Management's Discussion and Analysis of Financial Condition and Results of Operations.
Overview
We are a Nevada holding company which conducts operations through our wholly-owned China-based subsidiaries. Our business is conducted and reported in four segments, namely, bromine, crude salt, chemical products and natural gas.
Through our wholly-owned subsidiary, SCHC, we produce and trade bromine and SHSI for crude salt production and trading. crude salt. We are one of the largest producers of bromine in China, as measured by production output. Elemental bromine is used to manufacture a wide variety of bromine compounds used in industry and agriculture. Bromine also is used to form intermediary chemical compounds such as Tetramethylbenzidine. Bromine is commonly used in brominated flame retardants, fumigants, water purification compounds, dyes, medicines and disinfectants. Crude salt is the principal material in alkali production as well as chlorine alkali production and is widely used in the chemical, food and beverage, and other industries.
Through our wholly-owned subsidiary, SYCI, we manufacture and sell chemical products used in oil and gas field exploration, oil and gas distribution, oil field drilling, papermaking chemical agents, inorganic chemicals and materials that are used for human and animal antibiotics.
Our wholly-owned subsidiary, DCHC, was established to explore and develop natural gas and brine resources (including bromine and crude salt) in Sichuan Province, China.
Bromine and Crude Salt
As disclosed in the Company's Current Report on Form 8-K filed on September 8, 2017, the Company received, on September 1, 2017, letters from the Yangkou County, Shouguang City government addressed to each of its subsidiaries, SCHC and SYCI, which stated that in an effort to improve the safety and environmental protection management level of chemical enterprises, the plants are requested to immediately stop production and perform rectification and improvements in accordance with the country's new safety and environmental protection requirements. In the Company's press release of August 11, 2017 and on its conference call of August 14, 2017, the Company addressed concerns that increased government enforcement of stringent environmental rules that were adopted in early 2017 to insure corporations bring their facilities up to necessary standards so that pollution and other negative environmental issues are limited and remediated, could have an impact on our business in both the short and long-term. The Company also expressed that although it believed its facilities were fully compliant at the time, the Company did not know how its facilities would fare under the new rules. Teams of inspectors from the government were sent to many provinces to inspect all mining and manufacturing facilities. The local government requested that facilities be closed, so that the facilities could undergo the inspection and analysis in the most efficient manner by inspectors' team. As a result, our facilities were closed on September 1, 2017.
The Company believes that this is another step by the government to improve the environment. It further believes the goal of the government is not to close all plants, but rather to codify the regulations related to project approval, land use, planning approval and environmental protection assessment approval so that illegal plants are not able to open in the future and so that plants close to population centers do not cause serious environmental damage. In addition, the Company believes that the Shandong provincial government wants to assure that each of its regional and county governments has applied the Notice in a consistent manner.
The Shouguang City Bromine Association, on behalf of all the bromine producers in Shouguang, initiated negotiations with the local government agencies. The local governmental agencies acknowledged the fact that their initial requirements for the bromine industry did not include the project, the planning and the land use rights approvals, which were later introduced by the provincial government as new requirements. The Company understood from the local government that local government was coordinating with various government agencies to solve these three outstanding approval issues in a timely manner and that all impacted 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 Factories No. 1, No. 4, No. 7 and No. 9 passed inspection and were allowed to resume operations. In April 2019, Factory No. 1 and No. 7 resumed operations.
Subsequently, the Company received approval dated February 27, 2020, issued by the local governmental authority which allows us to resume production after the winter temporary closure. Further, the Company 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 (the "March 2020 Approval"). The Company's factories No.7 and No.1 started trial production in middle-March 2020, and commenced commercial production on April 3, 2020.
The Company received oral notification from the government regarding Factory No. 8, allowing it to resume production in August 2022. Factory No.8 began contributing revenue in the fourth quarter of 2022.
