but rather to codify the regulations related to project approval, land use, planning approval and ~~factory overhead costs~~environmental protection assessment approval so that illegal plants are not able to open in the future and so that plants close to population centers do not cause serious environmental damage. In addition, the Company believes that the Shandong provincial government wants to assure that each of its regional and county governments has applied the Notice in a consistent manner.

The Shouguang City Bromine Association, on behalf of all the bromine plants in Shouguang, started discussions with the local government agencies. The local governmental agencies confirmed the facts that their initial requirements for the bromine industry did not include the project approval, the planning approval and the land use rights approval and that those three additional approvals were new requirements of the provincial government. The Company understood from the local government that it has been coordinating with several government agencies to solve these three outstanding approval issues in a timely manner and that all the affected bromine plants will not be allowed to commence production prior to obtaining those approvals.

In February 2019, the Company received a notification from the local government of Yangkou County that its Factory No. 1, No.4, No. 7 and No. 9 have passed inspection and were allowed to resume operations. In April 2019, Factory No. 1 and No. 7 resumed operations.

On February 28, 2020, the Company announced that it received an approval from the government to resume bromine production after winter temporary closure. Subsequently, it received another approval from the Shouguang Yangkou People’s Government dated on March 5, 2020 to resume production at its bromine factories No.1, No. 4, No.7 and No. 9 in order to meet the needs of bromide products for epidemic prevention and control. With these two approvals, the Company was allowed to resume production at all four bromine factories.

On December 27, 2021, the Company announced that the government of Shouguang City ordered the closing of all bromine facilities during the period from December 28, 2021 to February 21, 2022. The Company reopened its four operating bromine and crude salt facilities as planned on February 21, 2022.

The Company is still waiting for governmental approval for factories No. 2 and No.10.

To its knowledge, the government is currently completing its planning process for all mining areas including ~~depreciation~~that for prevention of ~~plant~~flood. As a result, the Company may be required to make modifications to our current wells and ~~machinery incurred in September~~aqueducts prior to commencement of operations of these factories to satisfy the local government's requirements.

On November 24, 2017, ~~which~~Gulf Resources received a letter from the People’s Government of Yangkou County, Shouguang City notifying the Company that due to the new standards and regulations relating to safety production and environmental pollution, from certain local governmental departments, such as the municipal environmental protection department, the security supervision department and the fire department, its chemical enterprises would have to be relocated to a new industrial park called Bohai Marine Fine Chemical Industry Park. Although our chemical companies were in compliance with regulations, they were also close to a residential area. As a result, the government determined the Company should relocate to the Bohai park. Chemical companies that were not asked to move into the park have been ~~presented~~closed. Since the closure of our factories, the Company has secured from the government the land use rights for its chemical plant. On January 6, 2020, the Company received the environmental protection approval by the government of Shouguang City, Shandong Province for the proposed Yuxin Chemical factory. The Company began the construction on its new chemical facilities located at Bohai Marine Fine Chemical Industrial Park in June 2020. The completion of construction has been delayed due to COVID-19 related restrictions, supply chain disruption and electric restrictions. On February 22, 2022, the Company announced that while the Company did not receive a formal notice from the government regarding the electricity needed for its Yuxin Chemical factory, 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. Because of supply chain issues, largely related to COVID 19, the delivery of some of the equipment has been delayed. At this time, the Company cannot estimate when construction will be completed.

In January 2017, the Company completed the first brine water and natural gas well field construction in Daying located in Sichuan Province and commenced trial production in January 2019. On May 29, 2019, the Company received a verbal notice from the government of Tianbao Town ,Daying County, Sichuan Province, whereby the Company is required to obtain project approval for its well located in Daying, including the natural gas and brine water project, and approvals for safety production inspection, environmental protection assessment, as well as related land issues. Until these approvals have been received, the Company has temporarily halted trial production at its natural gas well in Daying. In compliance with the Chinese government new policies, the Company is also required to obtain exploration and mining licenses for both bromine and natural gas. 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 ~~cost of net revenue were presented as part of~~natural gas production. The Company plans to proceed with its applications for the ~~general~~natural gas and ~~administrative expense in~~brine project approvals with related government departments after the ~~three-month~~governmental planning has been finalized and ~~nine-month periods ended September 30, 2017.~~the land and resource planning for Sichuan Province has been approved.

As a result of our acquisitions of SCHC and SYCI, our historical consolidated financial statements and the information presented below reflects the accounts of SCHC, SYCI , SHSI and DCHC, the consolidated financial statements and the information presented below as of and for the period ended Setpember 30, 2023. The following discussion should be read in conjunction with our consolidated financial statements and notes thereto appearing elsewhere in this report.

On January 28, 2020 we completed a 1-for-5 reverse stock split of our common stock, such that for each five shares outstanding prior to the stock split there was one share outstanding after the reverse stock split. All shares of common stock referenced in this report have been adjusted to reflect the stock split figures.

Our current corporate structure chart is set forth in the following diagram:

As a result of our acquisitions of SCHC and SYCI, our historical financial statements and the information presented below reflects the accounts of SCHC, SYCI, SHSI and DCHC. The following discussion should be read in conjunction with our condensed consolidated financial statements and notes thereto appearing elsewhere in this report.

Recent Developments

~~Table~~In 2018, Shouguang City experienced the devastating impact of ~~Contents~~Typhoon Winbiya, regarded as one of the most destructive typhoons in history. In 2019, Typhoon Lekima struck Shouguang City, surpassing the destructive force of its predecessor. These typhoons inflicted significant damage upon our facilities and the surrounding agricultural fields. The Company incurred substantial expenses, amounting to more than $46 millions, including write-offs, for road repairs, equipment replacement, salt pan reconstruction, the re-drilling of flooded wells and etc.. To mitigate similar damages in the future, the Company has commenced a flood prevention initiative. Our strategy involves 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. The projected expenditure for this initiative amounts to approximately $50.5 million. As of September 30, 2023, we disbursed approximately $15.2 for the initial phase of this project. Apart from reducing risk to surrounding regions, we anticipate three advantages from this flood prevention plan. It is expected to: (i) enhance the probability of obtaining authorization to reopen factories No. 2 and No. 10; (ii) enable the drilling of additional wells across our five operating factories, and (iii) mitigate the risks and associated expenses related to future storms-induced flooding.

RESULTS OF OPERATIONS

The following table presents certain information derived from the condensed consolidated statements of operations, cash flows and stockholders equity for the three-month and nine-month periods ended September 30, ~~2017~~2023 and ~~2016.~~2022.

Comparison of the Three-Month Period Ended September 30, ~~2017~~2023 and ~~2016~~2022

Three-Month
Period Ended
September 30, 2017 Three-Month
Period Ended
September 30, 2016 Percent Change
Increase/
(Decrease)
Net revenue $ 23,840,391 $ 38,811,622 (39 %)
Cost of net revenue $ (14,518,439 ) $ (23,107,921 ) (37 %)
Gross profit $ 9,321,952 $ 15,703,701 (41 %)
Sales, marketing and other operating expenses $ (65,599 ) $ (83,087 ) (21 %)
Research and development costs $ (42,074 ) $ (68,115 ) (38 %)
Write-off/Impairment on property, plant and equipment $ — $ (90,395 ) (100 %)
General and administrative expenses $ (4,451,027 ) $ (1,613,933 ) 176 %
Other operating income $ 72,000 $ 108,029 (33 %)
Income from operations $ 4,835,252 $ 13,956,200 (65 %)
Other income, net $ 99,709 $ 78,042 28 %
Income before taxes $ 4,934,961 $ 14,034,242 (65 %)
Income taxes $ (1,509,321 ) $ (3,518,529 ) (57 %)
Net income $ 3,425,640 $ 10,515,713 (67 %)

	Three-Month Period Ended September 30, 2023			Three-Month Period Ended September 30, 2022			Percent Change Increase/ (Decrease)
Net revenue	$	5,865,615		$	22,862,795			(74	%)
Cost of net revenue		(6,373,902	)		(8,405,694	)		(24	%)
Gross profit		(508,287	)		14,457,101			(104	%)
Sales, marketing and other operating expenses		(14,428	)		(19,681	)		(27	%)
Direct labor and factory overheads incurred during plant shutdown		(1,007,689	)		(1,910,318	)		(47	%)
General and administrative expenses		(762,884	)		(584,473	)		31	%
Other operating income(loss)		—			(37	)		(100	%)
Income(Loss) from operations		(2,293,288	)		11,942,592			(119	%)
Other income		33,967			35,755			(5	%)
Income(Loss) before taxes		(2,259,321	)		11,978,347			(119	%)
Income tax benefit		483,524			(3,010,967	)		(116	%)
Net income(loss)	$	(1,775,797	)	$	8,967,380			(120	%)

Net revenue. The table below shows the changes in net revenue in the respective segment of the Company for the three-month period ended September ~~2017~~30, 2023 as compared to the same period in ~~2016:~~2022:

	Net Revenue by Segment													Net Revenue by Segment
	Three-Month Period Ended					Three-Month Period Ended					Percent change (Decrease)			Three-Month Period Ended					Three-Month Period Ended					Percent Change Increase
	September 30, 2017					September 30, 2016					of Net Revenue			September 30, 2023					September 30, 2022					of Net Revenue
Segment			% of total					% of total								% of total					% of total
Bromine	$	9,549,777		40	%	$	15,971,847		41	%		(40	%)	$	4,908,152		84	%	$	19,845,773		86	%		(75	%)
Crude Salt	$	2,054,729		9	%	$	2,310,799		6	%		(11	%)		889,556		15	%		2,934,707		13	%		(70	%)
Chemical Products	$	12,235,885		51	%	$	20,528,975		53	%		(40	%)		—		—			—		—
Natural Gas															67,907		1	%		82,315		1	%		(17	%)
Total sales	$	23,840,391		100	%	$	38,811,621		100	%		(39	%)	$	5,865,615		100	%	$	22,862,795		100	%		(74	%)

Bromine and crude salt segments Three-Month Period Ended Percentage Change
product sold in tonnes September 30, 2017 September 30, 2016 (Decrease)
Bromine (excluding volume sold to SYCI) 2,592 4,511 (43 %)
Crude Salt 64,362 82,547 (22 %)

Three-Month Period Ended Percentage Change
Chemical products segment sold in tonnes September 30, 2017 September 30, 2016 (Decrease)
Oil and gas exploration additives 1,361 2,914 (53 %)
Paper manufacturing additives 450 835 (46 %)
Pesticides manufacturing additives 239 606 (61 %)
Pharmaceutical intermediates 293 388 (25 %)
By products 1,435 3,045 (53 %)
Overall 3,778 7,788 (51 %)

Bromine and crude salt segments	Three-Month Period Ended				Percentage Change
product sold in tonnes	September 30, 2023		September 30, 2022		Increase (Decrease)
Bromine		1,516		2,655		(43	%)
Crude Salt		30,334		81,810		(63	%)

~~Table of Contents~~

Bromine segment

For the three-month periods ended September 30, 2023 and 2022, the net revenue for the bromine segment was $4,908,152 and $19,845,773, respectively. The ~~table below shows~~decrease of the ~~changes~~net revenue of bromine was due to the 43% decrease in tonnes sold and 57% decrease in average selling price of bromine in the third quarter of 2023. The average selling price of bromine in the third quarter of 2023 was $3,237 compared to the average selling price ~~and changes~~of bromine in the ~~sales volume~~third quarter of ~~bromine for~~2022 of $7,474(calculated by dividing revenue by tonnes).

