What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2023-03-31 compared with 2022-04-12 · 309 added, 422 removed, 1168 unchanged (38% of the section changed)

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C O N T E N T S

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING

FIRM (PCAOB ID #1171)

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM (PCAOB ID #1171)

CONSOLIDATED BALANCE SHEETS

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

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balance sheet of Gulf Resources, Inc.

and subsidiaries (collectively the “Company”) as of December 31, 2021, and the related

consolidated statements of comprehensive income (loss), stockholders’ equity, and cash flows for the year ended December 31, 2021,

the related notes, and financial statement schedule (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company

as of December 31, 2021, and the results of its operations and its cash flows for the year ended December 31, 2021, in conformity with

accounting principles generally accepted in the United States of America.

and subsidiaries (collectively the “Company”) as of December 31, 2022 and 2021, and

the related consolidated statements of comprehensive (loss) income, stockholders’ equity, and cash flows for each of the years

in the two year period ended December 31, 2022, the related notes, and financial statement schedule (collectively referred to as the

“consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material

respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows

for each of the years in the two year period ended December 31, 2022, in conformity with accounting principles generally accepted in

the United States of America.

Basis for Opinion

These consolidated financial statements are the

responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s consolidated financial

statements based on our audit.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States)

(PCAOB) and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable

rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the

We conducted our audits in accordance with the

standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated

Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated

financial statements are free of material misstatement, whether due to error or fraud.

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engaged to perform, an audit of its internal control over financial reporting.

As part of our audit, we are required to obtain an understanding

As part of our audits, we are required to obtain an understanding

of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s

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Accordingly, we express no such opinion.

Our audit included performing procedures to assess

Our audits included performing procedures to assess

the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures

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consolidated financial statements.

Our audit also included evaluating the accounting principles used and significant estimates made by

Our audits also included evaluating the accounting principles used and significant estimates made by

management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that our audit provides

We believe that our audits provide

a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below

are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated

to the audit committee and that:

(1) relate to accounts or disclosures that are material to the consolidated financial statements and

(2) involved our especially challenging, subjective, or complex judgments.

The communication of the critical audit matters does not alter

in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit

matters below, providing a separate opinion on the critical audit matters or on the accounts or disclosures to which they relate.

Property, plant and equipment, net

We determined that the Company’s property,

plant and equipment was a critical audit matter based on the principal considerations that property, plant, and equipment constituted

more than half of the Company’s total assets, the potential impact of the current economic environment as a result of the global

health pandemic and other significant political events, and the carrying value of such assets are subject to estimation, which involves

The plant and equipment may be purchased and placed into service at varying times, and their ability to contribute to the generation

of cash flows is impacted by multiple factors, including required installation, demand for the Company’s products, the availability

of working capital and raw materials.

The audit engagement team addressed this critical accounting matter by reviewing the Company’s

accounting policies, and perform extended procedures including physical inspection, corroborated with enquiry, examination of contracts,

review of global economic conditions and the Company’s own forecast for demand, review of movement of inventories and the liquidity

of the Company, vouching of a sample of purchases, and also perform an independent analysis that included recalculation of depreciation

and impairment testing.

The engagement team’s testing provided adequate evidence to support our audit opinion and to mitigate the

risk of material misstatement to an acceptable level.

The accounts that are affected by this critical audit matter is property plant and

equipment, and the related depreciation that is allocated into cost of sales, and impairment expense, if any.

Deferred Tax Asset

We determined that the Company’s deferred

tax asset was a critical audit matter based on the principal considerations that it was quantitative and qualitative material relative

to the total assets of the Company and the carrying value of such assets are subject to estimation, which involves judgment.

Future economic

conditions, political and regulatory risk may significantly impact the realization of this asset.

We had to exercise auditor judgment

and extensive effort when conducting audit procedures to determine if management’s estimate is fairly stated.

We performed the following audit procedures and

evaluated audit evidence in forming our opinion:

enquired and evaluated the reasonableness of assumptions and data points employed by

management to develop their estimate based on consideration of future profitability, past performance, review of relevant local tax laws,

and independently recalculating the balance.

The accounts that are affected by this critical audit matter were deferred tax asset, related

valuation allowance, income tax benefit, and income tax expense, if any.

Certified Public Accountants

We have served as the Company’s auditor since 2021.

San Mateo, CA

April 12, 2022

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING

To the Board of Directors and Stockholders of

Gulf Resources, Inc.

and Subsidiaries

Opinion on the Financial Statements

We have audited the accompanying consolidated

balance sheet of Gulf Resources, Inc.

and Subsidiaries (the Company) as of December 31, 2020, and the related consolidated statements

of comprehensive loss, stockholders’ equity, and cash flows for the year then ended, and the related notes and schedules (collectively

referred to as the consolidated financial statements).

In our opinion, the consolidated financial statements present fairly, in all material

respects, the financial position of the Company as of December 31, 2020, and the results of their operations and their cash flows for

the year then ended, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These consolidated financial statements are the

responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s consolidated financial

statements based on our audit.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States)

(PCAOB) and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable

rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the

standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated

financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we

engaged to perform, an audit of its internal control over financial reporting.

As part of our audit, we are required to obtain an understanding

of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s

internal control over financial reporting.

Accordingly, we express no such opinion.

Our audit included performing procedures to assess

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matters below, providing a separate opinion on the critical audit matters or on the accounts or disclosures to which they relate.

