What changed in this filing

/stocks — the workspaceLOADING

Item 1. Business

2022-04-12 compared with 2021-04-08 · 300 added, 201 removed, 402 unchanged (55% of the section changed)

We manufacture and trade bromine and crude salt,

natural gas, manufacture and sell chemical products used in oil and gas field exploration, oil and gas distribution, oil field drilling,

papermaking chemical agents, and manufacture and sell materials for human and animal antibiotics.

To date, our products have been sold

only within the People’s Republic of China.

As used in this report, the terms “we,”

“our,”

“Company”

and “Gulf Resources”

refers to Gulf Resources, Inc.

and its wholly-owned subsidiaries, and the terms “ton”

“tons”

refers to metric tons, in each case, unless otherwise stated or the context requires otherwise.

The functional currency of the Company’s

operating foreign subsidiaries is the Renminbi (“RMB”), which had an average exchange rate of $0.14509 and $0.14508 during

fiscal years 2019 and 2020, respectively, the reporting currency of the Company is the United States dollar (“USD”

or $”).

Our Corporate History

We were originally incorporated in Delaware and

subsequently re-incorporated in Nevada.

From November 1993 through August 2006, we were engaged in the business of owning, leasing and

operating coin and debit card pay-per copy photocopy machines, fax machines, microfilm reader-printers and accessory equipment under the

name “Diversifax, Inc.”.

Due to the increased use of internet services, demand for our services declined sharply, and in August

2006, our Board of Directors decided to discontinue our operations.

natural gas, manufacture and sell chemical products used in oil and gas field explorations and papermaking chemical agents, and materials

for human and animal antibiotics .

To date, our products have been sold only within the People’s Republic of China.

in this report, the terms “we,” “us,” “our,” “Company” and “Gulf Resources”

refers to Gulf Resources, Inc., a holding company and/or its consolidated wholly-owned subsidiaries, and the terms “ton” and

“tons” refers to metric tons, in each case, unless otherwise stated or the context requires otherwise.

The functional currency of the Company’s

operating foreign subsidiaries is the Renminbi (“RMB”), which had an average exchange rate of $0.14508 and $0.15501 during

fiscal years 2020 and 2021, respectively, the reporting currency of the Company is the United States dollar (“USD” or $”).

Our Corporate History and Corporate Structure

We (Gulf Resources Inc.) were originally incorporated

in Delaware and subsequently re-incorporated in Nevada.

From November 1993 through August 2006, we were engaged in the business of owning,

leasing and operating coin and debit card pay-per copy photocopy machines, fax machines, microfilm reader-printers and accessory equipment

under the name “Diversifax, Inc.”.

Due to the increased use of internet services, demand for our services declined sharply,

and in August 2006, our Board of Directors decided to discontinue our operations.

Upper Class Group Limited, incorporated in the

British Virgin Islands in July 2006, acquired all the outstanding stock of Shouguang City Haoyuan Chemical Company Limited (“SCHC”),

a company incorporated in Shouguang City, Shandong Province, the People’s Republic of China (the “PRC”), in May 2005.

British Virgin Islands in July 2006, acquired all the outstanding stock of Shouguang City Haoyuan Chemical Company Limited (“SCHC”),

a company incorporated in Shouguang City, Shandong Province, the People’s Republic of China (the “PRC”), in May 2005.

At the time of the acquisition, members of the family of Mr.

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On December 12, 2006, our Company, then known

as Diversifax, Inc., a public “shell”

company, acquired Upper Class Group Limited and SCHC.

as Diversifax, Inc., a public “shell” company, acquired Upper Class Group Limited and SCHC.

Under the terms of the agreement,

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On February 5, 2007, we acquired Shouguang Yuxin

Chemical Industry Co., Limited (“SYCI”), a company incorporated in the People’s Republic of China.

Under the terms of

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1-for-4 stock split in 2009) shares of common stock of Gulf Resources, Inc.

in exchange for all outstanding shares of SYCI’s common

Simultaneously with the completion of the acquisition, a dividend of $2,550,000 was paid to the former stockholders of SYCI.

the time of the acquisition, approximately 49.1% of the outstanding shares of SYCI were owned by Ms.

