What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2023-08-14 compared with 2023-05-15 · 427 added, 260 removed, 175 unchanged (80% 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.

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.

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

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

chemical agents, inorganic chemicals and materials that are used for human and animal antibiotics.

Our wholly-owned subsidiary, DCHC, was established

to explore and develop natural gas and brine resources (including bromine and crude salt) in Sichuan Province, China.

As disclosed in the Company’s Current Report

on Form 8-K filed on September 8, 2017, the Company received, on September 1, 2017, letters from the Yangkou County, Shouguang City government

addressed to each of its subsidiaries, SCHC and SYCI, which stated that in an effort to improve the safety and environmental protection

management level of chemical enterprises, the plants are requested to immediately stop production and perform rectification and improvements

in accordance with the country’s new safety and environmental protection requirements.

In the Company’s press release of August

11, 2017 and on its conference call of August 14, 2017, the Company addressed concerns that increased government enforcement of stringent

environmental rules that were adopted in early 2017 to insure corporations bring their facilities up to necessary standards so that pollution

and other negative environmental issues are limited and remediated, could have an impact on our business in both the short and long-term.

The Company also expressed that although it believed its facilities were fully compliant at the time, the Company did not know how its

facilities would fare under the new rules.

Teams of inspectors from the government were sent to many provinces to inspect all mining and

manufacturing facilities.

The local government requested that facilities be closed, so that the facilities could undergo the inspection

and analysis in the most efficient manner by inspectors’ team.

As a result, our facilities were closed on September 1, 2017.

The Company believes that this is another step

by the government to improve the environment.

It further believes the goal of the government is not to close all plants, but rather to

codify the regulations related to project approval, land use, planning approval and environmental protection assessment approval so that

illegal plants are not able to open in the future and so that plants close to population centers do not cause serious environmental damage.

In addition, the Company believes that the Shandong provincial government wants to assure that each of its regional and county governments

has applied the Notice in a consistent manner.

The Shouguang City Bromine Association, on behalf

of all the bromine plants in Shouguang, started discussions with the local government agencies.

The local governmental agencies confirmed

the facts that their initial requirements for the bromine industry did not include the project approval, the planning approval and the

land use rights approval and that those three additional approvals were new requirements of the provincial government.

The Company understood

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 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.

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

Bromine is commonly used in brominated flame

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

Crude salt is the principal material

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

Through our wholly-owned

subsidiary, SYCI, we manufacture and sell chemical products used in oil and gas field exploration, oil and gas distribution, oil field

drilling, papermaking chemical agents, inorganic chemicals and materials that are used for human and animal antibiotics.

Our wholly-owned subsidiary,

DCHC, was established to explore and develop natural gas and brine resources (including bromine and crude salt) in Sichuan Province, China.

As disclosed in the Company’s

Current Report on Form 8-K filed on September 8, 2017, the Company received, on September 1, 2017, letters from the Yangkou County, Shouguang

City government addressed to each of its subsidiaries, SCHC and SYCI, which stated that in an effort to improve the safety and environmental

protection management level of chemical enterprises, the plants are requested to immediately stop production and perform rectification

and improvements in accordance with the country’s new safety and environmental protection requirements.

In the Company’s press

release of August 11, 2017 and on its conference call of August 14, 2017, the Company addressed concerns that increased government enforcement

of stringent environmental rules that were adopted in early 2017 to insure corporations bring their facilities up to necessary standards

so that pollution and other negative environmental issues are limited and remediated, could have an impact on our business in both the

short and long-term.

The Company also expressed that although it believed its facilities were fully compliant at the time, the Company

did not know how its facilities would fare under the new rules.

Teams of inspectors from the government were sent to many provinces to

inspect all mining and manufacturing facilities.

The local government requested that facilities be closed, so that the facilities could

undergo the inspection and analysis in the most efficient manner by inspectors’ team.

As a result, our facilities were closed on

September 1, 2017.

The Company believes

that this is another step by the government to improve the environment.

It further believes the goal of the government is not to close

all plants, but rather to codify the regulations related to project approval, land use, planning approval and environmental protection

assessment approval so that illegal plants are not able to open in the future and so that plants close to population centers do not cause

serious environmental damage.