The Company is awaiting governmental approval for Factories No. 2 and No. 10. To our knowledge, the government is finalizing plans for all mining areas, including flood prevention measures. As a result, we may be required to make certain modifications to our existing wells and aqueducts prior to commencement of operations of these factories in order to satisfy the local government's requirements. The Company completed its flood prevention project in December 2023. This project was implemented for safeguarding its bromine facilities.
Pursuant to the notification from the government of Shouguang City, all bromine facilities in Shouguang City were temporarily closed from December 15, 2024, until February 12, 2025. In compliance with the notification, the Company ceased production at its bromine facilities during this period and resumed preparation operations at the bromine and crude salt factories as scheduled in February 2025.
Chemical Products
On November 24, 2017, the Company received a letter from the People's Government of Yangkou County, Shouguang City notifying the Company that due to the new standards and regulations relating to safety production and environmental pollution, from certain local governmental departments, such as the municipal environmental protection department, the security supervision department and the fire department, its chemical enterprises would have to be relocated to a new industrial park called Bohai Marine Fine Chemical Industry Park. Although our chemical companies were in compliance with regulations, they were also close to a residential area. As a result, the government determined we should relocate to the Bohai park. Chemical companies that are not being asked to move into the park are being permanently closed. Since our factories closed, the Company has secured from the government the land use rights for its chemical plant. On January 6, 2020, the Company received the environmental protection approval by the government of Shouguang City, Shandong Province for the proposed Yuxin Chemical factory. Construction of the new chemical facilities at Bohai Marine Fine Chemical Industrial Park commenced in June 2020. Initially, the construction was projected to last around one year, with an additional six months for equipment installation and testing. However, due to the COVID epidemic and electrical restrictions, the opening of the chemical factory has been postponed. The Company has received the refrigeration and air compressor units. Additionally, the procurement of the final equipment for our chemical factory has been postponed until we have a better understanding of the potential for derivative bromine products. We anticipate proceeding with the completion of its chemical factory in due course. However, in the event that the Chinese economy persists in its weakness and if we perceive this trend to be ongoing, there is a possibility that the chemical factory could be repurposed for the production of Sodium-Ion batteries.
Natural Gas
In January 2017, the Company completed the construction of the first brine water and natural gas well field in Daying County, Sichuan Province, and commenced trial production in January 2019. On May 29, 2019, the Company received verbal notice from the government of Tianbao Town, Daying County, Sichuan Province, mandating the need for project approval for its Daying well, encompassing the entire natural gas and brine water project. This also includes approvals for safety production inspection, environmental protection assessment, and to solve the related land issue. Until these approvals are obtained, the Company must temporarily suspend trial production at its natural gas well in Daying. Additionally, in compliance with the Chinese government new policies, the Company is required to obtain an exploration license for bromine and a mining license for 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 natural gas production. The Company is engaged in ongoing discussions with the government of Daying County regarding the establishment of a joint venture for the exploration and production of natural gas and brine products in Sichuan.
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 and DCHC, the consolidated financial statements and the information presented below as of and for the year ended December 31, 2025. The following discussion should be read in conjunction with our consolidated financial statements and notes thereto appearing elsewhere in this report.
RESULTS OF OPERATIONS.