Yang’s wife, and the

remaining 50.9% of the outstanding shares of SYCI were owned by SCHC, all of whose outstanding shares were owned by Mr.

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to confirm certain government approvals required in connection with the acquisition of SCHC by Upper Class Group Limited, all of the equity

interest of SCHC were transferred to a newly formed Hong Kong corporation named Hong Kong Jiaxing Industrial Limited (“Hong Kong

Jiaxing”) all of the outstanding shares of which are owned by Upper Class Group Limited.

interest of SCHC were transferred to a newly formed Hong Kong corporation named Hong Kong Jiaxing Industrial Limited (“Hong Kong

Jiaxing”) all of the outstanding shares of which are owned by Upper Class Group Limited.

The transfer of all of the equity interest

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Further, as a result of our acquisitions of SCHC and SYCI, our historical consolidated financial statements, as contained

in our Consolidated Financial Statements and Management’s Discussion and Analysis, appearing elsewhere in the report, reflect the

accounts of SCHC and SYCI.

On January 12, 2015, the Company and SCHC entered

into an Equity Interest Transfer Agreement with Shouguang City Rongyuan Chemical Co., Ltd (“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

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contemplated by the agreement between the Company, SCHC and SCRC.

On the closing Date, the Company issued

1,453,603 (restated for the 1-for-5 reverse stock split in January 2020) shares of its common stock, par value $0.0005 per share

(the “Shares”), at the closing market price of $9.20 (restated for the 1-for-5 reverse stock split in January 2020) 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 $10.00 (restated for the 1-for-5 reverse stock split in January 2020),

which was a 73% premium to the price on the day the agreement was reached.

For accounting purposes, the Shares were valued at $9.20

(restated for the 1-for-5 reverse stock split in January 2020), which was the closing price of our stock on the closing date of the

The price difference between the original sale price of $10.00 (restated for the 1-for-5 reverse stock split in January

2020) and the $9.20 (restated for the 1-for-5 reverse stock split in January 2020) closing price of our stock on the closing date of

the agreement is solely for accounting purposes.

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 $10.00 (restated for the 1-for-5 reverse stock split in January 2020), which was a

73% premium to the price on the day the agreement was reached.

For accounting purposes, the Shares were valued at $9.20 (restated for

the 1-for-5 reverse stock split in January 2020), which was the closing price of our stock on the closing date of the agreement.

difference between the original sale price of $10.00 (restated for the 1-for-5 reverse stock split in January 2020) and the $9.20 (restated

for the 1-for-5 reverse stock split in January 2020) closing price of our stock on the closing date of the agreement is solely for accounting

There has been no change in the number of shares issued.

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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 RMB14,848,730 capital contributed by SCHC as of December 31, 2021.

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On September 2, 2016, the Company announced the

planned merger of two of its 100% owned subsidiaries, ShouguanYuxin Chemical Co., Limited (“SYCI”) and ShouguanRongyuan 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.

planned merger of two of its 100% owned subsidiaries, SYCI and 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 under SYCI in the fiscal year

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January 28, 2020, our shares began trading on the NASDAQ Global Select Market under the new CUSIP # 40251W 408.

Corporate Structure

Our current corporate structure chart is set forth

in the following diagram:

Currently, we operate our business through our

wholly-owned subsidiaries in China, including (i) Shouguang City Haoyuan Chemical Company Limited, or SCHC;

(ii) Shouguang Yuxin Chemical

Industry Co., Limited, or SYCI;

and (iii) Daying County Haoyuan Chemical Co., Ltd., or DCHC, each a PRC company.

Our executive offices are located at Level 11,

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and shall not be deemed to constitute part of this Form 10-K.

Recent Regulatory Developments in China

Because all of our operations are conducted in

China through our wholly-owned subsidiaries, the Chinese government may exercise significant oversight and discretion over the conduct

of our business and may intervene in or influence our operations at any time, which could result in a material change in our operations

and/or the value of our common stock.