Crude salt segment

For the three-month ~~period~~periods ended September 30, ~~2017 from~~2023 and 2022, the ~~same period in 2016.~~

Three-Month Period
Ended September 30,
Decrease in net revenue of bromine as a result of: 2017 vs. 2016
Increase in average selling price $ 509,270
Decrease in sales volume $ (6,931,340 )
Total effect on net revenue of bromine $ (6,422,070 )

net revenue for the crude salt was $889,556 and $2,934,707, respectively. The decrease inof net revenue ~~from our bromine segment~~of crude salt was mainly due to the 63% decrease in ~~the sales volume. The sales volume~~tonnes sold and 18% decrease in average selling price of ~~bromine decreased from 4,511 tonnes~~crude salt for the three-month period ended September 30, ~~2016 to 2,592 tonnes~~2023.

Chemical products segment

For the three-month periods ended September 30, 2023 and 2022, the net revenue for the ~~same period in 2017, a decrease of 43%. The major reasons for the decrease in the sales volume of bromine were (i) the slowdown in the Chinese economy, and (ii)~~chemical products segment was $0 due to the closure of ~~all of~~ our ~~plant and~~chemical factories ~~to perform rectification and improvements~~ since September 1, 2017. ~~Some of our local customers were also requested to stop production, which affected our customers’ industries and our sales volume.~~

~~The average selling price of bromine increased from $3,541 per tonne for~~Natural gas segment

For the three-month period ended September 30, ~~2016 to $3,684 per tonne for~~2023 and 2022, the ~~same period in 2017, an increase of 4%.~~net revenue was $0.

~~Crude salt segment~~Equipment Lease

~~The table below shows the changes in the average selling price and changes in the sales volume of crude salt for three-month period ended September 30, 2017 from the same period in 2016.~~

Three-Month Period
Ended September 30,
Decrease in net revenue of crude salt as a result of: 2017 vs. 2016
Increase in average selling price $ 288,745
Decrease in sales volume $ (544,815 )
Total effect on net revenue of crude salt $ (256,070 )

~~The decrease in net revenue from our crude salt segment was due to the decrease in the sales volume of crude salt. The sales volume of crude salt decreased by 22% from 82,547 tonnes for~~For the three-month period ended September 30, ~~2016 to 64,362 tonnes~~2023 and 2022, the net revenue for the ~~same period in 2017. The major reason for the decrease in the sales volume of crude salt were (i) the slowdown in the Chinese economy,~~equipment lease was $67,907 and (ii) the closure of all of our plant and factories to perform rectification and improvements since September 1, 2017. Some of our local customers were also requested to stop production, which affected our customers’ industries and our sales volume.$82,315.

~~The average selling price of crude salt increased from $27.99 per tonne for the three-month period ended September 30, 2016 to $31.92 per tonne for the same period in 2017, an increase of 14%.~~

~~Table of Contents~~

~~Chemical products segment~~

Product Mix of Chemical Products Segment Percent
Three-Month Period Ended Three-Month Period Ended Change of
September 30, 2017 September 30, 2016 Net Revenue
Chemical Products % of total % of total
Oil and gas exploration additives $ 2,620,464 21 % $ 5,362,309 26 % (51 %)
Paper manufacturing additives $ 517,905 4 % $ 930,262 4 % (44 %)
Pesticides manufacturing additives $ 1,311,326 11 % $ 3,010,391 15 % (56 %)
Pharmaceutical intermediates $ 6,081,137 50 % $ 7,586,616 37 % (20 %)
By products $ 1,705,053 14 % $ 3,639,397 18 % (53 %)
Total sales $ 12,235,885 100 % $ 20,528,975 100 % (40 %)

Net revenue from our chemical products segment decreased from $20,528,975 for the three-month period ended September 30, 2016 to $12,235,885 for the same period in 2017, a decrease of approximately 40%. This decrease was primarily attributable to the decreased sales volume of all our chemical products mainly due to (i) the slowdown in the Chinese economy, and (ii) the closure of all of our plant and factories to perform rectification and improvements since September 1, 2017. Some of our local customers were also requested to stop production, which affected our customers’ industries and our sales volume. Net revenue from our oil and gas exploration chemicals decreased from $5,362,309 for the three-month period ended September 30, 2016 to $2,620,464 for the same period in 2017, a decrease of approximately 51%. Net revenue from our paper manufacturing additives decreased from $930,262 for the three-month period ended September 30, 2016 to $517,905 for the same period in 2017, a decrease of approximately 44%. Net revenue from our pesticides manufacturing additives decreased from $3,010,391 for the three-month period ended September 30, 2016 to $1,311,326 for the same period in 2017, a decrease of approximately 56%. Net revenue from our pharmaceutical intermediates decreased from $7,586,616 for the three-month period ended September 30, 2016 to $6,081,137 for the same period in 2017, a decrease of approximately 20%. Net revenue from our by products decreased from $3,639,397 for the three-month period ended September 30, 2016 to $1,705,053 for the same period in 2017, a decrease of approximately 53%.

The table below shows the changes in the average selling price and changes in the sales volume of major chemical products of the chemical products segment for the three-month period ended September 30, 2017 from the same period in 2016.

Decrease in net revenue,
for the three-month period ended September 30, 2017 vs. 2016, as a result of: Oil and gas exploration additives Paper manufacturing additives Pesticides manufacturing additives Pharmaceutical intermediates By products Total
Increase/(Decrease) in average selling price $ 182,459 $ 23,003 $ 220,254 $ 414,274 $ (15,611 ) $ 824,379
Decrease in sales volume $ (2,924,304 ) $ (435,360 ) $ (1,919,319 ) $ (1,919,753 ) $ (1,918,733 ) $ (9,117,469 )
Total effect on net revenue of chemical products $ (2,741,845 ) $ (412,357 ) $ (1,699,065 ) $ (1,505,479 ) $ (1,934,344 ) $ (8,293,090 )

~~Table of Contents~~

Cost of Net ~~Revenue.~~Revenue

	Cost of Net Revenue by Segment										percent Change			Cost of Net Revenue by Segment										Percent Change
	Three-Month Period Ended					Three-Month Period Ended					of Cost of			Three-Month Period Ended					Three-Month Period Ended					of Cost of
	September 30, 2017					September 30, 2016					Net Revenue			September 30, 2023					September 30, 2022					Net Revenue
Segment			% of total					% of total								% of total					% of total
Bromine	$	5,150,471		35	%	$	7,106,210		31	%		(28	%)	$	5,995,496		94.06	%	$	7,362,103		87.58	%		(19	%)
Crude Salt	$	1,102,060		8	%	$	2,498,817		11	%		(56	%)		378,100		5.93	%		1,043,260		12.41	%		(64	%)
Chemical Products	$	8,265,908		57	%	$	13,502,894		58	%		(39	%)		—		—			—		—			—
Natural Gas															306		0.01	%		331		0.01	%		(8	%)
Total	$	14,518,439		100	%	$	23,107,921		100	%		(37	%)	$	6,373,902		100	%	$	8,405,694		100	%		(24	%)

Cost of net revenue reflects mainly the raw materials consumed, ~~and~~ the direct salaries and benefits of staff engaged in the production process, electricity, depreciation and amortization of manufacturing plant and machinery and other manufacturing costs. Our cost of net revenue was $14,518,439 for the three-month period ended September 30, 2017, a decrease of $8,589,482 (or 37%) as compared to the same period in 2016. This decrease was primarily attributable to the decrease volume of products sold due to (i) the slowdown in the Chinese economy, and (ii) the closure of all of our plant and factories to perform rectification and improvements since September 1, 2017. Some of our local customers were also requested to stop production, which affected our customers’ industries and our sales volume.

Bromine production capacity and utilization of our factories

The table below represents the annual capacity and utilization ratios for all of our bromine producing properties:

Annual Production
Capacity (in tonnes)
Utilization
Ratio (i)
Three-month period ended September 30, 2016 47,347 46 %
Three-month period ended September 30, 2017 42,808 37 %
Variance of the three-month period ended September 30, 2017 and 2016 (4,539 ) (9 %)

	Annual Production Capacity (in tonnes)		Utilization Ratio (i)
Three-month period ended September 30, 2022		31,506		34%
Three-month period ended September 30, 2023		31,506		19%
Variance of the three-month period ended September 30, 2023 and 2022		-		(15%	)

(i) Utilization ratio is calculated based on the annualized actual production volume in tonnes for the ~~period~~periods divided by the annual production capacity in ~~tonnes.~~tonnes of all the seven factories including those that have not commenced operations.

~~Our utilization ratio decreased by 9% for the three-month period ended September 30, 2017 as compared with the same period in 2016. This decrease was mainly due to the slowdown in the Chinese economy.~~

~~Table of Contents~~

Bromine segment

For the three-month period ended September 30, ~~2017,~~2023, the bromine segment had a net cost of revenue of $5,995,496.

For the three-month period ended September 30, 2022 the cost of net revenue for the bromine segment was ~~$5,150,471, a decrease of $1,955,739 or 28% over the same period in 2016. The major components of the costs of net revenue for the bromine~~$7,362,103.

Crude salt segment were the cost of raw materials and finished goods consumed of $1,442,686 (or 28%), depreciation and amortization of manufacturing plant and machinery of $2,373,683 (or 46%) and Resource tax of $418,311 (or 8%) for the three-month period ended September 30, 2017.

For the three-month period ended September 30, ~~2016, the major components of~~2023 the cost of net revenue ~~were~~for the cost of raw materials and finished goods consumed of $2,150,607 (or 30%), depreciation and amortization of manufacturing plant and machinery of $3,012,969 (or 42%) and electricity of $738,926 (or 10%). The cost structure changed where the proportion of cost of raw materials and finished goods consumed over the total cost of net revenue decreased by 2% incrude salt segment was $378,100.

For the three-month period ended September 30, ~~2017 compared to~~2022 the same period in 2016. The decrease in net cost of net revenue was the decrease in the sales volume of bromine as mentioned in net revenue of bromine and decrease in depreciation and amortization of manufacturing plant and machinery mainly due to (i) some plant and equipment related to the crude salt and bromine facilities were fully depreciated in June 2016; and (ii) the demolition Factory No.6 in December 2016 for bromine and crude salt segment, which partially offset by the increase in depreciation and amortization of manufacturing plant and machinery due to the enhancement projects carried out for our extraction wells and transmission channels and ducts which commenced in August 2016 and completed in September 2016 .