Year ended December 31, 2025, as compared to year ended December 31, 2024
| Years ended | ||||||||||||
| December 31, 2025 | December 31, 2024 (Restated) | Percent Change Increase/ (Decrease) | ||||||||||
| Net Revenue | $ | 25,418,335 | $ | 7,661,010 | 232 | % | ||||||
| Cost of Revenue | $ | (23,257,971 | ) | $ | (14,746,741 | ) | 58 | % | ||||
| Gross Profit | $ | 2,160,364 | $ | (7,085,731 | ) | (130 | %) | |||||
Sales and Marketing Expense | $ | (49,927 | ) | $ | (46,264 | ) | 8 | % | ||||
| Direct labor and factory overheads incurred during plant shutdown | $ | (5,098,990 | ) | $ | (8,880,643 | ) | (43 | %) | ||||
| General and Administrative Expenses | $ | (5,580,071 | ) | $ | (6,235,931 | ) | (11 | %) | ||||
| Loss from Operations | $ | (8,568,624 | ) | $ | (22,248,569 | ) | (61 | %) | ||||
| Other Expense, Net | $ | (3,948,736 | ) | $ | (62,113 | ) | 6257 | % | ||||
| Loss on disposal of long-lived assets | $ | (2,008,853 | ) | $ | (29,169,008 | ) | (93 | %) | ||||
| Impairment of long-lived assets | $ | (30,068,794 | ) | $ | (6,772,500 | ) | 344 | % | ||||
| Gain on disposal of subsidiary | $ | 674,776 | $ | - | 100 | % | ||||||
| Loss before Taxes | $ | (43,920,231 | ) | $ | (58,252,190 | ) | (25 | %) | ||||
| Income Tax Expense (Benefit) | $ | - | $ | (1,648,182 | ) | (100 | %) | |||||
| Net Loss | $ | (43,920,231 | ) | $ | (59,900,372 | ) | (27 | %) | ||||
Net Loss for fiscal year 2025 decreased to $43,920,231 from $59,900,372 in 2024, mainly due to increased sales and margins, a $17,757,325 increase in net revenue and a $27,160,155 reduction in loss on disposal of long-lived assets. These positive factors were partially offset by a sharp rise in impairment of long-lived assets to $30,068,794.
Net Loss of $59,900,372 for fiscal year 2024 was mainly attributable to decreased sales and reduced margins. The company also suffered a loss of $29,169,008 and $6,772,500 on retirement of fixed assets and impairment of fixed assets. Additionally, the compensation expenses amounted to $194,700 for shares issued to company employees, officers and consultant for the year 2024.
Net Revenue The table below shows the changes in net revenue in the respective segment of the Company for the fiscal year 2025 compared to the same period in 2024:
| Net Revenue by Segment | ||||||||||||||||||||
|
Year Ended December 31, 2025 |
Year Ended December 31, 2024 |
Percent Increase (Decrease) of Net Revenue | ||||||||||||||||||
| Segment | % of total | % of total | ||||||||||||||||||
| Bromine | $ | 23,000,303 | 90.5 | % | $ | 5,549,815 | 72.4 | % | 314.4 | % | ||||||||||
| Crude Salt | 2,418,032 | 9.5 | % | 2,049,988 | 26.8 | % | 18.0 | % | ||||||||||||
| Chemical Products | - | - | - | - | - | |||||||||||||||
| Natural Gas | - | - | 61,207 | 0.8 | % | (100 | %) | |||||||||||||
| Total sales | $ | 25,418,335 | 100.0 | % | $ | 7,661,010 | 100.0 | % | 231.8 | % | ||||||||||
| Years Ended December 31 | Percent Increase | |||||||||||
| Bromine and crude salt segments product sold in tonnes | 2025 | 2024 | (Decrease) | |||||||||
| Bromine | 6,024 | 2,250 | 168 | % | ||||||||
| Crude Salt | 93,916 | 77,289 | 22 | % | ||||||||
Bromine segment
Net revenue from our bromine segment increased by 314.4% to $23,000,303 for the year ended December 31, 2025, compared to $5,549,815 for the year ended December 31, 2024. This increase was due to an increase in bromine unit price of 55% and an increase in volume of 168%.
Crude salt segment
Net revenue from our crude salt segment increased by 18.0% to $2,418,032 for the year ended December 31, 2025, compared to $2,049,988 for the last year. This increase was due to an increase in volume of 22%.
Chemical products segment
For the years ended December 31, 2025, and December 31, 2024, the net revenue for the chemical products segment was $0 due to the closure of our chemical factories since September 1, 2017.