Recent statements by the Chinese government have

indicated an intent to exert more oversight and control over offerings that are conducted overseas and/or foreign investments in China

based issuers.

Any future action by the Chinese government expanding the categories of industries and companies whose foreign securities

offerings are subject to government review could significantly limit or completely hinder our ability to offer or continue to offer securities

to investors and could cause the value of such securities to significantly decline or be worthless.

Recently, the PRC government initiated a series

of regulatory actions and made a number of public statements on the regulation of business operations in China with little advance notice,

including cracking down on illegal activities in the securities market, enhancing supervision over China-based companies listed overseas

using a variable interest entity structure, adopting new measures to extend the scope of cybersecurity reviews, and expanding efforts

in anti-monopoly enforcement.

We do not believe that we are directly subject to these regulatory actions or statements, as we do not have

a variable interest entity structure and our business does not involve the collection of user data, implicate cybersecurity, or involve

any other type of restricted industry.

Because these statements and regulatory actions are new, however, it is highly uncertain how soon

legislative or administrative regulation making bodies in China will respond to them, or what existing or new laws or regulations will

be modified or promulgated, if any, or the potential impact such modified or new laws and regulations will have on our daily business

operations or our ability to accept foreign investments and list on an U.S.

Cash Transfers and Dividend Distribution

Our corporate structure is a direct holding structure,

that is, the overseas entity listed in the U.S., Gulf Resources, Inc., a Nevada corporation (“Gulf Resources”), controls SCHC

(the “WFOE”), SYCI and DCHC through the Hong Kong company, Hong Hong Jiaxing Industrial Limited, or Hong Kong Jiaxing.

Within our direct holding structure, the cross-border

transfer of funds within our corporate group is legal and compliant with the laws and regulations of the PRC.

Foreign investors’

funds can be directly transferred to Hong Kong Jiaxing, and then transferred to subordinate operating entities through SCHC, or the WFOE.

If the Company intends to distribute dividends,

the Company will transfer the dividends to Hong Kong Jiaxing in accordance with the laws and regulations of the PRC, and then Hong Kong

Jiaxing will transfer the dividends to Gulf Resources, and the dividends will be distributed from Gulf Resources to all shareholders respectively

in proportion to the shares they hold, regardless of whether the shareholders are U.S.

investors or investors in other countries or regions.

In the reporting periods presented in this annual

report, no cash and other asset transfers have occurred among the Company and its subsidiaries;

and no dividends or distributions of a

subsidiary has been made to the Company.

For the foreseeable future, the Company does not expect to pay any cash dividends.

Our PRC subsidiaries’ ability to distribute

dividends is based upon their distributable earnings.

Current PRC regulations permit our PRC subsidiaries to pay dividends to their respective

shareholders only out of their accumulated profits, if any, determined in accordance with PRC accounting standards and regulations.

addition, each of our PRC subsidiaries is required to set aside at least 10% of its after-tax profits each year, if any, to fund a statutory

reserve until such reserve reaches 50% of each of their registered capitals.

These reserves are not distributable as cash dividends.

To address persistent capital outflows and the

RMB’s depreciation against the U.S.

dollar in the fourth quarter of 2016, the People’s Bank of China and the State Administration

of Foreign Exchange, or SAFE, have implemented a series of capital control measures in the subsequent months, including stricter vetting

procedures for China-based companies to remit foreign currency for overseas acquisitions, dividend payments and shareholder loan repayments.

The PRC government may continue to strengthen its capital controls and our PRC subsidiaries’ dividends and other distributions may

be subject to tightened scrutiny in the future.

The PRC government also imposes controls on the conversion of RMB into foreign currencies

and the remittance of currencies out of the PRC.

Therefore, we may experience difficulties in completing the administrative procedures

necessary to obtain and remit foreign currency for the payment of dividends from our profits, if any.

Furthermore, if our subsidiaries

in the PRC incur debt on their own in the future, the instruments governing the debt may restrict their ability to pay dividends or make

other payments.

