What changed in this filing

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Item 7. Management’s Discussion and Analysis

2023-03-31 compared with 2022-04-12 · 102 added, 74 removed, 404 unchanged (30% of the section changed)

53 unchanged sentences

government of Yangkou County that its Factory No.

9 have passed inspection and ccould resume operations.

9 had passed inspection and could resume operations.

2019, Factory No.

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Company was allowed to resume production at all four bromine factories.

On December 27, 2021, Gulf Resources announced

that the government of Shouguang City had ordered the closing of all bromine facilities during the period from December 28, 2021 to February

And the company reopened its its four operating bromine and crude salt facilities as planned on February 21, 2022.

The Company received an oral notification from

the government for its Factory No.

8, which permitted Factory No.8 to resume production in August 2022.

Factory No.8 started to contribute

revenue in the fourth quarter 2022.

Pursuant to the notification from the government

of Shouguang City, all bromine facilities in Shouguang City were temporarily closed from December 10, 2022 until February 1, 2023 8:00

AM China Time.

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

period and reopened the operating bromine and crude salt factories in February, 2023 as planned.

The Company is still waiting for governmental

approval for factories No.2, No.8, and No.10.

To its knowledge, the government is currently completing its planning process for all mining

areas including that for prevention of flood.

As a result, the Company 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.

approval for factories No.2 and No.10.

To its knowledge, the government is currently completing its planning process for all mining areas

including that for prevention of flood.

As a result, the Company 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.

On November 24, 2017, Gulf Resources received

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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.

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

1 unchanged sentence

Chemical companies that are not being asked to move into the park are being permanently closed.

Since our facrtories

closed, the Company has secured from the government the land use rights for its chemical plant On January 6, 2020, the Company received

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.

The Company began the construction on its new chemical facilities located at Bohai Marine Fine Chemical Industrial Park in June 2020 due

to the COVID-19 in China.

The construction is expected to take approximately one year, and an additional six months to complete the equipment

installation and testing, Which was delayed due to the supply chain issues as well as the electric restrictions impacted by the Word &

Chinese Economy.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 and begin testing and trial production.

The Company began the construction on its new chemical facilities located at Bohai Marine Fine Chemical Industrial Park in June 2020.

The construction was expected to take approximately one year and an additional six months to complete the equipment installation and

testing, however due to the COVID epidemic and electrical restrictions, the opening of the chemical factory has been delayed.

has received the refrigeration and air compressor units.

The rest equipment is expected to be delivered by the second quarter of

The Company intends to start installation of equipment and may start testing andtrial production by the end of 2023 or beginning

In January 2017, the Company completed the first

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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, 2021.

The following

discussion should be read in conjunction with our consolidated financial statements and notes thereto appearing elsewhere in this report.

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, 2022.

following discussion should be read in conjunction with our consolidated financial statements and notes thereto appearing elsewhere in

On January 28, 2020 we completed a 1-for-5 reverse

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Cost of Net Revenue

$ (28,669,152 )

$ (27,132,372 )

Sales, Marketing and Other Operating Expense

Direct labor and factory overheads incurred during plant shutdown

$ (12,002,629 )

$ (10,718,605 )

General and Administrative Expenses

$ (6,028,079 )

$ (9,525,235 )

Other Operating Expense

$ (2,850,059 )

$ (2,380,540 )

Profit from Operations

Other Income, Net

Loss before Taxes

Income before Taxes

Income Tax Expense (Benefit)

Net Loss of $924,718 was mainly due to:(1) the

depreciation expense of $4,303,266 incurred for bromine factory No.2, No.8 and No.10 for year 2021;(2) the offset of $2,723,189 to deferred

tax assets for SCHC and SYCI;

and (3) the compensation costs $3,134,080 for shares issued to company employees, officers and consultant

for year 2021.

$ (6,586,985 )

$ (6,298,218 )

Net Income of $10,059,450 was mainly due to higher

sales, improved margins and lower compensation costs, and the compensation costs $668,000 for shares issued to company employees, officers

and consultant for year 2022 .

