What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2023-05-15 compared with 2022-11-14 · 232 added, 400 removed, 203 unchanged (76% of the section changed)

14 unchanged sentences

events, developments, or changed circumstances, or for any other reason.

We are a Nevada holding company which conducts

operations through our wholly-owned China-based subsidiaries.

Our business is conducted and reported in four segments, namely,

bromine, crude salt, chemical products and natural gas.

Through our wholly-owned subsidiary, SCHC we produce

and trade bromine;

and through our wholly-owned subsidiary, SHSI, we manufacture and sell crude salt.

We are one of the largest

producers of bromine in China, as measured by production output.

Elemental bromine is used to manufacture a wide variety of bromine compounds

used in industry and agriculture.

Bromine also is used to form intermediary chemical compounds such as Tetramethylbenzidine.

is commonly used in brominated flame retardants, fumigants, water purification compounds, dyes, medicines and disinfectants.

salt is the principal material in alkali production as well as chlorine alkali production and is widely used in the chemical, food and

beverage, and other industries.

We are a Nevada holding company which

conducts operations through our wholly-owned China-based subsidiaries.

Our business is conducted and reported in four segments,

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

Through our wholly-owned subsidiary, SCHC, we

produce and trade bromine and crude salt.

We are one of the largest producers of bromine in China, as measured by production output.

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

Bromine also is used to

form intermediary chemical compounds such as Tetramethylbenzidine.

Bromine is commonly used in brominated flame retardants,

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

Crude salt is the principal material in alkali

production as well as chlorine alkali production and is widely used in the chemical, food and beverage, and other industries.

Through our wholly-owned subsidiary, SYCI, we

33 unchanged sentences

from the local government that it has been coordinating with several government agencies to solve these three outstanding approval issues

in a timely manner and that all the affected bromine plants will not be allowed to commence production prior to obtaining those approvals.

in a timely manner and that all the affected bromine plants willnot be allowed to commence production prior to obtaining those approvals.

In February 2019, the Company received a notification from the local

government of Yangkou County that its Factory No.

9 have passed inspection and were allowed to resume operations.

In April 2019, Factory No.

9 had passed inspection and could resume operations.

2019, Factory No.

7 resumed operations.

7 unchanged sentences

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

On December 27, 2021, the Company announced that

the government of Shouguang City ordered the closing of all bromine facilities during the period from December 28, 2021 to February 21,

The Company reopened 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.

The Company is still waiting for governmental

approval for factories No.

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 the Company’s 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

3 unchanged sentences

to be relocated to a new industrial park called Bohai Marine Fine Chemical Industry Park.

Although our chemical companies were

in compliance with regulations, they were also close to a residential area.

As a result, the government determined the Company should

relocate to the Bohai park.

Chemical companies that were not asked to move into the park have been closed.

Since the closure of

our factories, the Company has secured from the government the land use rights for its chemical plant.

On January 6, 2020, the Company

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

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

The completion of construction has been delayed due to COVID-19 related restrictions, supply chain disruption and electric restrictions.

On February 22, 2022, the Company announced that while the Company did not receive a formal notice from the government regarding the electricity

needed for its Yuxin Chemical factory, discussions with the government have convinced management that the electricity restrictions are

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

so the Company can complete installation.

Because of supply chain issues, largely related to COVID 19, the delivery of some of the equipment

has been delayed.

At this time, the Company cannot estimate when construction will be completed.

In January 2017, the Company completed the first

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

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

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

approvals for safety production inspection, environmental protection assessment, as well as related land issues.

Until these approvals

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

In compliance with the Chinese

government new policies, the Company is also required to obtain exploration and mining licenses for both bromine and natural gas.

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 after the governmental planning has been finalized and the land and resource planning

for Sichuan Province has been approved.

As a result of our acquisitions of SCHC and SYCI, our historical consolidated

financial statements and the information presented below reflects the accounts of SCHC, SYCI , SHSI and DCHC, the consolidated financial

statements and the information presented below as of and for the period ended September 30, 2022.

The following discussion should

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

Although our chemical companies were in compliance

with regulations, they were also close to a residential area.

As a result, the government determined we should relocate to the Bohai park.

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

Since our factories closed, the Company

has secured from the government the land use rights for its chemical plant.