~~The table below represents the major production cost component of bromine per tonne for respective periods:~~

Per tonne production cost Three-Month Period Ended Three-Month Period Ended
component of bromine segment September 30, 2017 September 30, 2016 % Change
% of total % of total
Raw materials $ 909 42 % $ 819 46 % 11 %
Depreciation and amortization $ 811 37 % $ 593 33 % 37 %
Electricity $ 128 6 % $ 146 8 % (12 %)
Others $ 328 15 % $ 237 13 % 38 %
Production cost of bromine per tonne $ 2,176 100 % $ 1,795 100 % 21 %

~~Our production cost of bromine per tonne was $2,176 for the three-month period ended September 30, 2017, an increase of 21% (or $381) as compared to the same period in 2016.~~

~~Crude salt segment~~

~~The~~ cost of net revenue for ~~our~~the crude salt segment ~~for the three-month period ended September 30, 2017~~ was $1,102,060, representing a decrease of $1,396,757, or 56%, compared to $2,498,817 for the same period in 2016. The decrease in cost was mainly due to the decrease in depreciation and amortization of manufacturing plant and machinery mainly due to (i) some plant and equipment related to the crude salt and bromine facilities were fully depreciated in June 2016; and (ii) the demolition Factory No.6 in December 2016 for bromine and crude salt segment, which partially offset by the increase in depreciation and amortization of manufacturing plant and machinery due to the enhancement projects carried out for our extraction wells and transmission channels and ducts which commenced in August 2016 and completed in September 2016. The significant cost components for the three-month period ended September 30, 2017 were depreciation and amortization of $612,699 (or 56%), resource taxes calculated based on crude salt sold of $205,473 (or 19%) and electricity of $89,961 (or 8%). The significant cost components for the three-month period ended September 30, 2016 were depreciation and amortization of $1,751,438 (or 70%), resource taxes calculated based on crude salt sold of $247,707 (or 10%) and electricity of $183,842 (or 7%). The table below represents the major production cost component of crude salt per ton for respective periods:$1,043,260.

Per tonne production cost Three-Month Period Ended Three-Month Period Ended
component of crude salt segment September 30, 2017 September 30, 2016 % Change
% of total % of total
Depreciation and amortization $ 9.5 55 % $ 21.2 70 % (55 %)
Resource tax $ 3.2 19 % $ 3.0 10 % 7 %
Electricity $ 1.4 8 % $ 2.3 7 % (39 %)
Others $ 3.0 18 % $ 3.8 13 % (21 %)
Production cost of crude salt per tonne $ 17.1 100 % $ 30.3 100 % (43 %)

~~Table of Contents~~

Chemical products segment

Cost of net revenue for our chemical products segment for the three-month period ended September 30, ~~2017~~2023 and 2022 was $8,265,908, representing a decrease of $5,236,986, or 39%, over the same period in 2016. This decrease was primarily attributable to the decrease in sales volume of all our chemical products due to (i) the slowdown in the Chinese economy, and (ii) the closure of all of our plant and factories to perform rectification and improvements since September 1, 2017. Some of our local customers were also requested to stop production, which affected our customers’ industries and our sales volume.$0.

.Natural gas segment

Cost of net revenue for our natural gas segment for the three-month period ended September 30, 2023 and 2022 was $306 and 331.

Gross Profit.Gross ~~profit~~loss was ~~$9,321,952,~~$508,287 or ~~39%~~9%, of net revenue for three-month period ended September 30, ~~2017~~2023, representing an decrease of $14,965,388, as compared to ~~$15,703,701,~~a gross profit of $14,457,101, or ~~40%~~63%, of net revenue for the same period in ~~2016.~~2022.

	Gross Profit (Loss) by Segment											Percent Change			Gross Profit (Loss) by Segment											% Point Change
	Three-Month Period Ended					Three-Month Period Ended						of Gross			Three-Month Period Ended						Three-Month Period Ended					of Gross
	September 30, 2017					September 30, 2016						Profit Margin			September 30, 2023						September 30, 2022					Profit Margin
Segment			Gross Profit Margin						Gross Profit (Loss) Margin									Gross Profit (loss) Margin					Gross Profit (loss) Margin
Bromine	$	4,399,306		46	%	$	8,865,637			56	%		(10	%)	$	(1,087,344	)		(22	%)	$	12,483,670		63	%		(85	%)
Crude Salt	$	952,669		46	%	$	(188,018	)		(8	%)		54	%		511,456			57	%		1,891,447		64	%		(7	%)
Chemical Products	$	3,969,977		32	%	$	7,026,082			34	%		(2	%)		—			—			—		—			—
Natural Gas																67,601			100	%		81,984		100			0	%
Total Gross Profit	$	9,321,952		39	%	$	15,703,701			40	%		(1	%)	$	(508,287	)		(9	%)	$	14,457,101		63	%		(72	%)

Bromine segment

For the three-month period ended September 30, ~~2017,~~2023, the gross loss for our bromine segment was 22%, compared to 63% in the three-month period ended September 30, 2022. The decrease in gross profit margin was primarily attributable to the lower average selling price of bromine of $3,237 per ton in the three-month period ended September 30, 2023 compared to $7,474 per ton in the three-month period ended September 30, 2022.

For the three-month period ended September 30, 2022, the gross profit margin for our bromine segment was ~~46% compared to 56% for the same period in 2016. This 10% decrease was primarily attributable to the increase in factory overhead per unit produced due to lower volume of production.~~63%.

Crude salt segment

For the three-month period ended September 30, ~~2017~~2023, the gross profit ~~(loss)~~ margin for our crude salt segment was 46% compared to (8)% for the same period in 2016. This 54% increase in our gross (loss) profit margin is mainly attributable to the decrease in depreciation and amortization of manufacturing plant and machinery as mentioned in cost of net revenue of crude salt.57%.

~~Table of Contents~~

~~Chemical products segment~~

~~The~~For the three-month period ended September 30, 2022, the gross profit margin for our crude salt segment was 64%.

Direct labor and factory overheads incurred during plant shutdown On September 1, 2017, the Company received notification from the government of Yangkou County, Shouguang City of PRC that stated that production at all its bromine and crude salt and chemical ~~products segment~~factories should be halted with immediate effect in order for the Company to perform rectification and improvement in accordance with the county’s new safety and environmental protection requirements. On November 24, 2017, the Company received a letter from the Government of Yangkou County, Shouguang City notifying the Company to relocate its two chemical production plants located in the second living area of the Qinghe Oil Extraction Plant to Bohai Park. As a result, direct labor and factory overhead costs (including depreciation of plant and machinery) in the amount of $1,007,689 and $1,910,318 incurred for the three-month periods ended September 30, 2023 and 2022, respectively, of factories that have not resumed production were presented as part of the operating expense.

Income (loss) from Operations loss from operations was $2,293,288 for the three-month period ended September 30, ~~2017 was 32%~~2023, compared to ~~34% for~~income of $11,942,592 in the same period in ~~2016.~~2022.

	Loss from Operations by Segment
	Three-Month Period Ended September 30, 2023				Three-Month Period Ended September 30, 2022
Segment:				% of total				% of total
Bromine	$	(2,143,203)		(105.27%)	$	10,552,343		87.94%
Crude Salt		500,469		24.58%		1,876,161		15.63%
Chemical Products		(397,410	)	(19.52%)		(447,960	)	0.16%
Natural Gas		4,156		0.21%		19,500		(3.73%)
Income(loss) from operations before corporate costs		(2,035,988)		100%		12,000,044		100%
Corporate costs		(65,148	)			(50,505	)
Unrealized gain (loss) on translation of Intercompany balance		(192,152	)			(6,947	)
Income (loss) from operations	$	(2,293,288	)		$	11,942,592

Bromine segment

~~Research and Development Costs.~~ ~~The total research and development costs incurred~~Loss from operations from our bromine segment was $2,143,203 for the three-month period ended September 30, 2017 and 2016 were $42,074 and $68,115, respectively, a decrease of 38%. Research and development costs for the three-month period ended September 30, 2017 represented raw materials used by SYCI for testing the manufacturing routine. Research and development costs for the three-month period ended September 30, 2016 represented raw materials used by SYCI and SCRC for testing the manufacturing routine.

~~Write-off/Impairment on property, plant and equipment.~~ Write-offs on property, plant and equipment for the three-month period ended September 30, 2017 and 2016 were $0 and $90,395, respectively, a decrease of 100%. Write-offs on property, plant and equipment of $90,395 for the three-month period ended September 30, 2016 represented the write-offs of certain protective shells to transmission pipelines and ducts replaced that started in August 2016 and completed in September 2016.

~~General and Administrative Expenses.~~ ~~General and administrative expenses were $4,451,027 for the three-month period ended September 30, 2017, an increase of $2,837,094 (or 176%) as~~2023, compared to ~~$1,613,933 for~~income from operations of $10,552,343 in the same period in 2016. This increase in general and administrative expenses was primarily due to (i) the unrealized exchange loss of $536,453 in relation to the translation of current portion of inter-company balance owing in RMB for the three-month period ended September 30, 2017, as compared to the unrealized exchange gain for the same period in 2016 in the amount of $181,030; and (ii) depreciation and amortization of manufacturing plant and machinery incurred in September 2017 classified in general and administrative expense as production in all factories was temporarily stopped from September 1, 2017 to allow for rectification and improvement to be made to the facilities to comply with the new safety and environmental protection requirements of PRC.

~~Other Operating Income.~~ ~~Other operating income was $72,000 for the three-month period ended September 30, 2017, a~~2022. The decrease of ~~$36,029 (or 33%) as compared to $108,029 for~~ the same period in 2016 for sales of wastewater. Wastewater is generated from the production of bromine and eventually becomes crude salt when it evaporates. Not all of our bromine production plants have sufficient area on the property to allow for evaporation of wastewater to produce crude salt. Certain of our customers who have facilities located adjacent to our bromine production plants have agreed to allow us to channel our wastewater into brine pans on their properties for evaporation. These customers then are able to sell the resulting crude salt themselves. We signed agreements with four of our customers to sell them our wastewater at market prices.

~~Income from Operations.~~ Income from operations was $4,835,252 for the three-month period ended September 30, 2017 (or 20% of net revenue), a decrease of $9,120,948, or approximately 65%, over the income from operations for the same period in 2016.

Income by Segment
Three-Month Period Ended
September 30, 2017 Three-Month Period Ended
September 30, 2016
Segment: % of total % of total
Bromine $ 2,257,069 38 % $ 7,898,302 57 %
Crude Salt 497,783 8 % (382,917 ) (3 %)
Chemical Products 3,176,458 54 % 6,442,708 46 %
Natural Gas (33,184 ) — (2,476 ) —
Income from operations before corporate costs 5,898,126 100 % 13,955,617 100 %
Corporate costs (526,421 ) (180,447 )
Unrealized translation difference (536,453 ) 181,030
Income from operations $ 4,835,252 $ 13,956,200

~~Table of Contents~~

~~Bromine segment~~

Income from operations from our bromine segment was $2,257,069 for the three-month period ended September 30, 2017, a decrease of $5,641,233 (or approximately 71%) compared to the same period in 2016. This decrease was primarily attributable to the decrease in sales volume of all our bromine segment products as mentioned in net revenue of ~~bromine.~~bromine was due to the 43% decrease in tonnes sold and 57% decrease in average selling price of bromine in the third quarter of 2023.

Crude salt segment

Income from operations from our crude salt segment was ~~$497,783~~$500,469 for the three-month period ended September 30, ~~2017,~~2023, compared to ~~loss~~income from operations of ~~$382,917~~$1,876,161 in the same period in ~~2016. This increase was primarily attributable to the~~2022. The decrease ~~in depreciation and amortization of manufacturing plant and machinery as mentioned in cost~~ of net revenue of crude ~~salt.~~salt was mainly due to the 63% decrease in tonnes sold and 18% decrease in average selling price of crude salt for the three-month period ended September 30, 2023.