If we do not consider these unexpected nonrecurring

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Bromine (excluded volume sold to SYCI)

Natural gas segments product sold in cubic metre

December 31, 2021

December 31, 2020

Bromine segment

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This increase was due to increases

in crude salt unit price.

in crude salt unit price of 13% and an increase in volume of 1.5%

Chemical products segment

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For the years ended December 31, 2022, and December

31, 2020, the net revenue for the natural gas was $0.

31, 2021, the net revenue for the natural gas production was $0.

Equipment Lease

For the year ended December 31, 2021, the net

revenue for the equipment lease was $78,948.

For the year ended December 31, 2022, and December

31, 2021, the net revenue for the equipment lease was $132,993 and $78,948.

Cost of Net Revenue

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21% for the year ended December 31, 2022 as compared to the same period in 2021 .

In May 2022, we separated the bromine and the

crude salt business to conform with government regulations.

This separation required different allocation of costs.

The net impact was

to increase the cost allocations to bromine and decrease the cost allocations to crude salt.

Bromine production capacity and utilization

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Cost of net revenue for our natural gas segment

for the year ended December 31, 2021 and 2020 was $0.

for the year ended December 31, 2022 and 2021 was $414 and $0.

Gross Profit.

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selling price of bromine of $7.543 per ton in the year ended December 31, 2022 compared to $6,623 per ton in the year ended December 31,

Offset by changes in accounting related to our new Salt subsidiary created in April 2022.

For the year ended December 31, 2021, the gross

3 unchanged sentences

profit margin for our crude salt segment was 49%, compared to 30% in the year ended December 31, 2021, representing a 19% increase.

This increase was primarily attributable to the higher average selling price of crude salt of $34 per ton in the year ended December 31,

2021 compared to $17 per ton in the year ended December 31, 2020.

increase was primarily attributable to the higher average selling price of crude salt of $38 per ton in the year ended December 31, 2022

compared to $34 per ton in the year ended December 31, 2021 as well as to the changes in accounting related to our new crude salt subsidiary.

Direct labor and factory overheads incurred

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respectively.

These four factories ( including No.1,No.4,No.7 and No.9)were in production during the year 2021,;but Factory No.

Factory No.9 resumed production in May 2020.The depreciation cost for Factories No.2, No.8, and No.10 in 2021 were $4,303,266

These four factories (including No.1,No.4,No.7,No.8 and No.9)were in production during the year 2022.

General and Administrative Expenses.

and administrative expenses were $6,028,079 for the year ended December 31, 2022, representing a decrease of $3,497,156 (or 37%) as compared

to$10,239,943 for the same period in 2020.

to$9,525,235 for the same period in 2021, the major reason for this was due to the cost of approximately $3.1 million for stock grants

in the second quarter of year 2021 offset by a stock grant of approximately $668,000 in 2022.

Profit from Operations.

3 unchanged sentences

Year ended December 31, 2021

$ (1,078,320 )

Chemical Products

$ (1,953,230 )

$ (2,550,561 )

Profit (Loss) from operations before corporate costs

Corporate costs

$ (1,060,405 )

$ (3,575,099 )

Unrealized gain (loss) on translation of intercompany balance

Profit (loss) from operations

Profit (loss) from operations before taxes

Bromine segment

1 unchanged sentence

was $17,905,181 for the fiscal year 2022, compared to an income of $13,364,649 in the same period in 2021.

The increase in income was

primarily due to a 14% increase in average selling price partially offset by additional cost allocations from the new divisional structure.

Crude salt segment

Loss from operations from our crude salt segment

Income from operations from our crude salt segment

was $2,301,885 for fiscal year 2022, compared to a loss of $1,078,320 in the same period in 2021.

The improved income was due to a higher

price for crude salt and lower cost allocations from the new divisional structure.

Chemical products segment

9 unchanged sentences

Net Income (loss).

Net income was

$10,059,450 for the fiscal year 2022, compared to net loss of $924,718 in the same period in 2021.

This decrease in the net loss was mainlydue

to the higher selling price for bromine in fiscal year 2021 compared to year 2020.