On January 6, 2020, the Company received the environmental

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

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 utility restrictions, the opening of the chemical factory has been delayed.

The Company has received the refrigeration

and air compressor units.

The rest equipment is expected to be delivered by the second quarter or the third quarter of 2023.

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

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

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.

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 resource planning for Sichuan Province.

In April 2022, Shouguang Hengde Salt Industry

Ltd（“SHSI”）, our subsidiary, was incorporated in Shandong Province, China, for crude salt production and

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

3 unchanged sentences

Our current corporate structure chart is set forth in the following

As a result of our acquisitions of SCHC and SYCI, our historical financial

statements and the information presented below reflects the accounts of SCHC, SYCI, SHSI and DCHC.

The following discussion should be

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

As a result of our acquisitions of SCHC and SYCI,

our historical financial statements and the information presented below reflects the accounts of SCHC, SYCI, SHSI and DCHC.

The following

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

RESULTS OF OPERATIONS

The following table presents certain information

derived from the condensed consolidated statements of operations, cash flows and stockholders equity for the three-month and nine-month

periods ended September 30, 2022 and 2021.

Comparison of the Three-Month Period Ended

September 30, 2022 and 2021

derived from the condensed consolidated statements of income, cash flows and stockholders’ equity for the three-month periods ended

March 31, 2023 and 2022.

Comparison of the Three-Month Periods Ended

March 31, 2023 and 2022

Three-Month Period

Ended September 30, 2022

Ended March 31, 2023

Three-Month Period

Ended September 30, 2021

Ended March 31, 2022

Percent Change

Cost of net revenue

$ (6,769,074 )

$ (4,549,968 )

Gross profit (loss)

Sales, marketing and other operating expenses

Direct labor and factory overheads incurred during plant shutdown

$ (2,408,736 )

Other operating expense

General and administrative expenses

Other operating income(loss)

Income(Loss) from operations

Income(Loss) before taxes

$ (2,242,501 )

Loss from operations

Other income, net

Loss before taxes

Income tax benefit

Net income(loss)

below shows the changes in net revenue in the respective segment of the Company for the three-month period ended September 30, 2022 as

compared to the same period in 2021:

Net revenue The table below

shows the changes in net revenue in the respective segment of the Company for the three-month period ended March 31, 2023 compared to

the same period in 2022:

Net Revenue by Segment

2 unchanged sentences

Percent Change

September 30, 2022

September 30, 2021

of Net Revenue

March 31, 2023

March 31, 2022

Chemical Products

Bromine and crude salt segments

Three-Month Period Ended

Percentage Change

product sold in tonnes

September 30,

Bromine and crude salt segments product sold in tonnes

March 31, 2023

March 31, 2022

Bromine (excluded volume sold to SYCI)

Bromine segment

For the three-month periods ended September 30, 2022 and 2021, the

net revenue for the bromine segment was $19,845,773 and $14,913,004, respectively.

The increase of net revenue of bromine was mainly due

to the 6% increase in tonnes sold and a 26% increase in average selling price of bromine.

The average selling price of bromine in the second quarter was $7,474

compared to $5,938 of the third quarter previous year.

For the three-month periods ended March 31, 2023

and 2022, the net revenue for the bromine segment was $8,470,372 and $8,126,015.

This increase was due to the 101% increase in tonnes

sold and a 48% decrease in average selling price.

Crude salt segment

For the three-month periods ended September 30,

2022 and 2021, the net revenue for the crude salt was $2,934,707 and $2,840,665, respectively.

The increase of net revenue of crude salt

was mainly due to the 3% increase in tonnes sold.

For the three-month periods ended March 31, 2023

and 2022, the net revenue for the crude salt was $748,681 and $754,044.

This increase was due to the 32% increase in tonnes sold and a

25% decrease in average selling price.

Chemical products segment

For the three-month periods ended September 30,

For the three-month periods ended March 31, 2023

and 2022, the net revenue for the chemical products segment was $0 due to the closure of our chemical factories since September 1, 2017.

Natural gas segment

The average selling price of bromine in t he

third qu arter was $7,474 compared to $5,938 of the third quarter previous year.