Impairment of Long-Lived Assets

As discussed in Note 1(j) to the consolidated

financial statements, long-lived assets held and used are analyzed for impairment whenever events or changes in circumstances indicate

that the carrying amount of an asset be fully recoverable or that the useful lives of those assets are no longer appropriate.

did not carry out an impairment assessment on its long-lived assets as it determined that there were no such events or changes in circumstances

indicating possible impairment.

To the Board of Directors and Stockholders of

Gulf Resources, Inc.

and Subsidiaries

The principal considerations for our determination

that performing procedures relating to the impairment of long-lived assets is a critical audit matter are the use of significant judgment

and subjective factors in management’s assessment of any changes in events or circumstances that may affect the carrying amount

of its long-lived assets.

Addressing the matter involved performing procedures

and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements.

These procedures

included the following:

· Reviewing the sales volume and average selling prices of bromine and crude salt against past results and

current market conditions;

· Evaluating assumptions used in management’s projection of future income to determine whether they

reflect any indication of change in events or circumstances that may affect the carrying amount of its long-lived assets;

· Conducting inquiries of management on any adverse trend that may affect the carrying amount of long-lived

Deferred Tax Asset Valuation Allowance

As discussed in Note 14 to the consolidated financial

statements, the Company recognized a valuation allowance to the extent that more likely than not some portion or all of the deferred tax

assets will not be realized.

The principal considerations for our determination

that performing procedures relating to the realization of the deferred tax assets is a critical audit matter are the use of significant

judgment by management when assessing the forecast of future taxable income and the assumption that there is no change in future tax regulations,

all of these which may be affected by future market or economic conditions, regulatory and political changes.

This required a high degree

of auditor judgment and an increased extent of effort when performing audit procedures to evaluate management’s assessment and evaluation

of the amount of valuation allowances required to offset the deferred tax assets.

Addressing the matter involved performing procedures

and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements.

These procedures

included the following:

· Evaluating the reasonableness of key assumptions and estimates used by management in the taxable income

projection in the light of its past performances, existing operating capabilities, requirements and plans;

· Evaluating the reasonableness of assumption used in the carryforward of losses and the timing of reversal

taking into consideration the existing tax law;

· Testing the completeness, accuracy, and relevance of underlying data in the projection.

Loss Contingencies

As discussed in Notes 1(t) and 20 to the consolidated

financial statements, the Company accrues for loss contingencies relating to legal matters when such liabilities become probable and reasonably

able to be estimated.

In August 2018, written decisions of administrative penalty (“Written Decisions”) were served by the

Shouguang City Natural Resources and Planning Bureau (“Bureau”) on the Company challenging the land use of six of its bromine

and crude salt factories.

In May 2019, written decisions of administrative ruling (“Court Rulings”) were made by the Court

in favor of the Bureau.

The Court orders, among other relief, to enforce each of the Written Decisions, to return each subject land to

its legal lessor and demolish or confiscate the buildings and facilities thereon and restore the land to its original state within 10

days from the service of the Court Rulings.

As described by management, the Company believes that the likelihood of the enforcement of

the Written Decisions and Court Rulings is remote and therefore did not accrue for any estimated losses or impairment losses related to

property, plant and equipment, finance lease right-of-use assets and operating lease right-of-use assets.

The principal consideration for our determination

that performing procedures relating to the loss contingency arising from the Written Decisions and Court Rulings is a critical audit matter

is the highly complex, judgmental and subjective process involved in management’s assessment of the likelihood of the enforcement

of the Written Decisions and related Court Rulings.

This required a high degree of auditor judgment and an increased extent of effort

when performing audit procedures to evaluate management’s assessment and conclusion.

To the Board of Directors and Stockholders of

Gulf Resources, Inc.

and Subsidiaries

Addressing the matter involved performing procedures

and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements.

These procedures

included the following:

· Gaining an understanding of the matter by reviewing the documentation related to the Written Decisions

and Court Rulings;

· Gaining an understanding of the matter by reviewing documentation that management received from the Bureau

and the local city government in respect of the commencement of production of the bromine and crude salt factories;

· Gaining an understanding of the latest progress of the matter by visiting the Bureau’s office in

Shouguang City to conduct an interview with the officer-in-charge;

· Obtaining and evaluating the legal representation letters from external legal counsels for significant

legal actions;

· Evaluating the sufficiency of the loss contingencies disclosures.

/s/ Morison Cogen LLP

We have served as the Company’s auditor

Blue Bell, Pennsylvania

April 8, 2021

Property, plant and equipment, net

We determined that the Company’s property,

plant and equipment was a critical audit matter based on the principal considerations that property, plant, and equipment was very significant

proportion of the Company’s total assets.

The challenges with general economic and political environment present challenges in

determining that carrying value of such assets are subject to significant estimation and the use judgment.

Plant and equipment may be

purchased and placed into service at varying times, and their ability to contribute to the generation of cash flows is impacted by multiple

factors, including the time for installation, demand for the Company’s products, and the availability of working capital and raw

The audit engagement team addressed this critical accounting matter by reviewing the Company’s accounting policies,

and perform extended procedures including physical inspection, corroborated with enquiry, examination of contracts, review of global

economic conditions and the Company’s own forecast for demand, review of movement of inventories and the liquidity of the Company,

vouching of a sample of purchases, and performing independent analysis that included recalculation of depreciation and impairment testing.

The engagement team’s testing provided adequate evidence to support our audit opinion and to mitigate the risk of material misstatement

to an acceptable level.