Chemical products segment

~~Income~~Loss from operations from our chemical products segment was ~~$3,176,458~~$397,410 for the three-month period ended September 30, ~~2017, a decrease~~2023, compared to loss from operations of ~~$3,266,250 (or approximately 51%) compared to~~$447,960 in the same period in ~~2016. This decrease~~2022.

Natural gas segment

Income from operations from our natural gas segment was ~~primarily attributable~~$4,156 for the three -month period ended September 30, 2023, compared to a loss of $19,500in the ~~decrease~~same period in ~~sales volume of all of our chemical products as mentioned in net revenue of chemical products.~~2022.

Other ~~Income.~~Income, Net Other income, net of ~~$99,709~~$33,967 represented bank interest income, net of capital lease interest expense for the three -month period ended September 30, ~~2017,~~2023, an ~~increase~~decrease of ~~$21,667 (or approximately 28%)~~$1,788 as compared to the same period in ~~2016.~~2022.

Net ~~Income.~~Income (loss) Net ~~income~~loss was ~~$3,425,640~~$1,775,797 for the three-month period ended September 30, ~~2017,~~2023, compared to a ~~decrease~~net income of ~~$7,090,073 (or approximately 67%) compared to~~$8,967,380 in the same period in ~~2016. This decrease was primarily attributable to the decrease in sales volume of all our product as mentioned in net revenue of bromine, crude and chemical products.~~

~~Effective Tax Rate.~~ Our effective tax rate for the three-month period ended September 30, 2017 and 2016 was 31% and 25%, respectively. The effective tax rate of 31% for the three-month period ended September 30, 2017 differs from the PRC statutory income tax rate of 25% mainly due to non-taxable item in connection with the unrealized exchange loss for the Company. The effective tax rate of 25% for the three-month period ended September 30, 2016 is consistent with the PRC statutory income tax rate.2022.

Comparison of the Nine-Month Period Ended September 30, ~~2017~~2023 and ~~2016~~2022

Nine-Month
Period Ended
September 30, 2017 Nine-Month
Period Ended
September 30, 2016 Percent Change
Increase/
(Decrease)
Net revenue $ 104,160,873 $ 120,907,839 (14 %)
Cost of net revenue $ (61,664,044 ) $ (76,184,822 ) (19 %)
Gross profit $ 42,496,829 $ 44,723,017 (5 %)
Sales, marketing and other operating expenses $ (242,045 ) $ (269,357 ) (10 %)
Research and development costs $ (169,246 ) $ (198,330 ) (15 %)
Write-off/Impairment on property, plant and equipment $ — $ (90,395 ) (100 %)
General and administrative expenses $ (8,236,430 ) $ (4,539,845 ) 81 %
Other operating income $ 281,613 $ 328,550 (14 %)
Income from operations $ 34,130,721 $ 39,953,640 (15 %)
Other income, net $ 274,314 $ 222,678 23 %
Income before taxes $ 34,405,035 $ 40,176,318 (14 %)
Income taxes $ (9,152,597 ) $ (9,996,622 ) (8 %)
Net income $ 25,252,438 $ 30,179,696 (16 %)

	Nine-Month Period Ended September 30, 2023			Nine-Month Period Ended September 30, 2022			Percent Change Increase/ (Decrease)
Net revenue	$	23,173,404		$	47,505,246			(51	%)
Cost of net revenue		(20,464,418	)		(21,056,782	)		(3	%)
Gross profit		2,708,986			26,448,464			(90	%)
Sales, marketing and other operating expenses		(42,850	)		(47,086	)		(9	%)
Direct labor and factory overheads incurred during plant shutdown		(4,471,954	)		(6,022,206	)		(26	%)
Other operating loss		60,134			(8,441	)		812	%
General and administrative expenses		(2,266,260	)		(3,384,063	)		(33	%)
Income(Loss) from operations		(4,011,944	)		16,986,668			(124	%)
Other income		119,805			118,843			1	%
Income(Loss) before taxes		(3,892,139	)		17,105,511			(123	%)
Income tax benefit (expense)		876,779			(4,356,283	)		120	%
Net income(loss)	$	(3,015,360	)	$	12,749,228			(124	%)

~~Table of Contents~~

Net revenue. The table below shows the changes in net revenue in the respective segment of the Company for the nine-month period ended September ~~2017~~30, 2023 as compared to the same period in ~~2016:~~2022:

	Net Revenue by Segment													Net Revenue by Segment
	Nine-Month Period Ended					Nine-Month Period Ended					Percent change (Decrease)			Nine-Month Period Ended					Nine-Month Period Ended					Percent Increase
	September 30, 2017					September 30, 2016					of Net Revenue			September 30, 2023					September 30, 2022					of Net Revenue
Segment			% of total					% of total								% of total					% of total
Bromine	$	41,895,304		40	%	$	47,621,980		40	%		(12	%)	$	20,734,871		89.48	%	$	41,865,598		88	%		(51	%)
Crude Salt	$	6,390,390		6	%	$	6,383,095		5	%		—			2,287,672		9.87	%		5,506,655		11	%		(59	%)
Chemical Products	$	55,875,179		54	%	$	66,902,764		55	%		(16	%)		—					—					—
Natural Gas															150,861		0.65	%		132,993		1	%		13	%
Total sales	$	104,160,873		100	%	$	120,907,839		100	%		(14	%)	$	23,173,404		100	%	$	47,505,246		100	%		(51	%)

Bromine and crude salt segments	Nine-Month Period Ended				Percentage Change			Nine-Month Period Ended				Percentage Change
product sold in tonnes	September 30, 2017		September 30, 2016		(Decrease)			September 30, 2023		September 30, 2022		Increase
Bromine (excluding volume sold to SYCI)		10,600		12,552		(16	%)		5,937		5,456		9	%
Crude Salt		206,289		222,124		(7	%)		71,354		144,750		(51	%)

Nine-Month Period Ended Percentage Change
Chemical products segment sold in tonnes September 30, 2017 September 30, 2016 (Decrease)
Oil and gas exploration additives 6,751 8,461 (20 %)
Paper manufacturing additives 2,016 2,435 (17 %)
Pesticides manufacturing additives 1,309 1,760 (26 %)
Pharmaceutical intermediates 1,058 1,225 (14 %)
By products 7,638 9,324 (18 %)
Overall 18,772 23,205 (19 %)

Bromine segment

~~The decrease in net~~Net revenue from our bromine segment ~~was mainly due~~increased to ~~the decrease in the sales volume of bromine. The sales volume of bromine decreased from 12,552 tonnes~~$20,734,871 for the nine-month period ended September 30, ~~2016~~2023 compared to ~~10,600 tonnes~~$41,865,598 for the same period in ~~2017, a decrease of 16%. The major reason for the decrease in the sales volume of bromine was mainly~~2022 respectively, due to ~~(i)~~ the ~~slowdown in the Chinese economy,~~lower selling price and (ii) the closure of all of our plant and factories to perform rectification and improvements since September 1, 2017. Some of our local customers were also requested to stop production, which affected our customers’ industries and our sales volume.selling quantity.

~~The average selling price of bromine~~Crude salt segment

Net revenue from our crude salt segment increased ~~from $3,794 per tonne~~to $2,287,672 for the nine-month period ended September 30, ~~2016 to $3,952 per tonne~~2023 compared $5,506,655 for the same period in ~~2017, an increase of 4%.~~

Nine-Month Period
Ended September 30,
Decrease in net revenue of bromine as a result of: 2017 vs. 2016
Increase in average selling price $ 1,831,786
Decrease in sales volume $ (7,558,462 )
Total effect on net revenue of bromine $ (5,726,676 )

~~Table of Contents~~

~~Crude salt segment~~

~~The increase in net revenue from our crude salt segment was~~2022, respectively, due to the ~~increase in the~~lower selling price ~~of crude salt, which offset by the sales volume of crude salt. The sales volume of crude salt decreased by 7% from 222,124 tonnes for~~and selling quantity.

Chemical products segment

For the nine-month period ended September 30, ~~2016 to 206,289 tonnes~~2023 and 2022, the net revenue for the ~~same period in~~chemical products segment was $0 due to the closure of our chemical factories since September 1, 2017. ~~The average selling price of crude salt increased from $28.74 per tonne for~~

Natural gas segment

For the nine-month period ended September 30, ~~2016 to $30.98 per tonne~~2023 and 2022, the net revenue for the ~~same period in 2017, an increase of 8%.~~natural gas was $0.

~~The table below shows the changes in the average selling price and changes in the sales volume of crude salt for nine-month period ended September 30, 2017 from the same period in 2016.~~Equipment Lease

Nine-Month Period
Ended September 30,
Increase in net revenue of crude salt as a result of: 2017 vs. 2016
Increase in average selling price $ 480,083
Decrease in sales volume $ (472,788 )
Total effect on net revenue of crude salt $ 7,295

~~Chemical products segment~~

Product Mix of Chemical Products Segment Percent
Nine-Month Period Ended Nine-Month Period Ended Change of
September 30, 2017 September 30, 2016 Net Revenue
Chemical Products % of total % of total
Oil and gas exploration additives $ 12,852,210 23 % $ 16,125,700 24 % (20 %)
Paper manufacturing additives $ 2,275,236 4 % $ 2,799,108 4 % (19 %)
Pesticides manufacturing additives $ 6,953,930 12 % $ 9,062,903 14 % (23 %)
Pharmaceutical intermediates $ 24,486,047 44 % $ 27,370,395 41 % (11 %)
By products $ 9,307,756 17 % $ 11,544,658 17 % (19 %)
Total sales $ 55,875,179 100 % $ 66,902,764 100 % (16 %)

~~Net revenue from our chemical products segment decreased from $66,902,764 for~~For the nine-month period ended September 30, ~~2016 to $55,875,179~~2023 and 2022, the net revenue for the ~~same period in 2017, a decrease of approximately 16%. This decrease~~equipment lease was ~~primarily attributable to the decreased sales volume of all our chemical products due to (i) the slowdown in the Chinese economy,~~$150,861 and (ii) the closure of all of our plant and factories to perform rectification and improvements since September 1, 2017. Some of our local customers were also requested to stop production, which affected our customers’ industries and our sales volume. Net revenue from our oil and gas exploration chemicals decreased from $16,125,700 for the nine-month period ended September 30, 2016 to $12,852,210 for the same period in 2017, a decrease of approximately 20%. Net revenue from our paper manufacturing additives decreased from $2,799,108 for the nine-month period ended September 30, 2016 to $2,275,236 for the same period in 2017, a decrease of approximately 19%. Net revenue from our pesticides manufacturing additives decreased from $9,062,903 for the nine-month period ended September 30, 2016 to $6,953,930 for the same period in 2017, a decrease of approximately 23%. Net revenue from our pharmaceutical intermediates decreased from $27,370,395 for the nine-month period ended September 30, 2016 to $24,486,047 for the same period in 2017, a decrease of approximately 11%. Net revenue from our by products decreased from $11,544,658 for the nine-month period ended September 30, 2016 to $9,307,756 for the same period in 2017, a decrease of approximately 19%.$132,993.