For the three-month period ended March 31, 2023

and 2022, the net revenue for the natural gas production was $0.

Equipment Lease

For the three-month period ended March 31, 2023

and 2022, the net revenue for the equipment lease was $82,954 and $50,678.

Cost of Net Revenue

3 unchanged sentences

Three-Month Period Ended

September 30, 2022

September 30, 2021

March 31, 2023

March 31, 2022

Chemical Products

Cost of net revenue reflects mainly

the raw materials consumed, the direct salaries and benefits of staff engaged in the production process, electricity, depreciation and

amortization of manufacturing plant and machinery and other manufacturing costs.

Cost of net revenue reflects mainly the raw materials

consumed and the direct salaries and benefits of staff engaged in the production process, electricity, depreciation and amortization of

manufacturing plant and machinery and other manufacturing costs.

Our cost of net revenue was $6,769,074 for the three-month period ended

March 31, 2023, an increase of $2,219,106 (or 49%) as compared to the same period in 2022 due to the increase of net revenue by 4% and

the decline in the selling price for bromine and crude salt for the three-month period ended March 31, 2023 as compared to the same period

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

3 unchanged sentences

Annual Production Capacity (in tonnes)

Three-month period ended September 30, 2021

Three-month period ended September 30, 2022

Variance of the three-month period ended September 30, 2022 and 2021

Three-month period ended March 31, 2022

Three-month period ended March 31, 2023

Variance of the three-month periods ended March 31, 2023and 2022

(i) Utilization ratio is calculated based on the

annualized actual production volume in tonnes for the periods divided by the annual production capacity in tonnes of all the seven factories

including those that have not commenced operations.

Our utilization ratio was 34% for the three-month

period ended September 30, 2022 compared to 32% recorded for the three-month period ended September 30, 2021.

annualized actual production volume in tonnes for the periods divided by the annual production capacity in tonnes.

Bromine segment

For the three-month period ended September 30,

2022, the bromine segment had a net cost of revenue of $7,362,103.

The $762,126 increase

in cost of net revenue for the bromine segment was primarily due to an increase in manufacturing unit overhead, which was mainly

due to the split between the bromine and crude salt businesses in May 2022.

For the three-month period ended September 30,

For the three-month period ended March 31, 2023

the cost of net revenue for the bromine segment was $6,148,443.

For the three-month period ended March 31, 2022

the cost of net revenue for the bromine segment was $3,920,325.

Crude salt segment

For the three-month period ended September 30,

For the three-month period ended March 31, 2023

the cost of net revenue for the crude salt segment was $620,258.

The lower cost was mainly due to the split between the bromine

and crude salt businesses in may 2022

For the three-month period ended September 30,

For the three-month period ended March 31, 2022

the cost of net revenue for the crude salt segment was $629,560.

1 unchanged sentence

Cost of net revenue for our chemical products

segment for the three-month period ended September 30, 2022 and 2021 was $0.

segment for the three-month period ended March 31, 2023 and 2022 was $0.

Natural gas segment

Cost of net revenue for our natural gas segment

for the three-month period ended September 30, 2022 and 2021 was $331 and 0.

Gross Profit.

Gross profit was $14,457,101,

or 63%, of net revenue for three-month period ended September 30, 2022, representing an increase of $4,901,129, as compared to a gross

profit of $9,555,972, or 54%, of net revenue for the same period in 2021.

for the three-month period ended March 31, 2023 and 2022 was $373 and $83.

Profit (Loss) Gross profit was $2,532,933, or 27%, of net revenue for three-month period ended March 31, 2023 compared to

$4,380,769, or 49% of net revenue for three-month period ended March 31, 2022.

Gross Profit (Loss) by Segment

2 unchanged sentences

Three-Month Period Ended

September 30, 2022

September 30, 2021

Profit Margin

March 31, 2023

March 31, 2022

Profit (Loss) Margin

Gross Profit Margin

1 unchanged sentence

Chemical Products

Total Gross Profit

Total Gross Profit (Loss)

Bromine segment

For the three-month period ended September 30,

2022, the gross profit margin for our bromine segment was 63%.

This 7% increase was due to the increase in the selling price and volume

of bromine sold in the third quarter of 2022.