In addition, the Company believes that the Shandong provincial government wants to assure that each of its

regional and county governments has applied the Notice in a consistent manner.

The Shouguang City Bromine

Association, on behalf of all the bromine plants in Shouguang, started discussions with the local government agencies.

The local governmental

agencies confirmed the facts that their initial requirements for the bromine industry did not include the project approval, the planning

approval and the land use rights approval and that those three additional approvals were new requirements of the provincial government.

The Company understood 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 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 had passed inspection and could resume operations.

2019, Factory No.

In April 2019, Factory No.

7 resumed operations.

On February 28, 2020, the Company announced that

it received an approval from the government to resume bromine production after winter temporary closure.

Subsequently, it received another

approval from the Shouguang Yangkou People’s Government dated on March 5, 2020 to resume production at its bromine factories No.1,

4, No.7 and No.

On February 28, 2020,

the Company announced that it received an approval from the government to resume bromine production after winter temporary closure.

Subsequently,

it received another approval from the Shouguang Yangkou People’s Government dated on March 5, 2020 to resume production at its bromine

factories No.

9 in order to meet the needs of bromide products for epidemic prevention and control.

With these two approvals, the

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

The Company received an oral notification from

the government for its Factory No.

two approvals, the Company was allowed to resume production at all four bromine factories.

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

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.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

a letter from the People’s Government of Yangkou County, Shouguang City notifying the Company that due to the new standards and

regulations relating to safety production and environmental pollution, from certain local governmental departments, such as the municipal

environmental protection department, the security supervision department and the fire department, its chemical enterprises would have

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

Although our chemical companies were in compliance

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

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

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

The Company is still

waiting for governmental approval for factories No.

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 in order to satisfy the local government's requirements.

On November 24, 2017, Gulf Resources received a letter from the People’s

Government of Yangkou County, Shouguang City notifying the Company that due to the new standards and regulations relating to safety production

and environmental pollution, from certain local governmental departments, such as the municipal environmental protection department, the

security supervision department and the fire department, its chemical enterprises would have to be relocated to a new industrial park

called Bohai Marine Fine Chemical Industry Park.

Although our chemical companies were in compliance with regulations, they

were also close to a residential area.

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

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

Since our factories closed, the Company

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

On January 6, 2020, the Company received the environmental

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

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.

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

[The Company has received the refrigeration and

air compressor units.

On July 26, 2023, the Company announced that the delivery of the remaining equipment for its Yuxin chemical factory

has been temporarily delayed and to review its chemical products strategy.

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,

7 unchanged sentences

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.

plans to proceed with its applications for the natural gas and brine project approvals with related government departments until after

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

In April 2022, Shouguang Hengde Salt Industry

5 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

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.

RESULTS OF OPERATIONS

The following table presents certain information

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

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

periods ended June 30, 2023 and 2022.

Comparison of the Three-Month Period Ended

June 30, 2023 and 2022

Three-Month Period

Ended March 31, 2023

Ended June 30, 2023

Three-Month Period

Ended March 31, 2022

Ended June 30, 2022

Percent Change

Increase/ (Decrease)

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

Other operating income

General and administrative expenses

$ (2,242,501 )

Loss from operations

Other income, net

Loss before taxes

Income(loss) from operations

Income (loss) before taxes

Income tax benefit

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 Income (loss)

below shows the changes in net revenue in the respective segment of the Company for the three-month period ended June 30, 2023 as compared

to the same period in 2022:

Net Revenue by Segment

2 unchanged sentences

Percent Change

March 31, 2023

March 31, 2022

June 30, 2023

June 30, 2022

of Net Revenue

Chemical Products

1 unchanged sentence

Percentage Change

Bromine and crude salt segments product sold in tonnes

March 31, 2023

March 31, 2022

Bromine (excluded volume sold to SYCI)

Bromine and crude salt segments

product sold in tonnes

June 30, 2023

June 30, 2022

Bromine segment

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.