In addition, the Enterprise Income Tax Law and

its implementation rules provide that a withholding tax at a rate of 10% will be applicable to dividends payable by Chinese companies

to non-PRC-resident enterprises unless reduced under treaties or arrangements between the PRC central government and the governments of

other countries or regions where the non-PRC resident enterprises are tax resident.

Pursuant to the tax agreement between Mainland China

and the Hong Kong Special Administrative Region, the withholding tax rate in respect to the payment of dividends by a PRC enterprise to

a Hong Kong enterprise may be reduced to 5% from a standard rate of 10%.

However, if the relevant tax authorities determine that our transactions

or arrangements are for the primary purpose of enjoying a favorable tax treatment, the relevant tax authorities may adjust the favorable

withholding tax in the future.

Accordingly, there is no assurance that the reduced 5% withholding rate will apply to dividends received

by our Hong Kong subsidiary from our PRC subsidiaries.

This withholding tax will reduce the amount of dividends we may receive from our

PRC subsidiaries.

Please see “Risk Factors” beginning

on page 11 of this annual report for additional information.

Holding Foreign Company

Accountable Act

Pursuant to the Holding

Foreign Companies Accountable Act (“HFCAA”), the Public Company Accounting Oversight Board (the “PCAOB”) issued

a Determination Report on December 16, 2021 which found that the PCAOB is unable to inspect or investigate completely registered public

accounting firms headquartered in:

(1) mainland China of the People’s Republic of China because of a position taken by one or more

authorities in mainland China;

and (2) Hong Kong, a Special Administrative Region and dependency of the PRC, because of a position taken

by one or more authorities in Hong Kong.

In addition the PCAOB’s report identified the specific registered public accounting firms

which are subject to these determinations.

Our auditor, WWC, P.C.,

Certified Public Accountants (“WWC”), is an independent registered public accounting firm with the PCAOB, and as an auditor

of publicly traded companies in the U.S., is subject to laws in the U.S.

pursuant to which the PCAOB conducts regular inspections to assess

its compliance with the applicable professional standards.

WWC, P.C., Certified Public Accountants, is based in the United States and

has been inspected by the PCAOB on a regular basis, with the last inspection in November 2021.

WWC is not headquartered in mainland

China or Hong Kong and was not identified in the Determination Report on December 16, 2021 as a firm subject to the PCAOB’s

determination.

Notwithstanding the foregoing, if the PCAOB is not able to fully conduct inspections of our auditor’s work papers

in China, our investors may be deprived of the benefits of such inspection which could result in limitation or restriction to our access

capital markets and trading of our securities may be prohibited under the HFCAA.

See Risk Factor –“ Although the

audit report included in this annual report was issued by U.S.

auditors who are currently inspected by the PCAOB, if it is later determined

that the PCAOB is unable to inspect or investigate our auditor completely, investors would be deprived of the benefits of such inspection

and our common stock may be delisted or prohibited from trading.”

Closure and rectification process of our Bromine,

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On September 1, 2017, the Company received letters

from the People’s Government of Yangkou Town, Shouguang City to each of its subsidiaries, Shouguang City Haoyuan Chemical Company

Limited and Shouguang Yuxin Chemical Industry Co., Limited, 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, environmental protection requirements.

As a result, our facilities located in Yangkou

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On September 21, 2018, the Company received a

closing notice from the People’s Government of Yangkou Town, Shouguang City informing it to close its three bromine factories (Number

3, Number 4, and Number 11.) and not allowed to resume production.

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as cultivated or construction land and hence did not meet the requirement for bromine and crude salt co-production set by the relevant

In closing these factories, the Company wrote off net book value of these factories’

property, plant and equipment in

In closing these factories, the Company wrote off net book value of these factories’ property, plant and equipment in

the amount of $18,644,473 in the loss on demolition of the factory in the consolidated statements of loss for the fiscal year ended December

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of these factories to satisfy the local government's requirements.

Nevertheless, the Company expects to receive approvals for these factories

in the second half of 2021.

However, there is no assurance that we will be able to obtain the approvals

necessary to operate those factories from the government.

Pursuant to the notification issued on November

24, 2020 from the government of Shouguang City, all bromine facilities in Shouguang City had to be temporarily closed from December 25,

2020 until February 19, 2021 8:00 AM China Time.