For the three-month period ended September 30,

2021, the gross profit margin for our bromine segment was 56%.

Crude salt segment

For the three-month period ended September 30,

2022, the gross profit margin for our crude salt segment was 64%.

The increase of net revenue of crude salt

were mainly due to the 3% increase in tonnes sold and the reallocation of costs.

For the three-month period ended September 30, 2021, the gross profit

margin for our crude salt segment was 44%

For the three-month

period ended March 31, 2023, the gross profit margin for our bromine segment was 27%, compared to 52% in the three-month period ended

March 31, 2022.

The decrease in gross profit margin was primarily attributable to the lower average selling price of bromine of $4,193

per ton in the three-month period ended March 31, 2023 compared to $8,082 per ton in the three-month period ended March 31, 2022.

For the three-month period ended March 31, 2022,

the gross loss margin for our bromine segment was 52%.

Crude salt segmen t

For the three-month period ended March 31, 2023,

the gross profit margin for our crude salt segment was 17%, compared to (17%) in three-month period ended March 31, 2022.This decrease

was primarily attributable to the lower average selling price of crude salt of $37 per ton in three-month period ended March 31, 2023

compared to $49 per ton in three-month period ended March 31, 2022.

For the three-month period ended March 31, 2022,

the gross loss margin for our crude salt segment was 17%.

Direct labor and factory overheads incurred

during plant shutdown The direct labor and factory overhead costs (including depreciation of plant and machinery) in the amount

of $1,910,318 and $1,229,058 incurred for the three-month period end September 30, 2022 and 2021, respectively, were that of the factories

that have not resumed operations in the three-month periods ended September 30, 2022 and 2021.

On September 1, 2017, the Company received notification

from the government of Yangkou County, Shouguang City of PRC that stated that production at all its bromine and crude salt and chemical

factories should be halted with immediate effect in order for the Company to perform rectification and improvement in accordance with

the county’s new safety and environmental protection requirements.

On November 24, 2017, the Company received a letter from the

Government of Yangkou County, Shouguang City notifying the Company to relocate its two chemical production plants located in the second

living area of the Qinghe Oil Extraction Plant to Bohai Park.

As a result, direct labor and factory overhead costs (including depreciation

of plant and machinery) in the amount of $1,910,318 and $1,229,058 incurred for the three-month periods ended September 30, 2022 and 2021,

respectively, of factories that have not resumed production were presented as part of the operating expense.

Income (loss) from Operations income

from operations was $11,942,592 for the three-month period ended September 30, 2022, compared to loss of $7,097,975 in the same period

during plant shutdown On September 1, 2017, the Company received notification from the government of Yangkou County, Shouguang

City of PRC that stated that production at all its bromine and crude salt and chemical factories should be halted with immediate effect

in order for the Company to perform rectification and improvement in accordance with the county’s new safety and environmental protection

requirements.

On November 24, 2017, the Company received a letter from the Government of Yangkou County, Shouguang City notifying the

Company to relocate its two chemical production plants located in the second living area of the Qinghe Oil Extraction Plant to Bohai

As a result, direct labor and factory overhead costs (including depreciation of plant and machinery) in the amount of $2,408,736

and $2,184,591 incurred for the three-month periods ended March 31, 2023 and 2022, respectively, of factories that have not resumed production

were presented as part of the operating expense.

General and Administrative Expenses

General and administrative expenses were $910,051 for the three-month period ended March 31, 2023, an decrease of $1,332,450 (or 59%)

as compared to $2,242,501 for the same period in 2022.

The decrease was mainly due to the unrealized foreign currency transaction loss

on intercompany balance recorded in three-month period ended March 31, 2023 compared to an unrealized foreign currency transaction gain

on intercompany balance recorded in the same period in the previous year.

Loss from Operations Loss from operations

was $799,558 the three-month period ended March 31, 2023, compared to loss from operation of $65,087 in the same period in 2022.