~~Table of Contents~~

The table below shows the changes in the average selling price and changes in the sales volume of major chemical products of the chemical products segment for the nine-month period ended September 30, 2017 from the same period in 2016.

Decrease in net revenue,
for the nine-month period ended September 30, 2017 vs. 2016, as a result of: Oil and gas exploration additives Paper manufacturing additives Pesticides manufacturing additives Pharmaceutical intermediates By products Total
Increase/(Decrease) in average selling price $ (16,016 ) $ (47,108 ) $ 250,772 $ 919,164 $ (166,082 ) $ 940,730
Decrease in sales volume $ (3,257,474 ) $ (476,764 ) $ (2,359,745 ) $ (3,803,512 ) $ (2,070,820 ) $ (11,968,315 )
Total effect on net revenue of chemical products $ (3,273,490 ) $ (523,872 ) $ (2,108,973 ) $ (2,884,348 ) $ (2,236,902 ) $ (11,027,585 )

Cost of Net ~~Revenue.~~Revenue

	Cost of Net Revenue by Segment										Percent Change			Cost of Net Revenue by Segment										% Change
	Nine-Month Period Ended					Nine-Month Period Ended					of Cost of			Nine-Month Period Ended					Nine-Month Period Ended					of Cost of
	September 30, 2017					September 30, 2016					Net Revenue			September 30, 2023					September 30, 2022					Net Revenue
Segment			% of total					% of total								% of total					% of total
Bromine	$	20,833,351		34	%	$	25,591,482		34	%		(19	%)	$	19,187,620		94	%	$	18,148,260		86	%		6	%
Crude Salt	$	3,297,064		5	%	$	6,119,665		8	%		(46	%)		1,276,119		6	%		2,908,108		4	%		(56	%)
Chemical Products	$	37,533,629		61	%	$	44,473,675		58	%		(16	%)		—		—			—		—			—
Natural Gas															679		—			414		—			64	%
Total	$	61,664,044		100	%	$	76,184,822		100	%		(19	%)	$	20,464,418		100	%	$	21,056,782		100	%		(3	%)

Cost of net revenue reflects mainly the raw materials ~~consumed and the direct~~consumed-direct salaries and benefits of staff engaged in the production process, electricity, depreciation and amortization of manufacturing plant and machinery and other manufacturing costs. Our cost of net revenue was $61,664,044 for nine-month period ended September 30, 2017, a decrease of $14,520,778 (or 19%) over the same period in 2016. This decrease was primarily attributable to the decrease in sales volume of products due to (i) the slowdown in the Chinese economy, and (ii) the closure of all of our plant and factories to perform rectification and improvements since September 1, 2017. Some of our local customers were also requested to stop production, which affected our customers’ industries and our sales volume.

Bromine production capacity and utilization of our factories

The table below represents the annual capacity and utilization ratios for all of our bromine producing properties:

Annual Production
Capacity (in tonnes)
Utilization
Ratio (i)
Nine-month period ended September 30, 2016 47,347 40 %
Nine-month period ended September 30, 2017 42,808 42 %
Variance of the nine-month period ended September 30, 2017 and 2016 (4,539 ) 2 %

	Annual Production Capacity (in tonnes)		Utilization Ratio (i)
Nine-month period ended September 30, 2022		31,506		23%
Nine-month period ended September 30, 2023		31,506		29%
Variance of the nine-month period ended September 30, 2023 and 2022		-		6%

(i)	Utilization ratio is calculated based on the annualized actual production volume in tonnes for the periods divided by the annual production capacity in tonnes.

(i) Utilization ratio is calculated based on the annualized actual production volume in tonnes for the period divided by the annual production capacity in tonnes. The product produce below reflect the annualized production.

Our utilization ratio increased by 2% for the nine-month period ended September 30, 2017 as compared with the same period in 2016. This increase in utilization ratio was mainly due to the demolition Factory No.6 in December 2016, which reduced the total annual production capacity.

~~Table of Contents~~

Bromine segment

For the nine-month period ended September 30, ~~2017,~~2023 the cost of net revenue for the bromine segment was $20,833,351, a decrease of $4,758,131 or 19% over the same period in 2016. The major components of the costs of net revenue for the bromine segment were the cost of raw materials and finished goods consumed of $4,935,223 (or 24%), depreciation and amortization of manufacturing plant and machinery of $9,979,858 (or 48%) and electricity of $1,732,036 (or 8%) for the nine-month period ended September 30, 2017. For the nine-month period ended September 30, 2016, the major components of the cost of net revenue were the cost of raw materials and finished goods consumed of $8,455,261 (or 33%), depreciation and amortization of manufacturing plant and machinery of $11,289,541 (or 44%) and electricity of $2,183,710 (or 9%). The cost structure changed where the proportion of cost of raw materials and finished goods consumed over the total cost of net revenue decreased by 9% in the nine-month period ended September 30, 2017 compared to the same period in 2016. The decrease in net cost of net revenue was attributable mainly to the decrease in sales volume of products sold due to (i) the slowdown in the Chinese economy, and (ii) the closure of all of our plant and factories to perform rectification and improvements since September 1, 2017. Some of our local customers were also requested to stop production, which affected our customers’ industries and our sales volume.

Per tonne production cost Nine-Month Period Ended Nine-Month Period Ended
component of bromine segment September 30, 2017 September 30, 2016 % Change
% of total % of total
Raw materials $ 924 41 % $ 1,049 47 % (12 %)
Depreciation and amortization $ 821 37 % $ 792 35 % 4 %
Electricity $ 142 6 % $ 153 7 % (7 %)
Others $ 344 16 % $ 257 11 % 34 %
Production cost of bromine per tonne $ 2,231 100 % $ 2,251 100 % (1 %)

~~Our production cost of bromine per tonne was $2,231 for the nine-month period ended September 30, 2017, a decrease of 1% (or $20) over the same period in 2016.~~

~~Crude salt segment~~$19,187,620.

For the nine-month period ended September 30, ~~2017,~~2022 the cost of net revenue for the bromine segment was $18,148,260.

Crude salt segment

For the nine-month period ended September 30, 2023 the cost of net revenue for the crude salt segment was $1,276,119. The cost of net revenue for our crude salt segment was $3,297,064, representing a decrease of $2,822,601, or 46%, compared to $6,119,665 for the same period in 2016. The decrease in cost was mainly due to the decrease in depreciation and amortization of manufacturing plant and machinery mainly due to (i) some plant and equipment related to the crude salt and bromine facilities were fully depreciated in June 2016; and (ii) the demolition Factory No.6 in December 2016 for bromine and crude salt segment, which partially offset by the increase in depreciation and amortization of manufacturing plant and machinery due to the enhancement projects carried out for our extraction wells and transmission channels and ducts which commenced in August 2016 and completed in September 2016 .The significant cost components for the nine-month period ended September 30, ~~2017~~2022 was $2,908,108.

The reason for the decrease is that there is that with the creation of SHSI, some costs formerly allocated to crude sale were ~~depreciation and amortization~~allocated to bromine.

Natural gas segment

Cost of ~~$1,804,343 (or 55%), resource taxes calculated based on crude salt sold of $639,039 (or 19%) and electricity of $267,022 (or 8%). The significant cost components~~net revenue for our natural gas segment for the nine-month period ended September 30, ~~2016 were depreciation~~2023 and ~~amortization of $4,379,288 (or 71%), resource taxes calculated based on crude salt sold of $675,190 (or 11%)~~2022 was $679 and ~~electricity of $358,741 (or 6%). The table below represents the major production cost component of crude salt per ton for the respective periods:~~

Per tonne production cost Nine-Month Period Ended Nine-Month Period Ended
component of crude salt segment September 30, 2017 September 30, 2016 % Change
% of total % of total
Depreciation and amortization $ 8.8 55 % $ 19.7 71 % (56 %)
Resource tax $ 3.1 19 % $ 3.0 11 % 3 %
Electricity $ 1.3 8 % $ 1.6 6 % (20 %)
Others $ 2.8 18 % $ 3.2 12 % (13 %)
Production cost of crude salt per tonne $ 16.0 100 % $ 27.5 100 % (42 %)

~~Table of Contents~~

~~Our production cost of crude salt per tonne was $16.0 for the nine-month period ended September 30, 2017, a decrease of 42% (or $11.5) as compared to the same period in 2016.~~

~~Chemical products segment~~

For the nine-month period ended September 30, 2017, cost of net revenue for our chemical products segment was $37,533,629, representing a decrease of $6,940,045 or 16% over the same period in 2016. This decrease was primarily attributable to the decrease in sales volume of all our chemical products due (i) the slowdown in the Chinese economy, and (ii) the closure of all of our plant and factories to perform rectification and improvements since September 1, 2017. Some of our local customers were also requested to stop production, which affected our customers’ industries and our sales volume.$414.

Gross Profit. Gross profit was ~~$42,496,829,~~$2,708,986, or ~~41%~~12%, of net revenue for nine-month period ended September 30, ~~2017~~2023 compared to ~~$44,723,017,~~$26,448,464, or ~~37%~~56%, of net revenue for the same period in ~~2016. The increase in gross profit percentage was primarily attributable to an increase in the margin percentage of bromine and crude salt.~~2022.

Gross Profit by Segment % Point Change
Nine-Month Period Ended Nine-Month Period Ended of Gross
September 30, 2017 September 30, 2016 Profit Margin
Segment Gross Profit Margin Gross Profit Margin
Bromine $ 21,061,953 50 % $ 22,030,498 46 % 4 %
Crude Salt $ 3,093,326 48 % $ 263,430 4 % 44 %
Chemical Products $ 18,341,550 33 % $ 22,429,089 34 % (1 %)
Total Gross Profit $ 42,496,829 41 % $ 44,723,017 37 % 4 %

~~Bromine segment~~

	Gross Profit (Loss) by Segment										% Point Change
	Nine-Month Period Ended					Nine-Month Period Ended					of Gross
	September 30, 2023					September 30, 2022					Profit Margin
Segment			Gross Profit (loss) Margin					Gross Profit Margin
Bromine	$	1,547,251		7	%	$	23,717,338		57	%		(50	%)
Crude Salt		1,011,553		44	%		2,598,547		47	%		(3	%)
Chemical Products		—		—			—		—			—
Natural Gas		150,182		100	%		132,579		99.7	%		0.3	%
Total Gross Profit	$	2,708,986		12	%	$	26,448,464		56	%		(44	%)

~~The gross profit margin for our bromine~~Bromine segment for the nine-month period ended September 30, 2017 was 50% compared to 46% for the same period in 2016. This 4% increase is mainly due to the increased average selling price and the decrease in the purchase price of raw material and the decrease in depreciation and amortization of manufacturing plant and machinery mainly due to (i) some plant and equipment related to the crude salt and bromine facilities were fully depreciated in June 2016; and (ii) the demolition Factory No.6 in December 2016 for bromine and crude salt segment, which partially offset by the increase in depreciation and amortization of manufacturing plant and machinery due to the enhancement projects carried out for our extraction wells and transmission channels and ducts which commenced in August 2016 and completed in September 2016 .