For the three-month periods ended June 30, 2023 and 2022, the net revenue

for the bromine segment was $7,356,347 and $13,893,809, respectively.

The decrease of the net revenue of bromine was due to a decrease

in selling prices of bromine in the second quarter of 2023.

The average selling price of bromine in the second quarter of 2023 was

$3,065 compared to the average selling price of bromine in the second quarter of 2022 of $7,740(calculated by dividing revenue by tonnes).

Crude salt segment

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.

For the three-month periods ended June 30, 2023 and 2022, the net revenue

for the crude salt was $649,435 and $1,817,904, respectively.

The decrease of net revenue of crude salt was mainly due to the 57% decrease

in tonnes sold and 18% decrease in average selling price of crude salt for the three-month period ended June 30, 2023.

Chemical products segment

For the three-month periods ended March 31, 2023

For the three-month periods ended June 30, 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

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.

For the three-month period ended June 30, 2023

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

Cost of Net Revenue

3 unchanged sentences

Three-Month Period Ended

March 31, 2023

March 31, 2022

June 30, 2023

June 30, 2022

Chemical Products

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

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 $7,321,442 for the

three-month period ended June 30, 2023, an decrease of $779,678 (or 10%) as compared to the same period in 2022 due to the decrease of

net revenue by 49% for the three-month period ended June 30, 2023 as compared to the same period in 2022 .

In May 2022, we separated the bromine and the

crude salt business to conform with government regulations.

crude salt business in order 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.

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 March 31, 2022

Three-month period ended March 31, 2023

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

Three-month period ended June 30, 2022

Three-month period ended June 30, 2023

Variance of the three-month period ended June 30, 2023 and 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.

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 31% for the three-month

period ended June 30, 2023, the same as compared to the three-month period ended June 30, 2022.

Bromine segment

For the three-month period ended March 31, 2023

For the three-month period ended June 30, 2023,

the cost of net revenue for the bromine segment was $7,043,681.

For the three-month period ended March 31, 2022

For the three-month period ended June 30, 2021,

the cost of net revenue for the bromine segment was $6,865,832.

Crude salt segment

For the three-month period ended March 31, 2023

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

For the three-month period ended March 31, 2022

For the three-month period ended June 30, 2023 the cost of net revenue

for the crude salt segment was $277,761.

The decrease of net revenue of crude salt was mainly due to the 57%

decrease in tonnes sold and 18% decrease in average selling price of crude salt for the three-month period ended June 30, 2023.

For the three-month period ended June 30, 2022

the cost of net revenue for the crude salt segment was $1,235,288.

1 unchanged sentence

Cost of net revenue for our chemical products

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

segment for the three-month period ended June 30, 2023 and 2022 was $0.

Natural gas segment

Cost of net revenue for our natural gas segment

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.

for the three-month period ended June 30, 2023 and 2022 was $0.

Gross Profit.

Gross profit was $684,340,

or 9%, of net revenue for the three-month period ended June 30, 2023, representing a decrease of $6,926,254, as compared to a gross profit

of $7,610,594, or 48%, of net revenue for the same period in 2022.

Gross Profit (Loss) by Segment

2 unchanged sentences

Three-Month Period Ended

March 31, 2023

March 31, 2022

Profit (Loss) Margin

June 30, 2023

June 30, 2022

Profit Margin

Gross Profit Margin

1 unchanged sentence

Chemical Products

Total Gross Profit (Loss)

Total Gross Profit

Bromine segment

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,

For the three-month period ended June 30, 2023,

the gross profit margin for our bromine segment was 4%, compared to 51% in the three-month period ended June 30, 2022.

The decrease in

gross profit margin was primarily attributable to the higher average selling price of bromine of $3,065 per ton in the three-month period

ended June 30, 2023 compared to $7,740 per ton in the three-month period ended June 30, 2022.

For the three-month period ended June 30, 2022,

the gross profit margin for our bromine segment was 51%.

Crude salt segment

For the three-month period ended June 30, 2023,

the gross profit margin for our crude salt segment was 57%.

For the three-month period ended June 30, 2022,

the gross loss margin for our crude salt segment was 32%.