Loss from Operations by Segment

Three-Month Period Ended

September 30, 2022

March 31, 2023

Three-Month Period Ended

September 30, 2021

March 31, 2022

Chemical Products

Income(loss) from operations before corporate costs

Corporate costs

Loss from operations before corporate costs

Corporate cost

Unrealized gain (loss) on translation of intercompany balance

Income (loss) from operations

Loss from operations

Bromine segment

Income from operations from our bromine segment was $10,552,343 for

the three-month period ended September 30, 2022, compared to income from operations of $6,909,542 in the same period in 2021.The increase

of net revenue of crude salt was mainly due to the 6% increase in tonnes sold and a 26% increase in average selling price of bromine partially

offset by a change in allocation of costs between bromine and crude salt

Loss from operations

from our bromine segment was $409,692 for the three-month period ended March 31, 2023, compared to income from operations of $1,348,834

in the same period in 2022.

This decrease was due to the 101% increase in tonnes sold and a 48% decrease in average selling price as

well as higher cost allocations due to the split off of our salt subsidiary in May 2022.

Crude salt segment

Income from operations from our crude salt segment

was $1,876,161 for the three-month period ended September 30, 2022, compared to income from operations of $561,373 in the same period

This increase in income from operation was due to a 3% increase in tonnes sold as well as a change in allocation of costs between

bromine and crude salt.

from operations from our crude salt segment was $42,930 for the three-month period ended March 31, 2023, compared to loss from

operations of $521,921 in the same period in 2022, primarily due to the lower cost allocations due to the split off of our salt

subsidiary in May 2022.

Chemical products segment

Loss from operations from our chemical products

segment was $447,960 for the three-month period ended September 30, 2022, compared to loss from operations of $535,047 in the same period

segment was $417,873 for the three-month period ended March 31, 2023, compared to loss from operations of $513,282 in the same period

Natural gas segment

Income from operations from our natural gas segment

was $19,500 for the three -month period ended September 30, 2022, compared to a loss of $49,295in the same period in 2021.

Other Income, Net Other income,

net of $35,755 represented bank interest income, net of capital lease interest expense for the three -month period ended September 30,

2022, an decrease of $10,168 as compared to the same period in 2021.

Net Income (loss) Net income was

$8,967,380 for the three-month period ended September 30, 2021, compared to a net income of $5,393,615 in the same period in 2021.

Net Income Per Share

For the three months ended September 30, 2022,

net income per share was $0.86 compared to an income of $0.52 in the period ending September 30, 2021.

There were 10,471,924 shares outstanding

compared to 10,469,477 shares.

Foreign Currency Translation Adjustment

For the three months ending September 30, 2022,

the Company had a negative foreign currency translation adjustment of $ 15,930,276 versus a positive adjustment of $1,272,449 in the previous

This adjustment impacts all balance sheet translations into U.S.

Comparison of the Nine-Month Period Ended

September 30, 2022 and 2021

Nine-Month Period

Ended September 30, 2022

Nine-Month Period

Ended September 30, 2021

Percent Change

Cost of net revenue

Sales, marketing and other operating expenses

Direct labor and factory overheads incurred during plant shutdown

Other operating loss

General and administrative expenses

Income(Loss) from operations

Income(Loss) before taxes

Income tax benefit (expense)

Net income(loss)

below shows the changes in net revenue in the respective segment of the Company for the nine-month period ended September 30, 2022 as

compared to the same period in 2021:

Net Revenue by Segment

Nine-Month Period Ended

Percent Increase

September 30, 2022

September 30, 2021

of Net Revenue

Chemical Products

Bromine and crude salt segments

Nine-Month Period Ended

Percentage Change

product sold in tonnes

September 30, 2022

September 30, 2021

Bromine (excluding volume sold to SYCI)

Bromine segment

Net revenue from our bromine segment increased

to $41,865,598 for the nine-month period ended September 30, 2022 compared to $29,749,432 for the same period in 2021 respectively, due

to the higher selling price and selling quantity.

Crude salt segment

Net revenue from our crude salt segment increased

to $5,506,655 for the nine-month period ended September 30, 2022 compared $4,411,488 for the same period in 2021, respectively, due to

the higher selling price and selling quantity.

Chemical products segment

For the nine-month period ended September 30,

2022 and 2021, the net revenue for the chemical products segment was $0 due to the closure of our chemical factories since September 1,

Natural gas segment

For the nine-month period ended September 30,

2022 and 2021, the net revenue for the natural gas was $132,993 and $0.