~~Crude salt segment~~

For the nine-month period ended September 30, ~~2017,~~2023, the gross profit margin for our bromine segment was 7%, compared to 57% in the nine-month period ended September 30, 2022. The decrease in gross profit margin was primarily attributable to the lower average selling price of bromine of $3,493 per ton in the nine-month period ended September 30, 2023 compared to $7,674 per ton in the nine-month period ended September 30, 2022.

For the nine-month period ended September 30, 2022, the gross profit margin for our bromine segment was 57%.

Crude salt segment

For the nine-month period ended September 30, 2023, the gross profit margin for our crude salt segment was ~~48% compared to 4%~~44%.

For the nine-month period ended September 30, 2022 the gross profit margin for ~~the same period in 2016. This 44% increase is mainly due to the increase in~~our crude salt ~~price and decrease in depreciation and amortization of manufacturing plant and machinery as mentioned in cost of net revenue of crude salt.~~segment was 47%.

Chemical products segment

~~Table of Contents~~

~~Chemical products segment~~

~~The~~For the nine-month period ended September 30, 2023, the gross profit margin for our chemical segment was 0% due to the closure of our plant.. As a result of the closure, there were no chemical products ~~segment~~for sale for the nine-month period ended September 30, ~~2017 was 33% compared to 34% for the same period in 2016.~~2023.

~~Research~~Direct labor and ~~Development Costs.~~factory overheads incurred during plant shutdown ~~For~~On September 1, 2017, the Company received notification from the government of Yangkou County, Shouguang City of PRC that stated that production at all its bromine and crude salt and chemical factories should be halted with immediate effect in order for the Company to perform rectification and improvement in accordance with the county’s new safety and environmental protection requirements. On November 24, 2017, the Company received a letter from the Government of Yangkou County, Shouguang City notifying the Company to relocate its two chemical production plants located in the second living area of the Qinghe Oil Extraction Plant to Bohai Park. As a result, direct labor and factory overhead costs (including depreciation of plant and machinery) in the amount of $4,471,954 and $6,022,206 incurred for the nine-month ~~period~~periods ended September 30, ~~2017~~2023 and ~~2016, the total research and development costs incurred were $169,246 and $198,330,~~2022, respectively, ~~a decrease of 15%. Research and development costs~~ for the ~~nine-month period ended September 30, 2017 represented raw materials used by SYCI for testing~~factories that have not resumed production were presented as part of the ~~manufacturing routine. Research and development costs for the nine-month period ended September 30, 2016 represented raw materials used by SYCI and SCRC for testing the manufacturing routine.~~

~~Write-off/Impairment on property, plant and equipment.~~ Write-offs on property, plant and equipment for the nine-month period ended September 30, 2017 and 2016 were $0 and $90,395, respectively, a decrease of 100%. Write-offs on property, plant and equipment of $90,395 for the nine-month period ended September 30, 2016 represented the write-offs of certain protective shells to transmission pipelines and ducts during the enhancement project that started in August 2016 and completed in September 2016.operating expense.

General and Administrative Expenses. General and administrative expenses were ~~$8,236,430~~$2,266,260 for the nine-month period ended September 30, ~~2017, an increase~~2023, a decrease of ~~$3,696,585~~$1,117,803 (or ~~81%~~33%) as compared to ~~$4,539,845~~$3,384,063 for the same period in ~~2016. This increase in general and administrative expenses~~2022. The decrease was ~~primarily~~mainly due to ~~(i) a non-cash expense related~~the unrealized foreign currency transaction loss on intercompany balance recorded in nine-month period ended September 30, 2023 compared to ~~stock options granted to employees increased~~an unrealized foreign currency transaction gain on intercompany balance recorded in the same period in the previous year.

Income (Loss) from ~~$17,400~~Operations. Loss from operations was $4,011,944 for the nine-month period ended September 30, 2016 to $357,700 for the same period of 2017; and (ii) the unrealized exchange gain in relation to the translation difference of inter-company balance in RMB for the nine-month period ended September 30,2017 amounted to $1,140,363, as2023, compared to ~~the unrealized exchange gain for~~an income of $16,986,668 in the same period in 2016 of $729,764; and (iii) depreciation and amortization of manufacturing plant and machinery incurred in September 2017 classified in general and administrative expense as production in all factories was temporarily stopped from September 1, 2017 to allow for rectification and improvement to be made to the facilities to comply with the new safety and environmental protection requirements of PRC.2022.

	Income(Loss) from Operations by Segment
	Nine-Month Period Ended September 30, 2023						Nine-Month Period Ended September 30, 2022
Segment:				% of total						% of total
Bromine	$	(3,340,404	)		91.43	%	$	17,226,718			100	%
Crude Salt		904,482			(24.76	%)		1,497,208			8.7	%
Chemical Products		(1,231,302	)		33.7	%		(1,436,443	)		(8.34	%)
Natural Gas		14,011			(0.37	%)		(68,938	)		(0.36	%)
Income (Loss) from operations before corporate costs		(3,653,213	)		100	%		17,218,545			100	%
Corporate costs		(193,287	)					(186,682	)
Unrealized gain on translation of intercompany balance		(165,444	)					(45,195	)
Income (Loss) from operations before taxes	$	(4,011,944	)				$	16,986,668

Bromine segment

~~Other Operating Income.~~ ~~Other operating income~~Loss from operations from our bromine segment was ~~$281,613~~$3,340,404 for the nine-month period ended September 30, ~~2017, a decrease of $46,937(or 14%) as~~2023, compared to ~~$328,550 for~~an income of $17,226,718 in the same period in ~~2016 for sales of wastewater. Wastewater is generated from~~2022. The decrease in gross profit margin was primarily attributable to the ~~production~~lower average selling price of bromine ~~and eventually becomes crude salt when it evaporates. Not all~~ of our bromine production plants have sufficient area on the property to allow for evaporation of wastewater to produce crude salt. Certain of our customers who have facilities located adjacent to our bromine production plants have agreed to allow us to channel our wastewater into brine pans on their properties for evaporation. These customers then are able to sell the resulting crude salt themselves. We signed agreements with four of our customers to sell them our wastewater at market prices.

~~Table of Contents~~

~~Income from Operations.~~ ~~Income from operations was $34,130,721 for~~$3,493 per ton in the nine-month period ended September 30, ~~2017 (or 33% of net revenue), a decrease of $5,822,919, or approximately 15%, over income from operations for the same period~~2023 compared to $7,674 per ton in ~~2016.~~

Income from Operations by Segment
Nine-Month Period Ended
September 30, 2017 Nine-Month Period Ended
September 30, 2016
Segment: % of total % of total
Bromine $ 17,269,984 48 % $ 19,103,472 48 %
Crude Salt 2,434,872 7 % (165,403 ) —
Chemical Products 16,441,115 45 % 20,698,116 52 %
Natural Gas (90,471 ) — (2,501 ) —
Income from operations before corporate costs 36,055,500 100 % 39,633,684 100 %
Corporate costs (784,416 ) (409,808 )
Unrealized exchange difference (1,140,363 ) 729,764
Income from operations $ 34,130,721 $ 39,953,640

~~Bromine segment~~

~~Income from operations from our bromine segment was $17,269,984 for~~ the nine-month period ended September 30, 2017, a decrease of $1,833,488 (or approximately 10%) compared to the same period in 2016. This decrease was primarily attributable to the decrease in sales volume as mentioned in net revenue of bromine partially offset by the increased average selling price.2022.

Crude salt segment

~~For the nine-month period ended September 30, 2017, income~~Income from operations from our crude salt segment was $2,434,872, compared to loss of $165,403 in the same period in 2016. This increase was primarily attributable to the increase in crude salt price and decrease in depreciation and amortization of manufacturing plant and machinery as mentioned in cost of net revenue of crude salt.

~~Chemical products segment~~

~~For~~$904,482 for the nine-month period ended September 30, ~~2017,~~2023, compared to an income of $1,497,208 in the same period in 2022.

Chemical products segment

Loss from operations from our chemical products segment was ~~$16,441,115,~~$1,231,302 for the nine-month period ended September 30, 2023, compared to a ~~decrease~~loss of ~~$4,257,001 (or approximately 21%) over~~$1,436,443 in the same period in ~~2016. This decrease~~2022.

Natural gas segment

Income from operations from our natural gas segment was ~~primarily attributable~~$14,011 for the nine-month period ended September 30, 2023, compared to a loss of $68,938 in the ~~decrease~~same period in ~~sales volume of all of our chemical products as mentioned in cost of net revenue of chemical products.~~2022.

Other Income, Net. Other income, net of ~~$274,314~~$119,805 represented bank interest income, net of capital lease interest expense for the nine -month period ended September 30, ~~2017,~~2023, an increase of ~~$51,636~~$962 (or approximately ~~23%~~1%) as compared to the same period in ~~2016.~~2022.

Net ~~Income.~~Income (Loss). Net ~~income~~loss was ~~$25,252,438~~$3,015,360 for the nine-month period ended September 30, ~~2017,~~2023, compared to a ~~decrease~~net income of ~~$4,927,258 (or approximately 16%) compared to~~$12,749,228 in the same period in ~~2016. This decrease was primarily attributable to decrease in sales volume of all of our products as mentioned in cost of net revenue of bromine, crude and chemical products.~~2022.

~~Effective Tax Rate.~~ ~~Our effective tax rate for~~Net Income Per Share

For the ~~nine-month period~~nine months ended September 30, ~~2017 and 2016~~2023, net loss per share was ~~27% and 25%, respectively. The effective tax rate~~$0.29 compared to an income of ~~27% for~~$1.22 in the ~~nine-month~~ period ~~ended~~ending September 30, ~~2017 differs from the PRC statutory income tax rate of 25% mainly due~~2022. There were 10,431,924 shares outstanding compared to ~~non-taxable item in connection with the unrealized and the exchange loss for the Company.~~10,471,924 shares.

Foreign Currency Translation Adjustment

~~Table of Contents~~

For the nine months ending September 30, 2023, the Company had a negative foreign currency translation adjustment of $7,879,513 versus a positive adjustment of $30,774,686 in the previous year. This adjustment impacts all balance sheet translations into U.S. dollars.

LIQUIDITY AND CAPITAL RESOURCES

As of September 30, ~~2017,~~2023, cash and cash equivalents were ~~$193,385,686~~$103,774,977 as compared to ~~$163,884,574~~$108,226,214 as of December 31, ~~2016.~~2022. The components of this ~~increase~~decrease of ~~$29,501,112~~$4,451,237 are reflected below.

Statement of Cash Flows

	Nine-Month Period Ended September 30,						Nine-Month Period Ended September 30,
	2017			2016			2023			2022
Net cash provided by operating activities	$	23,477,422		$	29,214,282
Net cash (used in) provided by operating activities							$	9,869,612		$	37,101,024
Net cash used in investing activities	$	(1,482,954	)	$	(17,423,126	)		(15,197,648	)		(33,217,987	)
Net cash used in financing activities	$	(273,873	)	$	(287,387	)		(267,810	)		(283,915	)
Effects of exchange rate changes on cash and cash equivalents	$	7,780,517		$	(4,026,574	)		1,144,609			(6,728,107	)
Net Increase in cash and cash equivalents	$	29,501,112		$	7,477,195
Net decrease in cash and cash equivalents							$	(4,451,237	)	$	(3,128,985	)

For the nine-month period ended September 30, ~~2017,~~2023, we met our working capital and capital investment requirements ~~mainly~~ by using ~~cash flow from operations and~~ cash on hand.