The accounts that are affected by this critical audit matter is property plant and equipment, and the related

depreciation that is allocated into cost of sales, and impairment expense, if any.

Certified Public Accountants

We have served as the Company’s auditor since 2021.

San Mateo, CA

March 31, 2023

GULF RESOURCES, INC.

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Current Assets

$ 108,226,214

Accounts receivable, net

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Prepayments and deposits

Prepaid land leases

Other receivables

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Prepaid land leases, net of current portion

Deferred tax assets

Deferred tax assets, net

Total non-current assets

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$ 309,856,862

Commitment and Contingencies

Liabilities and Stockholders’ Equity

Current Liabilities

Payable and accrued expenses

Retention payable

Accounts payable and accrued expenses

Taxes payable-current

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10,717,754 and 10,517,754 shares issued;

and 10,471,924 and 9,997,477 shares outstanding as of December 31, 2021 and December 31, 2020

and 10,431,924 and 10,471,924 shares outstanding as of December 31, 2022 and 2021

Treasury stock;

45,830 and 45,830 shares as of December 31, 2021 and December 31, 2020 at cost

285,830 and 45,830 shares as of December 31, 2022 and 2021 at cost

( 1,372,673 )

Additional paid-in capital

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Accumulated other comprehensive income (loss)

( 13,027,289 )

Total Stockholders’ Equity

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AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

CONSOLIDATED STATEMENTS OF

COMPREHENSIVE (LOSS) INCOME

(Expressed in U.S.

Years Ended December 31,

OPERATING EXPENSE

Cost of net revenue

OPERATING COSTS AND EXPENSE

Cost of revenues

( 28,669,152 )

( 27,132,372 )

Sales, marketing and other operating expenses

Direct labor and factory overheads incurred during plant shutdown

Sales and marketing expenses

Direct labor and factory overheads

( 12,002,629 )

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( 2,850,059 )

Total operating expense

( 49,819,716 )

Total operating income (expense)

( 49,612,790 )

LOSS FROM OPERATIONS

( 49,819,716 )

INCOME FROM OPERATIONS

OTHER INCOME (EXPENSE)

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Other (income) expenses

INCOME (LOSS) BEFORE INCOME TAXES

( 9,528,515 )

INCOME TAX (EXPENSE) BENEFIT

INCOME BEFORE INCOME TAXES

INCOME TAX EXPENSE

( 6,586,985 )

( 6,298,218 )

NET INCOME (LOSS)

$ ( 924,718 )

COMPREHENSIVE INCOME (LOSS):

$ ( 924,718 )

NET INCOME (LOSS)

$ ( 924,718 )

OTHER COMPREHENSIVE INCOME (LOSS)

OTHER COMPREHENSIVE (LOSS) INCOME

- Foreign currency translation adjustments

COMPREHENSIVE INCOME (LOSS)

BASIC AND DILUTED LOSS PER SHARE

( 24,886,118 )

TOTAL COMPREHENSIVE (LOSS) INCOME

$ ( 14,826,668 )

BASIC AND DILUTED EARNINGS (LOSS) PER SHARE

BASIC AND DILUTED WEIGHTED AVERAGE NUMBER OF SHARES:

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$ 277,024,273

$ 263,107,100

Restricted shares issued for services

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Net loss for year ended December 31, 2021

( 8,420,044 )

BALANCE AT DECEMBER 31, 2021

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$ 150,463,638

$ 286,639,217

Treasury stock

unappropriated

comprehensive

BALANCE AT JANUARY 1, 2022

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$ 150,463,638

$ 286,639,217

Restricted shares issued for services

Repurchase stocks

Currency translation adjustment

( 24,886,118 )

Net loss for year ended December 31, 2022

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$ ( 924,718 )

$ ( 8,420,044 )

Adjustments to reconcile net income to net cash (used in) provided by operating activities:

Interest on capital lease obligation

Amortization on capital lease

Depreciation and amortization

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Deferred tax asset

( 1,108,471 )

Stock-based compensation expense

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( 7,749,127 )

( 1,161,704 )

Prepayment and deposits

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Operating lease

Net cash provided by (used in) operating activities

Net cash provided by operating activities

CASH FLOWS FROM INVESTING ACTIVITIES

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NET DECREASE IN CASH AND CASH EQUIVALENTS

( 6,079,448 )

CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR

CASH AND CASH EQUIVALENTS - END OF YEAR

$ 108,226,214

GULF RESOURCES, INC.

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Cash paid during the year for:

Paid for taxes

Interest on finance lease obligation

SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES

Purchase of property, plant

and equipment included in payables and accrued expenses

The accompanying notes are an integral part of

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OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation and Consolidation

(a) Basis of Presentation and Consolidation

The accompanying audited consolidated financial

statements have been prepared by Gulf Resources, Inc.

(“Gulf Resources”), a Nevada corporation and its subsidiaries (collectively,

(“Gulf Resources”).

a Nevada corporation and its subsidiaries (collectively,

the “Company”).

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owns 100% of Shouguang City Haoyuan Chemical Company Limited (“SCHC”) which owns 100% of Shouguang Yuxin Chemical Industry

Co., Limited (“SYCI”) and Daying County Haoyuan Chemical Company Limited (“DCHC”).

All material intercompany

transactions have been eliminated on consolidation.