To comply with such notification, the Company had temporarily stopped production at its

bromine facilities in factory No.

Pursuant to the notification issued from the government of Shouguang

City, all bromine facilities in Shouguang City had to be temporarily closed from December 28, 2021 until February 21, 2022 8:00 AM China

To comply with such notification, the Company had temporarily stopped production at its bromine facilities in factory No.

9 during the aforesaid period and commenced production as scheduled on February 21, 2022.

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opportunities in bromine.

However, at the present time, all of management’s attention is focused on getting its facilities approved

and in full production.

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The Company incurred relocation costs in the amount of $45,584,344 and $33,496,295 as of December 31, 2021 and 2020.

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 further approval for its well located in Daying, including the entire natural

gas and brine water project, including approvals for land use, safety production inspection, and environmental protection

Until these approvals have been received, the Company has to temporarily halt trial

production at its natural gas well in Daying.

The Company plans to proceed with its applications for the natural gas and brine

project approvals with related government departments after the government has finalized the land and resources planning for Sichuan

We are not writing off any of the goodwill

related to our chemicals business.

In January 2017, the Company completed the first

brine water and natural gas well field construction in Daying located in Sichuan Province and commenced trial production in January 2019.

On May 29, 2019, the Company received a verbal notice from the government of Tianbao Town ,Daying County, Sichuan Province, whereby the

Company is required to obtain project approval for its well located in Daying, including the whole natural gas and brine water project,

and approvals for safety production inspection, environmental protection assessment, and to solve the related land issue.

approvals have been received, the Company has to temporarily halt trial production at its natural gas well in Daying.

In compliance with

the Chinese government new policies, the Company is also required to obtain an exploration license and a mining license for bromine and

natural gas, respectively.

Pursuant to the Opinions of the Ministry of Natural Resources on Several Issues in Promoting the Reform of

Mineral Resources Management (Trial) promulgated by the Ministry of Natural Resources of PRC on January 9, 2020, which came into effect

on May 1, 2020, privately owned enterprises are allowed to participate in the natural gas production.

The Company plans to proceed with

its applications for the natural gas and brine project approvals with related government departments until after the governmental planning

has been finalized the land and resource planning for Sichuan Province.

We are not writing off any of the goodwill related

to our chemicals business.

We believe the new chemical factory could produce strong sales and profits.

We believe there may be

much less capacity in the chemical industry, as many factories may be permanently closed.

In addition, other competitor factories may

reduce their production capacity.

We believe there may be much less

capacity in the chemical industry, as many factories may be permanently closed.

In addition, other competitor factories may reduce their

production capacity.

We expect to have a factory that operates efficiently.

Considering the above factors and our strength

with better equipment, we expect to generate sales and earnings in this segment at a level well above previous periods.

Considering the above factors and our strength with better

equipment, we expect to generate sales and earnings in this segment at a level well above previous periods.

We will continue to control the land and buildings

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Our Business Segments

Our business operations are conducted in four

segments, bromine, crude salt, chemical products, and natural gas.

We manufacture and trade bromine, crude salt and natural

gas, and manufacture and sell chemical products used in oil and gas field exploration, oil and gas distribution, oil field drilling, papermaking

chemical agents and materials for human and animal antibiotics.

We conduct all of our operations in China.

Our business operations are conducted in four segments, bromine, crude

salt, chemical products, and natural gas.

We manufacture and trade bromine, crude salt and natural gas, and manufacture and

sell chemical products used inoil and gas field explorations and papermaking chemical agents, and materials for human and animal antibiotics.

conduct all of our operations in China.

Bromine and Crude Salt

We manufacture and distribute bromine through our wholly-owned

subsidiary, Shouguang City Haoyuan Chemical Company Limited, or SCHC.

We manufacture and distribute bromine through

our wholly-owned subsidiary, Shouguang City Haoyuan Chemical Company Limited, or SCHC.

Bromine is a halogen element.

It is a red volatile liquid

at standard room temperature which has reactivity between chlorine and iodine.