Net Cash (used in) Provided by Operating Activities

During the nine-month period ended September 30, ~~2017 and 2016, we had positive~~2023, cash flow ~~from~~provided by operating activities of approximately $9.9 million was mainly due to a net loss of ~~$23.5~~$3.02 million, a decrease in accounts receivable of $3.13 million, an increase in accounts payable of $1.5 million, an increase in deferred taxes of $1.0 million, and ~~$29.2~~a non-cash adjustment related to depreciation and amortization of property, plant and equipment of $15.4 million, ~~respectively, primarily attributable to net income.~~offset by increases in operating leases, and prepayments.

During the nine-month period ended September 30, ~~2017,~~2022, cash flow ~~from~~provided by operating activities of approximately ~~$23.5~~$37 million was ~~less than our~~mainly due to a net income of ~~approximately $25.3~~$12.75 million, ~~mainly due to (i) cash used~~a decrease in ~~working capital~~accounts receivable of ~~approximately $20.2~~$3.45 million, ~~which mainly consisted of the~~an increase in accounts ~~receivable and~~payable of $1.55 million, an decrease in ~~accounts payable~~deferred taxes of $3.8 million, and ~~accrued expenses and tax payable, partially offset by the decrease in inventories; partially offset by (ii) substantial~~a non-cash ~~charges of approximately $18.4 million, mainly in the form of~~adjustment related to depreciation and amortization of property, plant and ~~equipment.~~

~~During the nine-month period ended September 30, 2016, cash flow from operating activities~~equipment of ~~approximately $29.2~~$16.3 million, was less than our net income of approximately $30.2 million, mainly due to (i) cash used in working capital of approximately $20.0 million, which mainly consisted of the increase in accounts receivable, partially offset by ~~the decrease~~increases in ~~inventories, increase in accounts payable~~operating leases, and accrued expenses and tax payable; partially offset by (ii) substantial non-cash charges of approximately $19.1 million, mainly in the form of depreciation and amortization of property, plant and equipment.prepayments.

Accounts receivable

Cash collections on our accounts receivable had a major impact on our overall liquidity. The following table presents the aging analysis of our accounts receivable as of September 30, ~~2017~~2023 and December 31, ~~2016.~~2022.

	September 30, 2017					December 31, 2016					September 30, 2023					December 31, 2022
			% of total					% of total					% of total					% of total
Aged 1-30 days	$	3,077,055		4	%	$	10,300,739		20	%	$	2,149,608		99.9	%	$	2,792,156		52	%
Aged 31-60 days	$	12,976,950		18	%	$	11,074,573		21	%		510		0.1	%		2,571,010		48	%
Aged 61-90 days	$	11,197,750		16	%	$	10,577,810		21	%		—		—			—		—
Aged 91-120 days	$	13,905,925		19	%	$	7,919,209		15	%		—		—			—		—
Aged 121-150 days	$	12,707,546		18	%	$	6,924,979		13	%		—		—			—		—
Aged 151-180 days	$	8,423,396		12	%	$	5,037,908		10	%		—		—			—		—
Aged 181-210 days	$	6,982,162		10	%	$	—		—			—		—			—		—
Aged 211-240 days	$	2,521,580		3	%	$	—		—			—		—			—		—
Total	$	71,792,364		100	%	$	51,835,218		100	%	$	2,150,118		100	%	$	5,363,166		100	%

The overall accounts receivable balance as of September 30, ~~2017 increased~~2023 decreased by ~~$19,957,146 (or 39%),~~$3,213,048, as compared to those as of December 31, 2016. Such increase is mainly attributable to the extended settlement days by customers due to the macro-economic tightening policy imposed by PRC government to slow down the economy, which in turn lengthened the average turnover days of accounts receivable from 138 days for the nine-month period ended September 30, 2016 to 162 days for the nine-month period ended September 30, 2017. In fiscal year 2016, a 90 to 180-day credit period was granted to customers with good payment history. To maintain the source of the Company’s business and in view of the strong cash flow position that the Company is in, management has extended credit terms to some customers up to 240 days in the nine months ended September 30, 2017. Approximately 30% of the balances of accounts receivable as of September 30, 2017 aged more than 90 days in the amount of $13,319,887 were settled in October 2017.2022. We have policies in place to ensure that sales are made to customers with an appropriate credit history. We perform ongoing credit evaluation on the financial condition of our customers.

Some of our customers’ production is also affected by the new safety and environmental protection rules. We have communicated with our customers who have stopped their production for inspection by the government and have not resumed production. They confirmed that they will make payments owing to our Company on time. Based on our knowledge of these customers, they appear to have the ability to settle the accounts receivable as of September 30, 2017 within the credit term. Therefore, we believe that no No allowance for doubtful accounts for the three-month and nine-month ~~period~~periods ended September 30, ~~2017~~2023 is required.

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Inventory

Our inventory consists of the following:

	September 30, 2017					December 31, 2016					September 30, 2023					December 31, 2022
			% of total					% of total					% of total					% of total
Raw materials	$	449,575		18	%	$	818,500		14	%	$	30,413		4	%	$	26,192		2	%
Finished goods	$	1,981,504		82	%	$	4,370,331		74	%		844,407		96	%		1,572,380		98	%
Work-in-process		—		—			692,850		12	%
	$	2,431,079		100	%	$	5,881,681		100	%
Allowance for obsolete and slowing-moving inventory	$	—		—		$	—		—
Total	$	2,431,079		100	%	$	5,881,681		100	%	$	874,820		100	%	$	1,598,572		100	%

The net inventory level as of September 30, ~~2017~~2023 decreased by ~~$3,450,602 (or 59%),~~$723,752, as compared to the net inventory level as of December 31, ~~2016.~~2022.

Raw materials ~~decreased~~increased by ~~45%~~$4,221 as of September 30, ~~2017~~2023 as compared to December 31, 2016. All of the raw materials are basic chemical industry materials, few of which have a possibility of loss over time, or major fluctuations in their prices. We concluded that all of our raw materials as of September 30, 2017 are fully realizable for production of finished goods without any impairment.2022.

Our finished goods ~~consist~~decreased by $727,973 as of bromine, crude salt and chemical products. Our chemical products are similar to raw materials, with no loss over time, a relatively stable market price and a gross profit margin of 33% for the nine-month period ended September 30, ~~2017~~2023 as compared to 34% for the same period in fiscal year 2016. Therefore, we believe that the realization of the chemical products is 100%. Similarly, as there is no depletion of bromine, we believe that the realization of it is also 100%. The gross profit margin for bromine for the nine-month period ended September 30, 2017 increased to 50%, as compared with 46% for the same period in fiscal year 2016, we anticipated that the price through 2017 will not fluctuate significantly to impair the cost of bromine.

As of September 30, 2017, the crude salt included in the inventory is approximately $1.35 million. The annual loss of crude salt due to evaporation is approximately 3%. The average selling price of crude salt per tonne increased from $27.99 for the third quarter of 2016 to $31.92 for the same period of 2017. The gross (loss) profit also increased from (8)% for the third quarter of 2016 to 46% for the same period in 2017. We believe that there will be no realization problem for crude salt as we do not expect selling price to be lower than the current price. If the selling price continues to decrease, there will be an impact on our crude salt realization value.December 31, 2022.

Net Cash Used in Investing Activities

InFor the nine-month period ended September 30, ~~2017,~~2023, we used approximately ~~$0.86~~$15.2 million ~~cash for~~to the ~~prepayment of land leases. We also~~flood prevention project aiming to prevent flooding that could harm the wells, aqueducts and crude salt pans at our plant.

For the nine-month period ended September 30, 2022, we used approximately ~~$0.06~~$33.2 million to acquire property, plant and equipment, which mainly includes the cost for bromine wells, aqueducts and the ~~nine-month period ended September 30, 2017.~~

~~In the nine-month period ended September 30, 2016, we used approximately $0.67 million cash~~installation of high and low voltage lines for ~~the prepayment of land leases. In the same period, we also used approximately $15.23 million cash to carry out enhancement projects to our existing~~ bromine extraction and crude salt production facilities and $1.46 million cash for the construction of roads and related infrastructure needed to begin operations in the remote and mountainous region of Daying county.

The investing activities described above were financed by opening cash balances as of December 31, 2016, and 2015, and cash generated from operation during the nine-month period ended September 30, 2017.Wells.

Net Cash Used in Financing Activities

~~We repaid approximately $0.3 million cash for our capital lease obligation for~~For the nine-month period ended September 30, ~~2017~~2023 and ~~2016.~~2022, we used $0.3 million to repay finance lease obligations.

We believe that our available funds and cash flows generated from operations will be sufficient to meet our anticipated ongoing operating needs ~~for~~and our obligations as they full due in the next twelve (12) months.

~~Table of Contents~~

Working capital was approximately $261.1 million at September 30, 2017 as compared to approximately $207.8 million at December 31, 2016. The increase was mainly attributable to the cash provided by operating activities during the nine-month period ended September 30, 2017.

We had available cash of approximately ~~$193.4~~$103.77 million at September 30, ~~2017, most~~2023, all of which is in highly liquid current deposits ~~which earn~~earning no or little interest. We do not anticipate ~~to spend approximately $35 million of capital expenditure~~paying cash dividends in the ~~rectification and improvement of the facilities to comply with the new safety and environmental protection requirements of PRC and this will be funded from our cash balance.~~foreseeable future.

We intend to retain the cash for future expansion of our bromine and crude salt businesses through acquisition, enhancements to our existing bromine and crude salt business, and further development of the new resources in Sichuan Province.

~~In the future we intend~~continue to focus our efforts on the activities of SCHC, SYCI, SHSI and DCHC as these segments continue to expand within the Chinese market.

We may not be able to identify, successfully integrate or profitably manage any businesses or business segment we may acquire, or any expansion of our business. An expansion may involve a number of risks, including possible adverse effects on our operating results, diversion of ~~management~~management’s attention, inability to retain key personnel, risks associated with unanticipated events, risks associated with the COVID-19 pandemic and the financial statement effect of potential impairment of acquired intangible assets, any of which could have a materially adverse effect on our condition and results of operations. In addition, if competition for acquisition candidates or operations were to increase, the cost of acquiring businesses could increase materially. We may effect an acquisition with a target business which may be financially unstable, under-managed, or in its early stages of development or growth. ~~In addition, if competition for acquisition candidates or operations were to increase, the cost of acquiring businesses could increase materially.~~ Our inability to implement and manage our expansion strategy successfully may have a material adverse effect on our business and future prospects.

Contractual Obligations and Commitments

We have no significant contractual obligations not fully recorded on our ~~condensed~~ consolidated balance sheets or fully disclosed in the notes to our ~~condensed~~ consolidated financial statements. Additional information regarding our contractual obligations and commitments at September 30, ~~2017~~2023 is provided in the notes to our ~~condensed~~ consolidated financial statements. See “Notes to Condensed Consolidated Financial Statements, Note 1817 – Capital Commitment and Operating Lease Commitments”.

Material Off-Balance Sheet Arrangements

We do not currently have any off balance sheet arrangements falling within the definition of Item 303(a) of Regulation S-K.