Nature of Business

The Company manufactures and trades bromine and

crude salt through its wholly-owned subsidiary, Shouguang City Haoyuan Chemical Company Limited (“SCHC”) and manufactures

chemical products for use in the oil industry, pesticides, paper manufacturing industry and for human and animal antibiotics through its

wholly-owned subsidiary, Shouguang Yuxin Chemical Industry Co., Limited (“SYCI”) in the People’s Republic of China (“PRC”).

DCHC was established to further explore and develop natural gas and brine resources (including bromine and crude salt) in the PRC.

business commenced trial operation in January 2019 but suspended production temporarily in May 2019 as required by the government to obtain

project approval (see Note 1 (b)(iii)).

Co., Limited (“SYCI”) ,Daying County Haoyuan Chemical Company Limited (“DCHC”) and Shouguang Hengde Salt Industry

All material intercompany transactions have been eliminated on consolidation.

(b) Nature of Business

The Company manufactures and trades bromine through

its wholly-owned subsidiary, Shouguang City Haoyuan Chemical Company Limited (“SCHC”) ;manufactures and trades crude salt

through its wholly-owned subsidiary, SHSI;

and manufactures chemical products for use in the oil industry, pesticides, paper manufacturing

industry and for human and animal antibiotics through its wholly-owned subsidiary, Shouguang Yuxin Chemical Industry Co., Limited (“SYCI”)

in the People’s Republic of China (“PRC”).

DCHC was established to further explore and develop natural gas and brine

resources (including bromine and crude salt) in the PRC.

DCHC’s business commenced trial operation in January 2019 but suspended

production temporarily in May 2019 as required by the government to obtain project approval (see Note 1 (b)(iii)).

On March 11, 2020, the World Health Organization (WHO) officially declared

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have a material adverse impact on its operating results in the year of 2021 and will continue to assess the financial impact.

outbreak slightly delayed the commencement of the operations for Factory No.1, No.4, No.7, No.9, and it may also delay the approval for

the remaining three factories No.2, No.8 and No.10.

outbreak slightly delayed the commencement of the operations for Factory No.1, No.4, No.7, No.9.

We received approval to open factory

COVID has still delayed the approval for factories N0.2 and No.10.

(i) Bromine and Crude Salt Segments

In February 2020, the Company received a notification from the local

government of Yangkou County that its Factory No.

9 have passed inspection and can resume operations.

2019, Factory No.

7 resumed operations.

In February 2019, the Company received a notification

from the local government of Yangkou County that its Factory No.

9 passed inspection and could resume operations.

In April 2019, Factory No.1, and Factory No.7 resumed operation.

On November 25, 2019, the government of Shouguang

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

No.1 and Factory No.

1 and Factory No.

7, to temporarily stop production from December 16, 2019 to February 10, 2020.

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Subsequently, the

Company received an approval dated on February 27, 2020 issued by the local governmental authority which allowed the Company 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 allowing the Company to resume production at its bromine factories No.1, No.

Company received an approval dated February 27, 2020 issued by the local governmental authority allowing the Company to resume production

after the winter temporary closure.

Further, the Company received another approval from the Shouguang Yangkou People’s Government

dated March 5, 2020 allowing the Company to resume production at its bromine factories No.

4, No.7 and No.

to meet the needs of bromide products for epidemic prevention and control (the “March 2020 Approval”).

The Company’s

Factories 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 commenced trial production in mid-March 2020 and commercial production on April 3, 2020 and its Factories No.

commenced commercial production on May 6, 2020.

The Company received an oral notification from the government for its Factory No.

permits the Factory No.

8 to resume production in August 2022.

And Factory No.

8 started contribute revenue in the fourth quarter 2022.

The Company is still waiting for governmental

approval for Factories No.

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

areas including that for prevention of flood.

As a result, we may be required to make some modifications to our current wells and aqueducts

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

Pursuant to the notification from the government

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

AM China Time.

To comply with such notification, the Company 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.

In April 2022, Shouguang Hengde Salt Industry

Ltd, our subsidiary, was incorporated in Shandong Province, China, for crude salt production and trading.

This subsidiary was created

in response to a new government policy that required bromine and crude salt companies to have separate registrations.

The creation of

this subsidiary and the separation of bromine and crude salt does not impact sales or overall profits.

However, the establishment of this

subsidiary has resulting in a reallocation of costs between bromine and crude salt.

GULF RESOURCES, INC.

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design draft and other related documents to the local authorities for approval.

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 is permitted to construct the new chemical factory and began the construction in the second quarter of

In January 2020, the Company received the environmental

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

The Company began

the construction on its new chemical facilities located at Bohai Marine Fine Chemical Industrial Park in June 2020 and basically completed

the civil works by the end of June 2021.

On November 15, 2021, the Company announced that due to the supply chain issues as well as the

electric restrictions in China, the delivery of some equipment, the equipment installation and testing and beginning trial production

at the chemical factory had been delayed.

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

management that the electricity restrictions are being eased.

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

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

The COVID restrictions and resulting national

and international supply chain issues as well as permitting issues have caused delays in receiving some previously ordered machinery and

The Company is working with its existing suppliers and may identify new suppliers so that it can complete construction of its

factory based on accelerated delivery.

Currently, the Company cannot estimate when construction will be completed and production can begin.

The Company believes this relocation process will

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(iii) Natural Gas Segment

In January 2017, the Company completed the first brine

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

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

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

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

Until these approvals have

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

In compliance with the Chinese

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

respectively.

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

Management (Trial) promulgated by the Ministry of Natural Resources of PRC on January 9, 2020, which came into effect on May 1, 2020,

privately owned enterprises are allowed to participate in the natural gas production.