Natural gas segment
For the years ended December 31, 2025, and December 31, 2024, the net revenue for natural gas production was nil and $61,207. This decrease was due to the expiration of contracts.
| Cost of Revenue | ||||||||||||||||||||
| Cost of Revenue by Segment | % Change | |||||||||||||||||||
|
Year Ended December 31, 2025 |
Year Ended December 31, 2024 |
of Cost of Revenue | ||||||||||||||||||
| Segment | % of total | % of total | ||||||||||||||||||
| Bromine | $ | 22,221,144 | 96 | % | $ | 13,750,051 | 93 | % | 62 | % | ||||||||||
| Crude Salt | 1,036,827 | 4 | % | 996,396 | 7 | % | 4 | % | ||||||||||||
| Chemical Products | - | - | - | - | - | |||||||||||||||
| Natural Gas | - | - | 294 | - | - | |||||||||||||||
| Total | $ | 23,257,971 | 100 | % | $ | 14,746,741 | 100 | % | 58 | % | ||||||||||
Cost of revenue primarily includes costs of the raw materials consumed, the direct salaries and benefits for production staff, electricity costs, depreciation and amortization of manufacturing plants and machinery, and other manufacturing-related costs. Our cost of revenue was $23,257,971 for the year ended December 31, 2025, representing a $8,511,230 (or 58%) increase compared to the preceding year. The increase in costs was mainly due to a significant increase in 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) | |||||||
| Fiscal year 2025 | 31,506 | 19 | % | |||||
| Fiscal year 2024 | 31,506 | 7 | % | |||||
| Variance of the fiscal year 2025 and 2024 | 0 | 12 | % | |||||
| (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. |
Bromine segment
For the year ended December 31, 2025, the cost of revenue for the bromine segment was $22,221,144. For the year ended December 31, 2024, the cost of revenue for the bromine segment was $13,750,051.
Crude salt segment
For the year ended December 31, 2025, the cost of revenue for the crude salt segment was $1,036,827. The cost of revenue for our crude salt segment for the year ended December 31, 2024, was $996,396.
Chemical products segment
Cost of revenue for our chemical products segment for the fiscal year 2025 and 2024 was nil.
Natural gas segment
Cost of revenue for our natural gas segment for the year ended December 31, 2025, and 2024 was nil and $294.
Gross Profit/(Loss). Gross profit was $2,160,364 or 8%, of net revenue for the year ended December 31, 2025, compared to the gross loss of $7,085,731 or 93%, of net revenue for the same period in 2024.
| Gross Profit (Loss) by Segment | ||||||||||||||||||||
|
Year Ended December 31, 2025 |
Year Ended December 31, 2024 |
% Point Change of Gross Profit Margin | ||||||||||||||||||
| Segment | Gross Profit (loss) Margin | Gross Profit (loss) Margin | ||||||||||||||||||
| Bromine | $ | 779,159 | 3 | % | $ | (8,200,236 | ) | (147 | %) | 150 | % | |||||||||
| Crude Salt | 1,381,205 | 57 | % | 1,053,592 | 51 | % | 6 | % | ||||||||||||
| Chemical Products | - | - | - | - | ||||||||||||||||
| Natural Gas | - | - | 60,913 | 100 | % | (100 | %) | |||||||||||||
| Total Gross Profit/(Loss) | $ | 2,160,364 | 8 | % | $ | (7,085,731 | ) | (93 | %) | 101 | % | |||||||||
Bromine segment
For the year ended December 31, 2025, the gross profit margin for our bromine segment was 3% compared to the gross loss of 147% in the previous year. This increase was due to an increase in bromine unit price of 55% and an increase in volume of 168%.
Crude salt segment
For the year ended December 31, 2025, the gross profit margin for our crude salt segment was 57%, compared to 51% in the preceding year, representing a 6 percentage point increase.
Natural gas segment
For the year ended December 31, 2025, the gross profit margin for our natural gas segment was nil, compared to 100% in the preceding year. The decrease was due to the expiration of contracts.