Effective Tax Rate.

Our effective

income tax (expense) benefit rate for the fiscal years 2021 and 2020 were a expense of 117% and a benefit of 12% respectively.

The effective

tax rate for the fiscal years 2021 was higher than the PRC statutory income tax rate of 25% mainly due to a non-deductible item in connection

with the unrealized exchange loss and an increase in valuation allowance recorded for deferred tax assets arising from net operating losses

of the parent company.

Net Income Per Share

For the fiscal year 2022, net income per share

was $1.00 compared to an income of $0.09 in the same period in 2021.

There were 10,431,924 shares outstanding compared to 10,471,924 shares.

Foreign Currency Translation Adjustment

For the fiscal year 2022, the Company had a negative

foreign currency translation adjustment of $24,886,118 versus a positive adjustment of $7,405,582 in the previous year.

This adjustment

impacts all balance sheet translations into U.S.

LIQUIDITY AND CAPITAL RESOURCES

6 unchanged sentences

Net cash used in investing activities

$ (37,560,932 )

$ (30,093,140 )

Net cash used in financing activities

5 unchanged sentences

During the year ended December 31, 2022, cash

flows provided by operating activities of approximately $23.3 million was mainly due to non-cash adjustments related to depreciation and

amortization of property, plant and equipment of $21 million, unrealized translation loss of $0.8 million and stock-based compensation

expense of $3.1 million reduced by net loss of $6.1 million.

flow provided by operating activities of approximately $51.1 million was mainly due to a net income of $10.06 million, a decrease in accounts

receivable of $8.2 million, a decrease in accounts payable of $0.8 million, an decrease in deferred taxes of $6.59 million, and a non-cash

adjustment related to depreciation and amortization of property, plant and equipment of $26.78 million, offset by increases in operating

leases, and prepayments.

During the year ended December 31, 2021, cash

18 unchanged sentences

The overall accounts receivable balance as of

December 31, 2021 increased by $8,004,009, as compared to those of December 31, 2020.

December 31, 2022 decreased by $9,162,641, as compared to those of December 31, 2021.

We have policies in place to ensure that sales are

1 unchanged sentence

We perform ongoing credit evaluation on the financial condition of our customers.

All receivables were collected in the January through March in 2022.

Our inventory consists of the following:

5 unchanged sentences

increased by $907,461, as compared to the net inventory level as of December 31, 2021.

Raw materials increased by $21,069 as of December

Raw materials decreased by $16,361 as of December

31, 2022 as compared to December 31, 2021.

5 unchanged sentences

For the fiscal year 2021, we used approximately

$22 million to acquire property, plant and equipment for the chemical factory.

$30 million for investing activities.

Net Cash Used In Financing Activities

We have no major financing activities for the

year ended December 31, 2021.

For the fiscal year 2022 and 2021, we used $0.3

million to repay finance lease obligations.

We believe that our available funds and cash flows

5 unchanged sentences

We intend to continue to focus our efforts on

the activities of SCHC, SYCI and DCHC as these segments continue to expand within the Chinese market.

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

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Allowance for Doubtful Accounts

We make estimates of the uncollectibility of

accounts receivable, especially analyzing accounts receivable and historical bad debts, customer concentrations, customer credit-worthiness,

current economic trends and changes in customer payment terms, when evaluating the adequacy of the allowance for doubtful accounts.

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

We make estimates of the uncollectibility of accounts

receivable, especially analyzing accounts receivable and historical bad debts, customer concentrations, customer credit-worthiness, current

economic trends and changes in customer payment terms, when evaluating the adequacy of the allowance for doubtful accounts.

Credit evaluations

are undertaken for all major sale transactions before shipment is authorized.

On a quarterly basis, we evaluate aged items in the accounts

receivable aging report and provide an allowance in an amount we deem adequate for doubtful accounts.

If management were to make different

judgments or utilize different estimates, material differences in the amount of our reported operating expenses could result.

Inventory Valuation

69 unchanged sentences

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 7. Management’s Discussion and Analysis