Elemental bromine is used to manufacture a wide variety

of bromine compounds used in industry and agriculture.

Bromine is also used to form intermediates in organic synthesis, which is somewhat

preferable over iodine due to its lower cost.

Bromine is commonly used in brominated flame retardants, fumigants, water purification

compounds, dyes, medicines and disinfectants.

a red volatile liquid at standard room temperature which has reactivity between chlorine and iodine.

Elemental bromine is used to

manufacture a wide variety of bromine compounds used in industry and agriculture.

Bromine is also used to form intermediates in organic

synthesis, which is somewhat preferable over iodine due to its lower cost.

Bromine is commonly used in brominated flame retardants,

fumigants, water purification compounds, dyes, medicines and disinfectants.

The extraction of bromine in the Shandong Province

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Province in northeastern China.

The productive formation (otherwise referred to as the “working region”), extends from latitude

N 36°56’

to N 37°20’

and from longitude E 118°38’

to E 119°14’, in the north region of Shouguang

The productive formation (otherwise referred to as the “working region”), extends from latitude

N 36°56’ to N 37°20’ and from longitude E 118°38’ to E 119°14’, in the north region of Shouguang

city, from the Xiaoqing River of Shouguang city to the west of the Dan River, bordering on Hanting District in the east, from the main

channel of “Leading the Yellow River to Supply Qingdao City Project”

in the south to the coastline in the north.

The territory is classified as coastal alluvial –

marine plain with an average height two to seven meters above the sea level.

channel of “Leading the Yellow River to Supply Qingdao City Project” in the south to the coastline in the north.

The territory is classified as coastal alluvial – marine plain with an average height two to seven meters above the sea level.

The terrain is relatively flat.

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of existing products and new product research and development at the same time.

SYCI’s annual production of oil and gas field exploration

products and related chemicals was over 26,000 tons, and its production of papermaking-related chemical products was over 5,000 tons.

SYCI’s annual production capacity of materials that are used for human and animal antibiotics was over 6,800 tons.

Sales and Marketing

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Our principal external suppliers are Laizhou Shengfu

Chemical Company Limited, Shandong Xinlong Group Company Limited, Weifang Wanhong Chemical Company Limited, Shandong Xinlong International

Trade Company Limited.

Chemical Company Limited, Weifang Wanhong Chemical Company Limited, Shandong Xinlong International Trade Company Limited.

During the year ended December 31, 2021 and 2020,

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▼ Bromine and Crude

In view of keen competition and the trend of

less bromine contraction of brine water being extracted in Shouguang City, Shandong Province, the Company intended to access more

bromine and crude salt resources by finding new underground brine water resources in the Sichuan Province.

On January 30, 2015 we

announced that we had found natural gas resources under our bromine well in the Sichuan area.

On November 23, 2015, the

Company’s wholly owned subsidiary SCHC entered into an agreement with the People’s Government of Daying County in

Sichuan Province for the exploration and development of natural gas and brine resources (including bromine and crude salt).

January 2017, the Company completed the first brine water and natural gas well field construction in Sichuan Province and announced

the commencement of trial production.

Then later on, the Company found some issues related to the water and other potential

impurities in the natural gas during trial production.

In resolving the problem, the Company purchased customized equipment for its

natural gas project.

The installation of such equipment, including providing piping and electricity, was completed in July 2018.

Company completed the test production at its first natural gas well in Sichuan Province and commenced trial production in January

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 further approval for its well located in Daying, including the entire natural gas and

brine water project, and approvals for safety production inspection, environmental protection assessment, and the related land

Until these approvals have been received, the Company has had to temporarily halt trial production at its natural gas well

The Company plans to proceed with its applications for the natural gas and brine project approvals with related

government departments after the government has finalized the land and resources planning for Sichuan Province.

In view of keen competition and the trend of less

bromine contraction of brine water being extracted in Shouguang City, Shandong Province, the Company intended to access more bromine and

crude salt resources by finding new underground brine water resources in the Sichuan Province.

On January 30, 2015 we announced that we

had found natural gas resources under our bromine well in the Sichuan area.