Direct labor and factory overheads were incurred during plant shutdown. On September 1, 2017, the Company received notification from the government of Yangkou County, Shouguang City of PRC stating 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 such, direct labor and factory overhead costs (including depreciation of plant and machinery) amounted to $5,098,990 and $8,880,643 for fiscal years 2025 and 2024, which were presented as operating expenses instead of in cost of revenue. The decrease in direct labor and factory overhead costs was primarily attributable to the factories operation status during the fiscal year 2025 and year 2024. These five factories (including No.1, No.4, No.7, No.8 and No.9) were in production during the year 2025.
General and Administrative Expenses. General and administrative expenses were $5,580,071 for the year ended December 31, 2025, representing a decrease of $655,860 (or 11%) as compared to $6,235,931 for the same period in 2024. The decrease was mainly contributed by a decrease in bad debt expenses.
Loss from Operations. Operating loss was $8,568,624 for the fiscal year 2025, compared to a loss of $22,248,569 in the same period in 2024.
| Income (loss) from Operations by Segment | ||||||||||||||||
| Year ended December 31, 2025 | Year ended December 31, 2024 (Restated) | |||||||||||||||
| Segment: | % of total | % of total | ||||||||||||||
| Bromine | $ | (4,658,726 | ) | 65.4 | % | $ | (17,455,130 | ) | 81.2 | % | ||||||
| Crude Salt | $ | (908,680 | ) | 12.8 | % | $ | (668,110 | ) | 3.1 | % | ||||||
| Chemical Products | $ | (1,393,175 | ) | 19.6 | % | $ | (3,185,472 | ) | 14.8 | % | ||||||
|
Natural Gas | $ | (157,913 | ) | 2.2 | % | $ | (195,364 | ) | 0.9 | % | ||||||
| Loss from operations before corporate costs | $ | (7,118,494 | ) | 100 | % | $ | (21,504,076 | ) | 100 | % | ||||||
| Corporate costs | $ | (1,450,130 | ) | $ | (744,493 | ) | ||||||||||
| Loss from operations before taxes | $ | (8,568,624 | ) | $ | (22,248,569 | ) | ||||||||||
Bromine segment
Loss from operations from our bromine segment was $4,658,726 for the fiscal year 2025, compared to a loss of $17,455,130 in the same period in 2024. This decrease was due to an increase in bromine unit price of 55% and an increase in volume of 168%.
Crude salt segment
Loss from operations from our crude salt segment was $908,680 for fiscal year 2025 compared to a loss of $668,110 in the same period in 2024. The main reason for the increase in loss in crude salt in 2025 compared with 2024 is due to the increase in depreciation expenses.
Chemical products segment
Loss from operations from our chemical products segment was $1,393,175 for the fiscal year 2025, compared to a loss of $3,185,472 in the same period in 2024. The main reason for the changes was due to the decrease in the bad debt for the fiscal year 2025 compared to the fiscal year 2024.
Natural gas segment
Loss from operations from our natural gas segment was $157,913 for the fiscal year 2025, compared to a loss of $195,364 in the same period in 2024.
Other Expense, Net. Other expenses, net was $4,003,497 for the fiscal year 2025, representing an increase of $3,953,027 as compared to the preceding year. It represents provision for guaranteed litigation for the fiscal year 2025.
Loss on Disposal of Long-lived Assets
Loss on disposal of long-lived assets was $2,008,853 in the fiscal year 2025. As the company was the joint responsible party for the debts of the Vegetable Group, the court auctioned the land and the attached properties on it of SYCI.
Loss on disposal of long-lived assets was $29,169,008 in the fiscal year 2024. In June 2024, considering the bromide well and transmission channel have been in use for many years, the Company conducted a site inspection and found that some wells and channels were seriously damaged by water seepage which in turn required write-off or new construction, and the write-off amount is $29,169,008.