The Company plans to proceed with its applications

for the natural gas and brine project approvals with related government departments until the governmental planning has been finalized.

Use of Estimates

In January 2017, the Company completed the first

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

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 the governmental planning has

been finalized.

The Company’s consolidated financial statements

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OF SIGNIFICANT ACCOUNTING POLICIES – Continued

Cash and Cash Equivalents

(d) Cash and Cash Equivalents

Cash and cash equivalents consist of all cash

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the carrying amounts approximate their fair values.

Accounts receivable and Allowance for Doubtful Accounts

(e) Accounts receivable and Allowance

for Doubtful Accounts

Accounts receivable is stated at cost, net of

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As of December 31, 2022 and December 31, 2021,

2020, using the ending exchange rate, there was $ 72,984 and $ 0

allowances for doubtful accounts;

those corresponding amounts of allowances for doubtful accounts were charged to the

consolidated statements of comprehensive income (loss) for years ended December 31, 2021 and 2020.

Concentration of Credit Risk

there were no allowances for doubtful accounts.

No allowances for doubtful accounts were charged to the consolidated statements of comprehensive

(loss) income for years ended December 31, 2022 and 2021.

(f) Concentration of Credit Risk

The Company is exposed to credit risk in the normal

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and extends credit terms as and when appropriate.

(g) Inventories

Inventories are stated at the lower of cost, determined

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OF SIGNIFICANT ACCOUNTING POLICIES – Continued

Property, Plant and Equipment

(h) Property, Plant and Equipment

Property, plant and equipment are stated at cost

15 unchanged sentences

policies on property, plant and equipment, other than mineral rights and construction in process, are as follows:

Nature of Business and Summary of

Basis of Presentation and Summary of

Significant Accounting Policies - Schedule of Property, Plant and Equipment Useful Life

1 unchanged sentence

Plant and machinery (including protective shells, transmission channels and ducts)

Motor vehicles Motor Vehicles

Motor vehicles

Motor Vehicles

Furniture, fixtures and equipment

11 unchanged sentences

depreciation.

Asset Retirement Obligation

(i) Asset Retirement Obligation

The Company follows Financial Accounting Standards

20 unchanged sentences

plants that are to be relocated, currently, there are no obligations to restore the land to its original condition.

Recoverability of Long-lived Assets

(j) Recoverability of Long-lived Assets

In accordance with Financial Accounting Standards

16 unchanged sentences

the Company determined that there were no events or circumstances indicating possible impairment of its long-lived assets.

Retirement Benefits

(k) Retirement Benefits

Pursuant to the relevant laws and regulations

11 unchanged sentences

OF SIGNIFICANT ACCOUNTING POLICIES – Continued

Mineral Rights

(l) Mineral Rights

The Company follows FASB ASC 805 “Business

19 unchanged sentences

lease ROU assets and liabilities arising from short-term lease.

Basic and Diluted Earnings per Share of Common Stock

(n) Basic and Diluted Earnings per Share

of Common Stock

Basic earnings per common share are based on the

9 unchanged sentences

respectively.

These awards could be dilutive in the future if the market price of the common stock increases and is greater than

the exercise price of these awards.

Because the Company reported a net loss for the

years ended December 31, 2021 and 2020, common stock equivalents including stock options and warrants were anti-dilutive, therefore the

amounts reported for basic and diluted loss per share were the same.

Reporting Currency and Translation

These awards could be dilutive in the future if the market price of the common stock increases and is greater than the exercise

price of these awards.

(o) Reporting Currency and Translation

The financial statements of the Company’s

21 unchanged sentences

paid for the acquisition of business which is translated at historical rates.

Foreign Operations

(p) Foreign Operations

All of the Company’s operations and assets

2 unchanged sentences

effect of these factors cannot be accurately predicted.

Revenue Recognition

Net revenue is net of discount and value added

tax and comprises the sale of bromine, crude salt and chemical products.

Revenue is recognized at a point time when the control of the

promised goods is transferred to the customers in an amount that reflects the consideration that the Company expects to receive from the

customers in exchange for those goods.

The acknowledgement of receipt of goods by the customers is when control of the product is deemed

to be transferred.

(q) Revenue Recognition

Net revenue is net of discount and value added tax

and comprises the sale of bromine, crude salt and chemical products.

Revenue is recognized at a point time when the control of the promised

goods is transferred to the customers in an amount that reflects the consideration that the Company expects to receive from the customers

in exchange for those goods.

The acknowledgement of receipt of goods by the customers is when control of the product is deemed to be transferred.

Invoicing occurs upon acknowledgement of receipt of the goods by the customers.

Customers have no rights to return

the goods upon acknowledgement of receipt of goods.

Customers have no rights to return the goods upon acknowledgement

of receipt of goods.

Customers typically pay after the Company delivers and transfers the products to them in accordance to terms set

forth in their contract.

Revenue from contracts with customers is disaggregated in Note 15.

Payments are typically received from customers within 90 days from

invoicing and recognition of revenue in accordance to the credit terms extended to customers by the Company.

(r) Income Taxes

The Company accounts for income taxes in accordance

13 unchanged sentences

tax in the consolidated statement of comprehensive income (loss).

Exploration Costs

(s) Exploration Costs

Exploration costs, which included the cost of

18 unchanged sentences

periodically for impairment.

Loss Contingencies

(t) Loss Contingencies

The Company accrues for loss contingencies relating

6 unchanged sentences

paid upon the ultimate resolution of such liabilities may be materially different from previous estimates.