On November 23, 2015, the Company’s wholly owned subsidiary

SCHC entered into an agreement with the People’s Government of Daying County in Sichuan Province for the exploration and development

of natural gas and brine resources (including bromine and crude salt).

In January 2017, the Company completed the first brine water and

natural gas well field construction in Sichuan Province and announced the commencement of trial production.

Then later on, the Company

found some issues related to the water and other potential impurities in the natural gas during trial production.

In resolving the problem,

the Company purchased customized equipment for its natural gas project.

The installation of such equipment, including providing piping

and electricity, was completed in July 2018.

The Company completed the test production at its first natural gas well in Sichuan Province

and commenced trial production in January 2019.

On May 29, 2019, the Company received a verbal

notice from the government of Tianbao Town ,Daying County, Sichuan Province, whereby the Company is required to obtain project approval

for its well located in Daying, including the whole natural gas and brine water project, and approvals for safety production inspection,

environmental protection assessment, and to solve the related land issue.

Until these approvals have been received, the Company has to

temporarily halt trial production at its natural gas well in Daying.

In compliance with the Chinese government new policies, the Company

is also required to obtain an exploration license and a mining license for bromine and natural gas, respectively.

Pursuant to the Opinions

of the Ministry of Natural Resources on Several Issues in Promoting the Reform of Mineral Resources Management (Trial) promulgated by

the Ministry of Natural Resources of PRC on January 9, 2020, which came into effect on May 1, 2020, privately owned enterprises are allowed

to participate in the natural gas production.

The Company plans to proceed with its applications for the natural gas and brine project

approvals with related government departments until after the governmental planning has been finalized the land and resource planning

for Sichuan Province.

On September 1, 2017, the Company received notification

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On November 25, 2019, the government of Shouguang

City issued a notice ordering all bromine facilities in Shouguang City, including the Company’s all bromine facilities, including

Factory No.1 and Factory No.

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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.

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 mid-March 2020, and commenced commercial production on April 3, 2020.

The Company is still waiting for

governmental approval for factories #2, #8, and #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.

Nevertheless, the Company expects to receive approvals for these factories in the second half of 2021.

However, there is no

assurance that we will be able to obtain the approvals necessary to operate those factories from the government.

Pursuant to the notification issued on November

24, 2020 from the government of Shouguang City, all bromine facilities in Shouguang City had to be temporarily closed from December 25,

2020 until February 19, 2021 8:00 AM China Time.

To comply with such notification, the Company had temporarily stopped production at its

bromine facilities during the aforesaid period and back to production as scheduled on February 19, 2021.

products for epidemic prevention and control (the “March 2020 Approval”).

The Company’s factories No.7 and No.1 started

trial production on middle of March, 2020, and commenced commercial production on April 3, 2020.

The company is still waiting for governmental approval for factories

#2, #8, and #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.

Nevertheless, the Company expects to receive approval

to open at least one and potentially more of its closed factories in 2022.

Pursuant to the notification issued from the government

of Shouguang City, all bromine facilities in Shouguang City had to be temporarily closed from December 28, 2021 until February 21, 2022.

To comply with such notification, the Company had temporarily stopped production at its bromine facilities during the aforesaid period

and resumed production as scheduled on February 21, 2022.

▼ Chemical Products

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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 the Bohai Marine Fine Chemical Industrial Park (the “November

2017 Letter”).

the second living area of the Qinghe Oil Extraction Plant to the Bohai Marine Fine Chemical Industrial Park (the “November

2017 Letter”).

Since then, our chemical factory has been shut down.

We believe this is part of the country’s efforts to improve

the development of the chemical industry, facilitate safe production and curb environmental pollution, and ensure the quality of living

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incurred relocation costs in the amount of $45,584,344 as of December 31, 2021.

In January 2020, the Company obtained the

environmental protection assessment approval performed by the government of Shouguang City, Shandong Province for the proposed new

Yuxin chemical factory.

With this approval, the Company was permitted to construct our new chemical factory and the Company

commenced construction in June 2020.

In January 2020, the Company received the

environmental protection approval by the government of Shouguang City, Shandong Province for the proposed Yuxin Chemical factory.