Impairment of Long-lived Assets
The court engaged a third-party valuer for evaluation of the land at xiangjiang road, yangkou town, shouguang city and its attached properties; The Company engaged an independent third-party valuer for evaluation of the fixed assets of Daying County. The valuation reports returned a total fair value of $ 5,066,558. The Company recognized a total impairment loss of $30,068,794 accordingly.
Gain on disposal of subsidiary
The sale of SYCI was completed in December 2025, and the gain on disposal of subsidiary amounted to $674,776.
Net Loss. Net loss was $43,920,231 for the fiscal year 2025, compared to net loss of $59,900,372 in the preceding year.
Net Loss Per Share
For the fiscal year 2025, net loss per share was $32.95 compared to net loss per share of $54.88 in the preceding year. There were 1,332,954 shares outstanding compared to 1,091,562 shares.
Foreign Currency Translation Adjustment
For the fiscal year 2025, the Company had a positive foreign currency translation adjustment of $2,677,801 versus a negative adjustment of $2,730,049 in the previous year. This adjustment impacts all balance sheet translations into U.S. dollars.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 2025, cash and cash equivalents were $3,793 as compared to $10,075,162 as of December 31, 2024. The components of this decrease of $10,071,369 are reflected below.
Statement of Cash Flows
| Years Ended December 31 | ||||||||
| 2025 | 2024 (Restated) | |||||||
| Net cash provided by operating activities | $ | 7,802,497 | $ | 675,826 | ||||
| Net cash used in investing activities | $ | (22,571,837 | ) | $ | (28,948,917 | ) | ||
| Net cash provided by/(used in) financing activities | $ | 4,844,391 | $ | (31,851,811 | ) | |||
| Effects of exchange rate changes on cash and cash equivalents | $ | (146,420 | ) | $ | (2,023,830 | ) | ||
| Net decrease in cash and cash equipment | $ | (10,071,369 | ) | $ | (62,148,732 | ) | ||
For the fiscal years 2025 and 2024, we met our working capital and capital investment requirements by using cash flows from operations and cash on hand.
Net Cash Provided by Operating Activities
During the year ended December 31, 2025, cash flow provided by operating activities of approximately $7.8 million was mainly due to a non-cash adjustment related to depreciation and amortization of property, plant and equipment of $13.1 million, amortization of finance lease right-of-use asset of $3.1 million, accrued liabilities of $4 million, a loss on disposal of long-lived assets of $2 million, an impairment of long-lived assets of $30.1 million, and offset by a net loss of $43.9 million.
During the year ended December 31, 2024, cash flow provided by operating activities of approximately $0.68 million was mainly due to a net loss of $59.9 million, offset by a non-cash adjustment related to depreciation and amortization of property, plant and equipment of $15.82 million, impairment of long-lived assets of $6.8 million, loss on disposal of equipment of $29 million, and a decrease in account receivable of $4.26 million.
Accounts receivable
Cash collections on our accounts receivable had a major impact on our overall liquidity. The following table presents the aging analysis of our accounts receivable as of December 31, 2025 and 2024.
| December 31, 2025 | December 31, 2024 | |||||||||||||||
| % of total | % of total | |||||||||||||||
| Aged 1-30 days | $ | 1,409,269 | 43 | % | $ | 419,581 | 74 | % | ||||||||
| Aged 31-60 days | 1,860,151 | 57 | % | 144,942 | 26 | % | ||||||||||
| Aged 61-90 days | - | - | - | - | ||||||||||||
| Aged 91-120 days | - | - | - | - | ||||||||||||
| Aged 121-150 days | - | - | - | - | ||||||||||||
| Aged 151-180 days | - | - | - | - | ||||||||||||
| Aged 181-210 days | - | - | - | - | ||||||||||||
| Aged 211-240 days | - | - | - | - | ||||||||||||
| Total | $ | 3,269,420 | 100 | % | $ | 564,523 | 100 | % | ||||||||
The overall accounts receivable balance as of December 31, 2025 increased by $2,704,897, compared to those of December 31, 2024. The increase was mainly due to an increase in the amount of accounts receivable in the current period as a result of the increase in sales revenue. We have policies in place to ensure that sales are made to customers with an appropriate credit history. We perform ongoing credit evaluations on the financial condition of our customers.