Critical Accounting Policies and Estimates

Our consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and this requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. We base ~~these~~its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Accordingly, actual results may differ significantly from these estimates under different assumptions or conditions. We have identified the following critical accounting policies and estimates used by us in the preparation of our financial statements: accounts receivable and allowance for doubtful accounts, ~~assets retirement obligation,~~leases, property, plant and equipment, recoverability of long lived assets, ~~mineral rights,~~ revenue recognition, income taxes, loss contingencies, and stock-based compensation. These policies and estimates are described in the Company’s ~~2016~~2022 Form 10-K.

~~Table of Contents~~

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Pursuant to Item 305(e) of Regulation S-K (§ 229.305(e)), the Company is not required to provide the information required by this Item as it is a “smaller reporting company,” as defined by Rule 229.10(f)(1).

Item 4. Controls and Procedures

(a) Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures (as such term is defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) that are designed to ensure that information required to be disclosed in our reports filed pursuant to the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules, regulations and related forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), as appropriate, to allow timely decisions regarding required disclosure.

Under the supervision and with the participation of our management, including our CEO and CFO, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. Based on this evaluation, our CEO and CFO concluded that our disclosure controls and procedures were effective as of the end of the period covered by this Form 10-Q.

(b) Changes in internal controls

There were no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) under the Exchange Act) during our most recently completed fiscal quarter ~~which is the subject of this report,~~ that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II—OTHER INFORMATION

Item 1. Legal Proceedings

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 meters, 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 owner 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.

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 regularly 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.

Item 1A. Risk Factors

This information has been omitted based on the Company’s status as a smaller reporting company.

Item 2. Unregistered Sale of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities.

None.

~~Table of Contents~~

Item ~~1A. Risk Factors~~

~~As a smaller reporting company, the Company is not required to make disclosures under this Item 1A.~~

~~Item 2. Unregistered Shares of Equity~~3. Defaults Upon Senior Securities ~~and Use of Proceeds~~

None.

~~Item 3. Defaults Upon Senior Securities~~

~~None.~~

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

~~None.~~During our fiscal quarter ended September 30, 2023, none of our directors or officers informed us of the adoption or termination of a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement” as those terms are defined in Item 408(a) of Regulation S-K.

Item 6. Exhibits

Exhibit No.

Description

31.1

Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2	Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

~~101.1~~101	The following financial statements from Gulf Resources, Inc.’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, ~~2017~~2023 formatted in XBRL ~~(eXtensible~~(Extensible Business Reporting Language): (i) the Consolidated Balance Sheets; (ii) the Consolidated Statements of Operations and Other Comprehensive Income (Loss); (iii) the Consolidated Statements of Changes in Equity; (iv) the Consolidated Statement of Cash Flows; and, (v) the Notes to Consolidated Financial Statements, tagged as blocks of text.

104	Cover Page Interactive Data File – The cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

~~Table of Contents~~

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	GULF RESOURCES, INC.

Dated: November ~~13, 2017~~20, 2023	By:	/s/ Xiaobin Liu
		Xiaobin Liu
		Chief Executive Officer
		(principal executive officer)

Dated: November ~~13, 2017~~20, 2023	By:	/s/ Min Li
		Min Li
		Chief Financial Officer
		(principal financial and accounting officer)

	Nine-Month Period Ended September 30,
	2017			2016

CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	25,252,438		$	30,179,696
Adjustments to reconcile net income to net cash provided by operating activities:
Interest on capital lease obligation		123,795			133,504
Amortization of prepaid land leases		717,969			514,455
Depreciation and amortization		16,042,003			19,031,650
Write-off/Impairment loss on property, plant and equipment		—			90,395
Unrealized translation difference		1,140,363			(729,764	)
Stock-based compensation expense-options		357,700			17,400
Shares issued from treasury stock for services		17,800			15,000
Changes in assets and liabilities:
Accounts receivable		(16,557,825	)		(23,296,361	)
Inventories		3,668,582			1,219,588
Prepayments and deposits		(9,126	)		(20,850	)
Other receivable		(580	)		—
Accounts payable and accrued expenses		(4,866,247	)		941,315
Retention payable		(739,329	)		(356,348	)
Taxes payable		(1,670,121	)		1,474,602
Net cash provided by operating activities		23,477,422			29,214,282
				��
CASH FLOWS USED IN INVESTING ACTIVITIES
Payment land leases		(859,219	)		(673,934	)
Purchase of property, plant and equipment		(623,735	)		(16,749,192	)
Net cash used in investing activities		(1,482,954	)		(17,423,126	)

CASH FLOWS USED IN FINANCING ACTIVITIES
Repayment of capital lease obligation		(273,873	)		(287,387	)
Net cash used in financing activities		(273,387	)		(287,387	)

EFFECTS OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS		7,780,517			(4,026,574	)
NET INCREASE IN CASH AND CASH EQUIVALENTS		29,501,112			7,477,195
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD		163,884,574			133,606,392
CASH AND CASH EQUIVALENTS - END OF PERIOD	$	193,385,686		$	141,083,587

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the periods for:
Income taxes	$	9,590,640		$	8,740,519
SUPPLEMENTAL DISCLOSURE OF NON-CASH FLOW INVESTING AND FINANCING ACTIVITIES
Par value of common stock issued upon cashless exercise of options	$	—		$	386

	September 30, 2017		December 31, 2016
Income tax payable	$	1,582,939	$	1,849,535
Natural resource tax		18,599		651,230
Value added tax payable		456,166		887,913
Land use right tax payable		798,285		818,921
Other tax payables		104,158		133,732
Total	$	2,960,147	$	4,341,331

	Three-Month Period Ended September 30,				Nine-Month Period Ended September 30,
	2017		2016		2017		2016
Current taxes – PRC	$	1,509,321	$	3,518,529	$	9,152,597	$	9,996,622
Deferred taxes – PRC		—		—		—		—
	$	1,509,321	$	3,518,529	$	9,152,597	$	9,996,622

	Capital Lease Obligations			Operating Lease Obligations		Property Management Fees
Payable within:
the next 12 months	$	282,808		$	973,544	$	23,499
the next 13 to 24 months		282,808			996,682		—
the next 25 to 36 months		282,808			1,017,918		—
the next 37 to 48 months		282,808			1,043,191		—
the next 49 to 60 months		282,808			897,662		—
thereafter		2,262,459			16,326,743		—
Total	$	3,676,499		$	21,255,740	$	23,499
Less: Amount representing interest		(1,248,157	)
Present value of net minimum lease payments	$	2,428,342

	Three-Month Period Ended				Percentage Change
Chemical products segment sold in tonnes	September 30, 2017		September 30, 2016		(Decrease)
Oil and gas exploration additives		1,361		2,914		(53	%)
Paper manufacturing additives		450		835		(46	%)
Pesticides manufacturing additives		239		606		(61	%)
Pharmaceutical intermediates		293		388		(25	%)
By products		1,435		3,045		(53	%)
Overall		3,778		7,788		(51	%)

	Three-Month Period Ended September 30,
Decrease in net revenue of bromine as a result of:	2017 vs. 2016
Increase in average selling price	$	509,270
Decrease in sales volume	$	(6,931,340	)
Total effect on net revenue of bromine	$	(6,422,070	)

	Three-Month Period Ended September 30,
Decrease in net revenue of crude salt as a result of:	2017 vs. 2016
Increase in average selling price	$	288,745
Decrease in sales volume	$	(544,815	)
Total effect on net revenue of crude salt	$	(256,070	)

	Product Mix of Chemical Products Segment										Percent
	Three-Month Period Ended					Three-Month Period Ended					Change of
	September 30, 2017					September 30, 2016					Net Revenue
Chemical Products			% of total					% of total
Oil and gas exploration additives	$	2,620,464		21	%	$	5,362,309		26	%		(51	%)
Paper manufacturing additives	$	517,905		4	%	$	930,262		4	%		(44	%)
Pesticides manufacturing additives	$	1,311,326		11	%	$	3,010,391		15	%		(56	%)
Pharmaceutical intermediates	$	6,081,137		50	%	$	7,586,616		37	%		(20	%)
By products	$	1,705,053		14	%	$	3,639,397		18	%		(53	%)
Total sales	$	12,235,885		100	%	$	20,528,975		100	%		(40	%)

	Annual Production Capacity (in tonnes)			Utilization Ratio (i)
Three-month period ended September 30, 2016		47,347			46	%
Three-month period ended September 30, 2017		42,808			37	%
Variance of the three-month period ended September 30, 2017 and 2016		(4,539	)		(9	%)

Per tonne production cost	Three-Month Period Ended					Three-Month Period Ended
component of bromine segment	September 30, 2017					September 30, 2016					% Change
			% of total					% of total
Raw materials	$	909		42	%	$	819		46	%		11	%
Depreciation and amortization	$	811		37	%	$	593		33	%		37	%
Electricity	$	128		6	%	$	146		8	%		(12	%)
Others	$	328		15	%	$	237		13	%		38	%
Production cost of bromine per tonne	$	2,176		100	%	$	1,795		100	%		21	%

	Income by Segment
	Three-Month Period Ended September 30, 2017						Three-Month Period Ended September 30, 2016
Segment:				% of total						% of total
Bromine	$	2,257,069			38	%	$	7,898,302			57	%
Crude Salt		497,783			8	%		(382,917	)		(3	%)
Chemical Products		3,176,458			54	%		6,442,708			46	%
Natural Gas		(33,184	)		—			(2,476	)		—
Income from operations before corporate costs		5,898,126			100	%		13,955,617			100	%
Corporate costs		(526,421	)					(180,447	)
Unrealized translation difference		(536,453	)					181,030
Income from operations	$	4,835,252					$	13,956,200

	Nine-Month Period Ended September 30,
Increase in net revenue of crude salt as a result of:	2017 vs. 2016
Increase in average selling price	$	480,083
Decrease in sales volume	$	(472,788	)
Total effect on net revenue of crude salt	$	7,295

	Gross Profit by Segment										% Point Change
	Nine-Month Period Ended					Nine-Month Period Ended					of Gross
	September 30, 2017					September 30, 2016					Profit Margin
Segment			Gross Profit Margin					Gross Profit Margin
Bromine	$	21,061,953		50	%	$	22,030,498		46	%		4	%
Crude Salt	$	3,093,326		48	%	$	263,430		4	%		44	%
Chemical Products	$	18,341,550		33	%	$	22,429,089		34	%		(1	%)
Total Gross Profit	$	42,496,829		41	%	$	44,723,017		37	%		4	%

	Income from Operations by Segment
	Nine-Month Period Ended September 30, 2017						Nine-Month Period Ended September 30, 2016
Segment:				% of total						% of total
Bromine	$	17,269,984			48	%	$	19,103,472			48	%
Crude Salt		2,434,872			7	%		(165,403	)		—
Chemical Products		16,441,115			45	%		20,698,116			52	%
Natural Gas		(90,471	)		—			(2,501	)		—
Income from operations before corporate costs		36,055,500			100	%		39,633,684			100	%
Corporate costs		(784,416	)					(409,808	)
Unrealized exchange difference		(1,140,363	)					729,764
Income from operations	$	34,130,721					$	39,953,640