Stock-based Compensation

(u) Stock-based Compensation

The Company accounts for stock-based compensation

16 unchanged sentences

The Company has elected to account for the forfeiture of stock-based awards as they occur.

New Accounting Pronouncements

(v) New Accounting Pronouncements

Recent accounting pronouncements adopted

3 unchanged sentences

In June 2016, the FASB issued ASU No.

Financial Instruments – Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments.

The amendments in this

Update affect loans, debt securities, trade receivables, and any other financial assets that have the contractual right to receive cash.

The ASU requires an entity to recognize expected credit losses rather than incurred losses for financial assets.

For public entities,

the amendments are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years.

For the Company which is a smaller reporting company, ASU No.

2016-13, Financial

Instruments – Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments.

The amendments in this Update affect

loans, debt securities, trade receivables, and any other financial assets that have the contractual right to receive cash.

The ASU requires

an entity to recognize expected credit losses rather than incurred losses for financial assets.

For public entities, the amendments are

effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years.

For the Company which

is a smaller reporting company, ASU No.

2019-10 extends the effective dates for two years.

The Company is currently

evaluating the effect of this on the consolidated financial statements and related disclosure.

The Company will adopt this standard beginning

January 1, 2023.

The Company is currently evaluating the effect of the adoption of this standard on the consolidated financial statements

and related disclosures.

GULF RESOURCES, INC.

3 unchanged sentences

(Expressed in U.S.

2 – ACCOUNTS RECEIVABLE, NET

Accounts receivable

Allowance for doubtful debt

Accounts receivable, net

The overall accounts receivable balance as of 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 made to customers with an appropriate credit history.

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

NOTE 3 – INVENTORIES

4 unchanged sentences

Inventory, net

There was no allowance for slow-moving inventories

as of December 31, 2021 and 2020.

The Company recorded impairment charges for slow moving

inventory in the amounts of $ 24,745 and $ 0 for the years ended December 31, 2022 and 2021.

NOTE 4 – PREPAID LAND LEASES

23 unchanged sentences

Amortization of this prepaid land lease will commence when the chemical factory is built and placed

In June 2020, the construction of the new chemical

factory commenced and the civil works have basically been completed in June, 2021.

GULF RESOURCES, INC.

16 unchanged sentences

( 123,229,974 )

( 18,641,596 )

Net book value

7 unchanged sentences

respectively.

During the year ended December 31, 2021, there

were total $ 57,388,456 write off on the company plan and machinery, which mainly include the write off of the machinery, wells and aqueducts.

During the year ended December 31, 2022, depreciation

and amortization expense totaled $ 20,537,682 of which $ 8,318,487 , $ 644,349 and $ 11,574,846 were recorded in direct labor and factory overheads

incurred during plant shutdown, administrative expenses and cost of net revenue respectively.

and amortization expense totaled $ 26,770,097 of which $ 14,507,140 , $ 1,777,989 and $ 10,484,968 were recorded in direct labor and factory

overheads incurred during plant shutdown, administrative expenses and cost of net revenue respectively.

During the year ended December 31, 2021, depreciation

1 unchanged sentence

incurred during plant shutdown, administrative expenses and cost of net revenue respectively.

5 – FINANCE LEASE RIGHT-OF-USE ASSETS

NOTE 6 – FINANCE LEASE RIGHT-OF-USE ASSETS

Property, plant and equipment under finance leases,

26 unchanged sentences

aggregate operating lease right-of-use assets amount of $ 9,140,777 as at December 31, 2022.

7 – PAYABLE AND ACCRUED EXPENSES

NOTE 8 – PAYABLE AND ACCRUED EXPENSES

Payable and accrued expenses consist of the following:

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

Payable and Accrued

Expenses - Schedule of Accounts Payable and Accrued Liabilities

Accounts payable

11 unchanged sentences

Ming Yang, the Chairman of the Company, had a 99 % equity interest in the

During the first quarter of 2018, the Company entered into an agreement with the Seller, a related party, to provide property

management services for an annual amount of approximately $ 97,853 for five years from January 1, 2018 to December 31, 2022 .

associated with this agreement for the year ended December 31, 2021 was $ 96,390 .

The expense associated with this agreement for the year

ended December 31, 2020 was $ 90,510 .

NOTE 8 – RELATED PARTY TRANSACTIONS – Continued

a) Related parties

Seller that time.

During the first quarter of 2018, the Company entered into an agreement with the Seller, a related party, to provide

property management services for an annual amount of approximately $ 89,574 for five years from January 1, 2018 to December 31, 2022 .

expense associated with this agreement for the year ended December 31, 2022 was $ 92,168 .

The expense associated with this agreement for

the year ended December 31, 2021 was $ 96,390 .

NOTE 9 – RELATED PARTY TRANSACTIONS –

Related parties

Name of related parties

4 unchanged sentences

Amount due to related parties:

Considering that the Company has not performed well

in recent years, the Company and its executive officers mutually agreed and to returned all, or a portion of their cash compensation earned

for their services with the Company, which may be considered for future compensation should the Company improve its results of operations.

Considering that the Company has not performed

well in recent years, the Company and its executive officers mutually agreed and returned all or a portion of their cash compensation

earned for their services with the Company in year 2021, which may be considering pay back later when business improves.

The Company repurchased 80,000

shares respectively, valued from each of CEO Xiaobin Liu, COO Naihui Miao, and CFO Min Li in a privately negotiated transaction

based on the closing price of the stock of $ 3.5931

per share on Wednesday, November 30, 2022.