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 end of June 2021.

15, 2021, the company announced 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 be delayed.

On February 22, 2022, the company announced that discussions with the government have convinced management

that the electricity restrictions are being eased.

Accordingly, the Company has contacted its suppliers and will have the remainder of

the equipment produced and delivered, so the Company can complete installation and begin testing and trial production.

To date, our sales have been limited to customers

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in terms of pricing than we do.

We compete based on price, our reputation for quality, on-time delivery,

our relationship with suppliers and our geographical proximity to natural brine deposits in the PRC for bromine, crude salt and chemical

Management believes that our stable quality, manufacturing processes and plant capacity for the production of

bromine, crude salt and chemical products are key considerations in awarding contracts in the PRC.

We compete based on price, our reputation for quality, on-time delivery, our relationship with

suppliers and our geographical proximity to natural brine deposits in the PRC for bromine, crude salt and chemical productions.

believes that our stable quality, manufacturing processes and plant capacity for the production of bromine, crude salt and chemical products

are key considerations in awarding contracts in the PRC.

Our principal competitors in the bromine business

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Government Regulation

China has been reinforcing the

environmental requirements for the entire chemical industry, demanding the closure or rectification of those factories that do not

meet the emission requirements and are highly polluting.

In early 2017, the government announced the closure or relocation of

those chemical industry facilities that are close to residential areas and the new environmental law officially came into full

effect in January 2018.

China has been reinforcing the environmental requirements

for the entire chemical industry, demanding the closure or rectification of those factories that do not meet the emission requirements

and are highly polluting.

In early 2017, the government announced the closure or relocation of those chemical industry facilities

that are close to residential areas and the new environmental law officially came into full effect in January 2018.

The following is a summary of the principal governmental

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of new laws, changes to existing laws or the interpretation or enforcement of laws.

In the natural resources sector, the PRC and

the various provinces have enacted a series of laws and regulations over the past 20 years, including laws and regulations designed to

improve safety and decrease environmental degradation.

The “China Mineral Resources Law”

declares state ownership

of all mineral resources in the PRC.

However, mineral exploration rights can be purchased, sold and transferred to foreign

owned companies.

Mineral resource rights are granted by the Central Government permitting recipients to conduct mineral resource activities

in a specific area during the license period.

These rights entitle the licensee to undertake mineral resource activities and infrastructure

and ancillary work, in compliance with applicable laws and regulations, within the specific area covered by the license during the license

The licensee is required to submit a proposal and feasibility studies to the relevant authority and to pay the Central Government

a natural resources tax in an amount equal to a percent of annual crude salt sales and tones of bromine sold.

Shandong Province has determined

that bromine is to be extracted only by licensed entities and we hold one of such licenses.

In the natural resources sector, the PRC and the

various provinces have enacted a series of laws and regulations over the past 20 years, including laws and regulations designed to improve

safety and decrease environmental degradation.

The “China Mineral Resources Law” declares state ownership of all

mineral resources in the PRC.

However, mineral exploration rights can be purchased, sold and transferred to foreign owned companies.

Mineral resource rights are granted by the Central Government permitting recipients to conduct mineral resource activities in a specific

area during the license period.

These rights entitle the licensee to undertake mineral resource activities and infrastructure and ancillary

work, in compliance with applicable laws and regulations, within the specific area covered by the license during the license period.

licensee is required to submit a proposal and feasibility studies to the relevant authority and to pay the Central Government a natural

resources tax in an amount equal to a percent of annual crude salt sales and tones of bromine sold.

Shandong Province has determined that

bromine is to be extracted only by licensed entities and we hold one of such licenses.

Despite the Province desire to limit extraction

to licensed entities hundreds of smaller operations have continued to extract bromine without licenses.

The Ministry of Land and Resources (“MLR”)

is the principal regulator of mineral rights in China.

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contained on our website is not intended to be incorporated into this Annual Report on Form 10-K.

Risk Factors.

Pursuant to Item 301(c) of Regulation S-K (§

229.301(c)), 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).

Unresolved Staff Comments.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business