Cost of Net Revenue

Cost of Net Revenue by Segment

Nine-Month Period Ended

September 30, 2022

September 30, 2021

Chemical Products

Cost of net revenue reflects mainly

the raw materials consumed-direct salaries and benefits of staff engaged in the production process, electricity, depreciation and amortization

of manufacturing plant and machinery and other manufacturing costs.

Bromine production capacity and utilization

of our factories

The table below represents the annual capacity

and utilization ratios for all of our bromine producing properties:

Annual Production Capacity (in tonnes)

Nine-month period ended September 30, 2021

Nine-month period ended September 30, 2022

Variance of the nine-month period ended September 30, 2022 and 2021

Bromine segment

For the nine-month period ended September 30,

2022 the cost of net revenue for the bromine segment was $18,148,260.

$2,176,785 of this increase was mainly due to the new allocation

of costs between bromine and crude salt since the creation of SHSI in since May 2022.

For the nine-month period ended September 30,

2021 the cost of net revenue for the bromine segment was $15,971,475.

Crude salt segment

For the nine-month period ended September 30,

2022 the cost of net revenue for the crude salt segment was $2,908,108.

The cost of net revenue for our crude salt segment for the nine-month

period ended September 30, 2021 was $3,323,385.

The reason for the decrease is that there is that

with the creation of SHSI, some costs formerly allocated to crude sale were allocated to bromine.

Natural gas segment

Cost of net revenue for our natural gas segment

for the nine-month period ended September 30, 2022 and 2021 was $414 and $0.

Gross Profit.

Gross profit was $26,448,464,

or 56%, of net revenue for nine-month period ended September 30, 2022 compared to $14,866,060, or 44%, of net revenue for the same period

Gross Profit (Loss) by Segment

% Point Change

Nine-Month Period Ended

September 30, 2022

September 30, 2021

Profit Margin

Gross Profit (loss) Margin

Gross Profit Margin

Chemical Products

Total Gross Profit

Bromine segment

For the nine-month period ended September 30,

2022, the gross profit margin for our bromine segment was 57%.

This 11% increase was due to the higher selling price and selling quantity.

For the nine-month period ended September 30,

2021, the gross profit margin for our bromine segment was 46%.

Crude salt segment

For the nine-month period ended September 30,

2022, the gross profit margin for our crude salt segment was 47%.

The increase of net revenue of crude salt was mainly due to the 24%

increase in average selling price of crude salt as well as the change in accounting related to the creation of SHSI,

For the nine-month period ended September 30,

2021 the gross profit margin for our crude salt segment was 25%.

Chemical products segment

For the nine-month period ended September 30,

2022, the gross profit margin for our chemical segment was 0% due to the closure of our plant..

As a result of the closure, there were

no chemical products for sale for the nine-month period ended September 30, 2022.

Direct labor and factory overheads incurred

during plant shutdown The direct labor and factory overhead costs (including depreciation of plant and machinery) in the amount

of $6,022,206 and $5,237,258 incurred for the nine-month period end September 30, 2022 and 2021, respectively, were for factories that

have not resumed production in the nine-month periods ended September 30, 2022 and 2021.

General and Administrative Expenses.

General and administrative expenses were $3,384,063 for the nine-month period ended September 30, 2022, a decrease of $4,766,706 (or 59%)

as compared to $8,150,769 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 .

Income (Loss) from Operations.

from operations was $16,986,668 for the nine-month period ended September 30, 2022, compared to an income of $1,433,742 in the same period

Income(Loss) from Operations by Segment

Nine-Month Period Ended

September 30, 2022

Nine-Month Period Ended

September 30, 2021

Chemical Products

Income (Loss) from operations before corporate costs

Corporate costs

Unrealized gain on translation of intercompany balance

Income (Loss) from operations before taxes

Bromine segment

Income from operations from our bromine segment

was $17,226,718 for the nine-month period ended September 30, 2022, compared to an income of $8,312,210 in the same period in 2021.

increase in income was primarily due to a 36% increase in average selling price partially offset by additional cost allocations from the

new divisional structure.

Crude salt segment

Income from operations from our crude salt segment

was $1,497,208 for the nine-month period ended September 30, 2022, compared to a loss of $1,026,647 in the same period in 2021.

for this was due to cost allocations from the new divisional structure.