NOTE 10 – TAXES PAYABLE

1 unchanged sentence

Value added tax and other taxes payable

Land use tax payable

10 – LEASE LIABILITIES-FINANCE AND OPERATING LEASE

Taxes payable

NOTE 11 – LEASE LIABILITIES - FINANCE

AND OPERATING LEASE

The components of finance lease liabilities were

32 unchanged sentences

Present value of net minimum lease payments

NOTE 12 –– EQUITY

Restricted Shares

13 unchanged sentences

granted in the aggregate, 200,000 restricted shares of common stock to a consultant, the company's directors, officers and an employee.

The restricted shares award were granted under the 2019 Omnibus Equity Incentive Plan and vested immediately.

The restricted shares award were granted under the 2019 Omnibus Equity Incentive Plan (See Note 13) and vested immediately.

The fair value

of the award on the date of grant was $ 668,000 which was expensed in full during the year ended December 31, 2022.

year ended December 31, 2020, the Company granted in the aggregate, 480,050 restricted shares of common stock to a consultant, the company's

directors, officers and an employee.

The restricted shares award were granted under the 2019 Omnibus Equity Incentive Plan and vested

The fair value of the award on the date of grant was $ 2,350,250 which was expensed in full during the year ended December

Retained Earnings - Appropriated

3 unchanged sentences

Statutory Common Reserve Funds

SCHC, SYCI and DCHC are required each year to

transfer at least 10% of the profit after tax as reported under the PRC statutory financial statements to the Statutory Common Reserve

SCHC, SYCI, SHSI and DCHC are required each year

to transfer at least 10% of the profit after tax as reported under the PRC statutory financial statements to the Statutory Common Reserve

Funds until the balance reaches 50% of the registered share capital.

4 unchanged sentences

The Statutory Common Reserve Fund as of December 31, 2022 for SCHC, SYCI,

and DCHC is 16%, 14% and 0% of its registered capital respectively.

SHSI, and DCHC is 17%, 14%, 0% and 0% of its registered capital, respectively.

NOTE 13 – TREASURY STOCK

As of December 31, 2022 and December 31,

2021, the number of treasury stock of the Company was 285,830

respectively.

NOTE 14 – STOCK-BASED COMPENSATION

26 unchanged sentences

Balance, January 1, 2022

Expired/Canceled

Balance, December 31, 2022

9 unchanged sentences

The aggregate intrinsic value of options outstanding

and exercisable as of December 31, 2021 and 2020 was $ 0

and $ 3,330 .

The aggregate intrinsic value is calculated as the difference between the exercise price of the underlining options and the stock price

of $ 4.33 and $ 4.12 for the Company's common stock on December 31, 2021 and 2020.

year ended December 31, 2021, 2,447 shares of common stock were issued upon cashless exercise of 6,000 options.

and exercisable as of December 31, 2022 and 2021 was $ 0 and $ 0 .

NOTE 15 – INCOME TAXES

21 unchanged sentences

withholding tax in Hong Kong.

Enterprise income tax (“EIT”) for

SCHC, SYCI and DCHC in the PRC is charged at 25 % of the assessable profits.

The operating subsidiaries SCHC, SYCI and DCHC

are wholly foreign-owned enterprises (“FIE”) incorporated in the PRC and are subject to PRC Local Income Tax Law.

tax losses may be carried forward to be utilized against future taxable profit for ten years for High-tech enterprises and small and medium-sized

Enterprise income tax (“EIT”) for SCHC, SYCI, SHSI and

DCHC in the PRC is charged at 25 % of the assessable profits.

The operating subsidiaries SCHC is a wholly foreign-owned enterprises

(“FIE”), SYCI, DCHC, and SHSI are incorporated in the PRC and are subject to PRC Local Income Tax Law.

The PRC tax losses

may be carried forward to be utilized against future taxable profit for ten years for High-tech enterprises and small and medium-sized

enterprises of science and technology and for five years for other companies.

15 unchanged sentences

the unrecognized WHT are $ 6,406,394 and $ 5,932,051 , respectively.

NOTE 14 – INCOME TAXES – Continued

The Company’s income tax returns are subject

17 unchanged sentences

Deferred taxes – PRC entities

( 6,586,985 )

( 6,298,218 )

Deferred taxes –US entity

Change in valuation allowance

Tax Expense Benefit

The effective

income tax benefit (expense) rate differs from the PRC statutory income tax rate of 25% from continuing operations in the PRC as follows:

Income Taxes - Schedule

of Income Tax Rate Reconciliation

Reconciliations

Statutory income tax rate

Non-taxable (non-deductible) items

Change in valuation allowance

Effective income tax benefit (expense) rate

As of December

31, 2021 and 2020, the Company had a US Federal net operating loss carry forwards of approximately $ 8,470,000 and $ 4,900,000 which are

allowed for an indefinite carry forward period but limited to 80% of each subsequent year's net income.

The timing and manner in which

the Company can utilize operating loss carry forwards in any year may be limited by provisions of the Internal Revenue Code regarding

changes in ownership of corporations.

Such limitation may have an impact on the ultimate realization of its carry forwards and future

tax deductions.

In addition, since the Company intends to reinvest its earnings to further expand its businesses in mainland China, its

foreign invested enterprises do not intend to declare dividends to their immediate foreign holding companies in the foreseeable future.

Accordingly, a 100% deferred tax asset valuation allowance was recorded for these net operating losses.