Inventory
Our inventory consists of the following:
| December 31, 2025 | December 31, 2024 | |||||||||||||||
| % of total | % of total | |||||||||||||||
| Raw materials | $ | 20,079 | 4 | % | $ | 10,610 | 3 | % | ||||||||
| Finished goods | 542,738 | 96 | % | 304,761 | 97 | % | ||||||||||
| Total | $ | 562,817 | 100 | % | $ | 315,371 | 100 | % | ||||||||
The net inventory level as of December 31, 2025 increased by $247,446, as compared to the net inventory level as of December 31, 2024, one of the main reasons for the increase in inventories was the rise in sales.
Raw materials increased by $9,469 as of December 31, 2025, as compared to December 31, 2024.
Finished goods increased by $237,977 as of December 31, 2025, as compared to December 31, 2024.
Net Cash Used In Investing Activities
For the fiscal year 2025, net cash used in investing activities was $22.57 million. This was driven by $8.85 million for purchase of fixed assets and $13.93 million of loans to third parties.
For the fiscal year 2024, net cash used in investing activities was $28.95 million. This was driven by $28.92 million for purchase of fixed assets.
Net Cash Provided By / (Used In) Financing Activities
For the fiscal year 2025, net cash provided by financing activities was $4.84 million. This was driven by cash inflows from borrowings, including $2.31 million from long-term borrowing and $2.80 million from short-term borrowing, offset by $0.26 million of principal payments for obligations under finance leases.
For the fiscal year 2024, net cash used in financing activities was $31.85 million, which was almost entirely used for the principal payment for obligations under finance leases.
We believe that our available funds and cash flows generated from operations will be sufficient to meet our anticipated ongoing operating needs for the next twelve months.
As of December 31, 2025, we had approximately $3,793 in available cash, all of which is in highly liquid current deposits yielding minimal or no interest. We do not anticipate paying cash dividends in the foreseeable future.
We intend to continue to focus our efforts on the activities of SCHC, 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 business or business segment we may acquire, or any expansion of our business. An expansion may involve a number of risks, including possible adverse effects on our operating results, diversion of management's attention, inability to retain key personnel, risks associated with unanticipated events and the financial statement effect of potential impairment of acquired intangible assets, any of which could have a materially adverse effect on our condition and results of operations. In addition, if competition for acquisition candidates or operations were to increase, the cost of acquiring businesses could increase materially. We may effect an acquisition with a target business which may be financially unstable, under-managed, or in its early stages of development or growth. Our inability to implement and manage our expansion strategy successfully may have a material adverse effect on our business and future prospects.
Contractual Obligations and Commitments
We have no significant contractual obligations not fully recorded on our consolidated balance sheets or fully disclosed in the notes to our consolidated financial statements. Additional information regarding our contractual obligations and commitments on December 31, 2025 is provided in the notes to our consolidated financial statements.
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 are prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP), which requires us to make judgments, estimates and assumptions. See "Note 1 - Nature of Business and Summary of Significant Accounting Policies," in Notes to the Consolidated Financial Statements, which is included in "Item 8. Financial Statements and Supplementary Data," which describes our significant accounting policies and methods used in the preparation of our Consolidated Financial Statements. The methods, estimates and judgments that we use in applying our accounting policies require us to make difficult and subjective judgments, often as a result of the need to make estimates regarding matters that are inherently uncertain.