Chemical products segment

Loss from operations from our chemical products

segment was $1,436,443 for the nine-month period ended September 30, 2022, compared to a loss of $2,022,828 in the same period in 2021.

Natural gas segment

Loss from operations from our natural gas segment

was $68,938 for the nine-month period ended September 30, 2022, compared to a loss of $166,932 in the same period in 2021.

Other Income, Net.

Other income,

net of $118,843 represented bank interest income, net of capital lease interest expense for the nine -month period ended September 30,

2022, an increase of $1,260 (or approximately 1%) as compared to the same period in 2021.

Net Income (Loss).

Net income was

$12,749,228 for the nine-month period ended September 30, 2022, compared to a net income of $188,271 in the same period in 2021.

Net Income Per Share

For the nine months ended September 30, 2022,

net income per share was $1.22 compared to a income of $0.02 in the period ending September 30, 2021.

There were 10,471,924 shares outstanding

compared to 10,469,477 shares.

Foreign Currency Translation Adjustment

For the nine months ending September 30, 2022,

the Company had a negative foreign currency translation adjustment of $30,774,686 versus a positive adjustment of $1,877,097 in the previous

This adjustment impacts all balance sheet translations into U.S.

was $12,685 for the three -month period ended March 31, 2023, compared to a loss of $26,739 in the same period in 2022.

Other Income Net Other income, net

of $41,255 represented bank interest income, net of finance lease interest expense for the three -month period ended March 31, 2023, an

increase of $419 (or approximately 1%) as compared to the same period in 2022.

Net Loss Net loss was $557,747 for

the three-month period ended March 31, 2023, compared to a net loss of $119,946 in the same period in 2022.

LIQUIDITY AND CAPITAL RESOURCES

As of September 30, 2022, cash and cash equivalents

As of March 31, 2023, cash and cash equivalents

were $115,771,833 as compared to $108,226,214 as of December 31, 2022.

The components of this decrease of $3,128,985 are reflected below.

The components of this increase of $7,545,619 are reflected below.

Statement of Cash Flows

Nine-Month Period Ended September 30,

Net cash (used in) provided by operating activities

Three-Month Period Ended March 31,

Net cash provided by operating activities

Net cash used in investing activities

(33,217,987 )

Net cash used in financing activities

Effects of exchange rate changes on cash and cash equivalents

Net decrease in cash and cash equivalents

$ (3,128,985 )

For the nine-month period ended September 30,

2022, we met our working capital and capital investment requirements by using cash on hand.

Net Cash (used in) Provided by Operating Activities

During the nine-month period ended September 30,

2022, cash flow provided by operating activities of approximately $37 million was mainly due to a net income of $12.75 million, a decrease

in accounts receivable of $3.45 million, an increase in accounts payable of $1.55 million, an decrease in deferred taxes of $3.8 million,

Net increase(decrease) in cash and cash equivalents

For the three-month period ended March 31, 2023,

we met our working capital and capital investment requirements mainly by using cash on hand.

Net Cash Provided by Operating Activities

During the three -month period ended March 31,

2023, cash flow provided by operating activities of approximately $4.8 million was mainly due to a net loss of $0.56 million, a decrease

in accounts receivable of $0.2 million, a decrease in accounts payable of $0.8 million, an increase in deferred taxes of $0.2 million,

and a non-cash adjustment related to depreciation and amortization of property, plant and equipment of $5.36 million, offset by increases

in operating leases, and prepayments.

During the nine-month period ended September 30,

2021 cash flow provided by operating activities of approximately $11.1 million was mainly due to non-cash adjustments related to depreciation

and amortization of property, plant and equipment, and restricted stock expense offset by a net loss of $12.32 million and an increase

in accounts receivable of $6.89 million.

During the three -month period ended March 31,

2022, cash flow provided by operating activities of approximately $8.4 million was mainly due to a decrease in accounts receivable of

$3.5 million, and a non-cash adjustment related to depreciation and amortization of property, plant and equipment, reduced by a net loss

of $0.12 million and an adjustment for income tax benefit of $0.1 million.

Accounts receivable

1 unchanged sentence

a major impact on our overall liquidity.