Income Tax (Expense) Benefit

$ ( 6,586,985 )

$ ( 6,298,218 )

Significant components of the Company’s

35 unchanged sentences

the customers are located in PRC.

December 31, 2022

(external customers)

(intersegment)

Income (loss) from operations before income tax expense

( 1,078,320 )

( 2,550,561 )

( 4,357,759 )

Loss from operations before income tax expense

Income tax (expense) benefit

( 6,586,985 )

( 3,218,784 )

( 6,298,218 )

Income (loss) from operations after

tax (expense) benefit

( 5,769,345 )

( 4,357,759 )

( 1,087,348 )

Loss from operations after

income tax (expense) benefit

Depreciation and amortization

Capital expenditures

December 31, 2021

(external customers)

1 unchanged sentence

Loss from operations before income tax expense

( 3,589,494 )

( 2,745,297 )

( 4,922,763 )

( 4,760,629 )

( 9,683,392 )

Income tax (expense) benefit

1 unchanged sentence

income tax (expense) benefit

( 2,699,163 )

( 2,123,022 )

( 3,814,292 )

( 4,760,629 )

( 8,574,921 )

Depreciation and amortization

Capital expenditures

* Certain common production overheads, operating

and administrative expenses and asset items (mainly cash and certain office equipment) of bromine and crude salt segments in SCHC were

split by reference to the average selling price and production volume of the respective segment.

* Certain common production overheads, operating and administrative

expenses and asset items (mainly cash and certain office equipment) of bromine and crude salt segments in SCHC were split by reference

to the average selling price and production volume of the respective segment.

Reconciliations

Total segment operating Profit (loss)

$ ( 4,922,763 )

Corporate costs

2 unchanged sentences

Unrealized gain (loss) on translation of intercompany balance

( 1,832,026 )

Profit (loss) from operations

( 9,683,392 )

Other income, net of expense

Income (loss) before taxes

$ ( 9,528,515 )

Loss before taxes

The following table shows the major customers

2 unchanged sentences

Revenue by Major Customers

Chemical Products

Percentage of

Shandong Morui Chemical Company Limited

3 unchanged sentences

(10% or more) for the year ended December 31, 2021

Chemical Products

Percentage of

Shandong Morui Chemical Company Limited

1 unchanged sentence

Shouguang Weidong Chemical Company Limited

Shandong Shouguang Shenrunfa Ocean Chemical Company Limited

Dongying Bomeite Chemical Company Limited

NOTE 17 – CUSTOMER CONCENTRATION

Customer Concentration

9 unchanged sentences

As of December 31, 2021, amounts due from these customers were $ 13,372,159 .

17 – MAJOR SUPPLIERS

NOTE 18 – MAJOR SUPPLIERS

Product Concentration

During the year ended December 31, 2022, the Company

22 unchanged sentences

the next 37 to 48 months

20 – LOSS CONTINGENCIES

the next 49 to 60 months

NOTE 21 – LOSS CONTINGENCIES

Settled Litigation

On or about August 3, 2018, written decisions

76 unchanged sentences

NOTE 22 - SUBSEQUENT EVENT

The Company received an oral notification from

the government of Shouguang City on December 23, 2021, pursuant to which all bromine facilities in Shouguang City will be temporarily

closed from December 28, 2021 until February 21, 2022 8:00 AM China Time.

The Company believed the seasonal closure ordered by the

government was part of governmental action plan to curb air pollution in the winter and improve the comprehensive development efficiency

of brine resources.

On February 21, 2022, as planned, the Company reopened its four operating bromine and crude salt factories.

The Company has analyzed its operations subsequent

to December 31, 2022 and up through March 31, 2022 which is the date these consolidation financial statements were available to be issued,

except as disclosed below, there are no other material subsequent events to disclose in these consolidated financial statements.

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.

On March 23, 2023, the Company issued a

press release detailing the delays in the opening of our Yuxin chemical factory due to COVID and stricter government regulations.

noted in the press release, the Company believes that once all of the equipment is delivered, it will take 3 to 4 months to get

them installed.

After installation, the testing process is anticipated to take 2 to 3 months, after which we will be in a position

to apply for environmental and safety approval.

After we get the approval, it will take us 4 months to conduct trial production, and

then we may start commercial production.

GULF RESOURCES, INC.

7 unchanged sentences

Condensed Balance Sheets

Parent Company

As of December 31,

27 unchanged sentences

285,830 and 45,830 shares as of December 31, 2022 and December 31, 2021 at cost

( 1,372,673 )

Additional paid-in capital

2 unchanged sentences

Cumulative translation adjustment

( 13,027,289 )

Total Stockholders’ Equity

17 unchanged sentences

( 3,572,334 )

Equity in net income (loss) of

( 5,497,004 )

Equity in net Loss of subsidiaries

LOSS BEFORE INCOME TAXES

$ ( 924,718 )

$ ( 8,420,044 )

Condensed Statements of Cash Flows

2 unchanged sentences

$ ( 924,718 )

$ ( 8,420,044 )

Adjustments to reconcile net Loss to

6 unchanged sentences

Net cash used in operating activities

( 1,259,268 )

CASH FLOWS FROM FINANCING ACTIVITIES

35 unchanged sentences

control regulations that restrict the Company’s ability to convert RMB into US Dollars.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

Changes in and Disagreements with Accountants on Accounting

and Financial Disclosure.

Previous Independent Accountants

30 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 8. Financial Statements and Supplementary Data