Our most critical estimates include:
| · | allowance for doubtful accounts; |
| · | the valuation of inventory, which impacts gross margins; |
| · | impairment of long-lived assets; |
| · | the valuation and recognition of share-based compensation, which impacts operating expenses; and |
| · | the recognition and measurement of deferred income taxes, which impact our provision for taxes. |
Allowance for Doubtful Accounts
We make estimates of the uncollectibility of accounts receivable, especially analyzing accounts receivable and historical bad debts, customer concentrations, customer creditworthiness, current economic trends and changes in customer payment terms, when evaluating the adequacy of the allowance for doubtful accounts. Credit evaluations are undertaken for all major sale transactions before shipment is authorized. On a quarterly basis, we evaluate aged items in the accounts receivable aging report and provide an allowance in an amount we deem adequate for doubtful accounts. If management were to make different judgments or utilize different estimates, material differences in the amount of our reported operating expenses could result.
Inventory Valuation
Inventory is stated at the lower of cost or market, with cost determined on a first-in first-out basis. The carrying value of inventory is reduced for estimated obsolescence by the difference between its cost and the estimated market value based upon assumptions about future demand. We evaluate the inventory carrying value for potential excess and obsolete inventory exposures by analyzing historical and anticipated demand. If actual future demand or market conditions are less favorable than those projected by management, additional inventory write-downs may be required in the future, which could have a material adverse effect on our results of operations.
Depreciation of Property, Plant and Equipment
Property, plant and equipment are stated at cost less accumulated depreciation and any impairment losses. Expenditures for new facilities or equipment, and major expenditures for betterment of existing facilities or equipment are capitalized and depreciated using the straight-line method at rates sufficient to depreciate such costs 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. In some situations, the life of the asset may be extended or shortened if circumstances arose that would lead us to believe that the estimated life of the asset has changed. The life of leasehold improvements may change based on the extension of lease contracts with our landlords. Changes in the estimated lives of assets will result in an increase or decrease in the amount of depreciation recognized in future periods.
Impairment of Long-Lived Assets
We periodically evaluate whether events or circumstances have occurred that indicate long-lived assets may not be recoverable or that the remaining useful life may warrant revision. When such events or circumstances are present, we assess the recoverability of long- lived assets by determining whether the carrying value will be recovered through the expected undiscounted future cash flows resulting from the use of the asset. In the event the sum of the expected undiscounted future cash flows is less than the carrying value of the asset, an impairment loss equal to the excess of the asset's carrying value over its fair value is recorded.
Allowance on Deferred Tax Assets
We evaluate our deferred income tax assets to determine if valuation allowances are required or should be adjusted. A valuation allowance is established against our deferred tax assets based on consideration of all available evidence, both positive and negative, using a "more likely than not" standard. This assessment considers, among other matters, the nature, frequency and severity of recent losses, forecasts of future profitability, the duration of statutory carry forward periods, our experience with expiring unused tax attributes and tax planning alternatives. In making such judgments, significant weight is given to evidence that can be objectively verified.
Stock-based compensation
We account for stock-based compensation in accordance with the fair value recognition provisions of U.S. GAAP. We use the Black- Scholes model which requires the input of highly subjective assumptions. These assumptions include estimating the length of time employees will retain their vested stock options before exercising them, the estimated volatility of our common stock price over the expected term and the number of options that will ultimately not complete their vesting requirements. The assumptions for expected volatility and expected term are the two assumptions that significantly affect the grant date fair value. Changes in expected risk-free rate of return do not significantly impact the calculation of fair value, and determining this input is not highly subjective.
We use annualized historical stock price volatility, which is deemed to be appropriate to serve as the expected volatility of our stock price and is assumed to be constant and prevailing. The expected term represents the weighted-average period that our stock options are expected to be outstanding. The expected life is based on historical option exercise pattern.
Recent Accounting Pronouncements
See "Note 1 - Nature of Business and Summary of Significant Accounting Policies" of the Notes to Consolidated Financial Statements in Item 8. Financial Statements and Supplementary Data for a full description of recent accounting pronouncements including the respective expected dates of adoption and effects on the consolidated financial statements.