The following table presents the aging analysis of our accounts receivable as of September 30,

The following table presents the aging analysis of our accounts receivable as of March 31, 2023

and December 31, 2022.

September 30, 2022

March 31, 2023

December 31, 2022

8 unchanged sentences

The overall accounts receivable balance as of

September 30, 2022 decreased by $4,530,156, 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.

March 31, 2023 decreased by $138,636, as compared to those of December 31, 2022.

We have policies in place to ensure that sales are made

to customers with an appropriate credit history.

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

No allowance for doubtful accounts for the three-month and nine-month periods ended September 30, 2022 is required.

allowance for doubtful accounts for the three-month period ended March 31, 2023 is required.

Our inventory consists of the following:

September 30, 2022

March 31, 2023

December 31, 2022

1 unchanged sentence

Finished goods

The net inventory level as of September 30, 2022

decreased by $87,150, as compared to the net inventory level as of December 31, 2021.

Raw materials decreased by $20,461 as of September

The net inventory level as of March 31, 2023 decreased

by $1,010,563 (or 63%), as compared to the net inventory level as of December 31, 2022.

Raw materials increased by $2,741 as of March

31, 2023 as compared to December 31, 2022.

Our finished goods decreased by $66,689 as of

September 30, 2022 as compared to December 31, 2021.

Our finished goods decreased by $1,013,304 as

of March 31, 2023 as compared to December 31, 2022.

Net Cash Used in Investing Activities

For the nine-month period ended September 30,

2022, we used approximately $33.2 million to acquire property, plant and equipment, which mainly includes the cost for bromine wells,

aqueducts and the installation of high and low voltage lines for bromine Wells.

For the nine-month period ended September 30,

For the three-month period ended March 31, 2023,

we used approximately $0.04 million to acquire property, plant and equipment.

For the three-month period ended March 31, 2022,

we used approximately $0.4 million to acquire property, plant and equipment.

Net Cash Used in Financing Activities

For the nine-month period ended September 30,

2022 and 2021, we used $0.3 million to repay finance lease obligations.

We have no financing activities for the three-month

periods ended March 31, 2023 and 2022.

We believe that our available funds and cash flows

2 unchanged sentences

We had available cash of approximately $115.8

million at September 30, 2022, all of which is in highly liquid current deposits earning no or little interest.

million at March 31, 2023, most of which is in highly liquid current deposits which earn no or little interest.

We do not anticipate paying

cash dividends in the foreseeable future.

We intend to continue to focus our efforts on the activities of SCHC,

SYCI, SHSI and DCHC as these segments continue to expand within the Chinese market.

We intend to continue to focus our efforts on

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

We may not be able to identify, successfully integrate

12 unchanged sentences

We have no significant contractual obligations

not fully recorded on our consolidated balance sheets or fully disclosed in the notes to our consolidated financial statements.

information regarding our contractual obligations and commitments at September 30, 2022 is provided in the notes to our consolidated financial

See “Notes to Condensed Consolidated Financial Statements, Note 17 – Capital Commitment and Operating Lease Commitments”.

not fully recorded on our condensed consolidated balance sheets or fully disclosed in the notes to our condensed consolidated financial

Additional information regarding our contractual obligations and commitments at March 31, 2023 is provided in the notes to

our condensed consolidated financial statements.

See “Notes to Condensed Consolidated Financial Statements, Note 18– Capital

Commitment and Other Service Contractual Obligations”.

Material Off-Balance Sheet Arrangements

12 unchanged sentences

used by us in the preparation of our financial statements:

accounts receivable and allowance for doubtful accounts, leases, property,

plant and equipment, recoverability of long lived assets, revenue recognition, income taxes, loss contingencies, and stock-based compensation.

These policies and estimates are described in the Company’s 2021 Form 10-K.

accounts receivable and allowance for doubtful accounts, inventories and allowance

for obsolescence, assets retirement obligation, property, plant and equipment, recoverability of long-lived assets, mineral rights, leases,

revenue recognition, income taxes, and loss contingencies.

These policies and estimates are described in the Company’s Form 10-Q

for the three months ended March 31, 2023.

Quantitative and Qualitative Disclosures About Market Risk

3 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-Q

Item 2. Management’s Discussion and Analysis