7 unchanged sentences

As a result, direct labor and factory overhead costs (including depreciation of plant and machinery) in the amount of $1,055,529

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.

and $1,927,297 incurred for the three-month periods ended June 30, 2023 and 2022, respectively, for the factories that have not resumed

production were presented as part of the operating expenses.

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%)

General and administrative expenses were $593,325 for the three-month period ended June 30, 2023, representing an increase of $36,236

as compared to $557,089 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

The increase was mainly due to the unrealized foreign currency transaction loss on

intercompany balance recorded in three-month period ended June 30, 2023 compared to an unrealized foreign currency transaction gain on

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

Income (loss) from Operations Loss

from operations was $919,098 for the three-month period ended June 30, 2023, compared to loss from operations of $5,109,163 in the same

period in 2022.

Income (loss) from Operations by Segment

Three-Month Period Ended

March 31, 2023

June 30, 2023

Three-Month Period Ended

March 31, 2022

June 30, 2022

Chemical Products

Loss from operations before corporate costs

Corporate cost

Unrealized gain (loss) on translation of intercompany balance

Loss from operations

Income (loss) from operations before corporate costs

Corporate costs

Unrealized gain on translation of Intercompany balance

Income (loss) from operations

Bromine segment

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.

Loss from operations from our bromine segment

was $787,509 for the three-month period ended June 30, 2023, compared to income from operations of $5,325,541 in the same period in 2022.

This decrease was due to a 34% increase in tonnes sold and a 60% decrease in average selling price.

Crude salt segment

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.

Income from operations from our crude salt segment

was $361,083 for the three-month period ended June 30, 2023, compared to income from operations of $142,968 in the same period in 2022.

Chemical products segment

Loss from operations from our chemical products

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

segment was $416,019 for the three-month period ended June 30, 2023, compared to loss from operations of $475,201 in the same period in

Natural gas segment

Loss from operations from our natural gas segment

was $2,830 for the three -month period ended June 30, 2023, compared to a loss from operations of $61,699 in the same period in 2022.

Other Income, Net Other income,

net of 44,583 represented bank interest income, net of capital lease interest expense for the three-month period ended June 30, 2023,

an increase of $2,331 (or approximately 6%) as compared to the same period in 2022.

Net Income (loss) Net loss was $681,816

for the three-month period ended June 30, 2023, compared to a net income of $3,901,794 in the same period in 2022.

Comparison of the Six-Month Period Ended

June 30, 2023 and 2022

Six-Month Period

Ended June 30, 2023

Six-Month Period

Ended June 30, 2022

Percent Change

Cost of net revenue

(14,090,516 )

(12,651,088 )

Sales, marketing and other operating expenses

Direct labor and factory overheads incurred during plant shutdown

Other operating income (expense)

General and administrative expenses

Income (loss) from operations

Income (loss) before taxes

Income (loss) tax benefit

Net Income (loss)

$ (1,239,563 )

below shows the changes in net revenue in the respective segment of the Company for the six-month period ended June 30, 2023 as compared

to the same period in 2022:

Net Revenue by Segment

Six-Month Period Ended

Percent Increase

June 30, 2023

June 30, 2022

of Net Revenue

Chemical Products

Bromine and crude salt segments

Six-Month Period Ended

Percentage Change

product sold in tonnes

June 30, 2023

June 30, 2022

Bromine (excluding volume sold to SYCI)

Bromine segment

Net revenue from our bromine segment decreased

to $15,826,719 for the six-month period ended June 30, 2023 compared to $22,019,825 for the same period in 2022 due to the lower selling

price of bromine.

Crude salt segment

Net revenue from our crude salt segment decreased

to $1,398,116 for the six-month period ended June 30, 2023 compared $2,571,948 for the same period in 2022 due to the lower selling tonnes

of crude salt.

Chemical products segment

For the six-month period ended June 30, 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

For the six-month period ended June 30, 2023 and

2022, the net revenue was $0.

Equipment Lease

For the six-month period ended June 30, 2023 and

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

Cost of Net Revenue

Cost of Net Revenue by Segment

Six-Month Period Ended

June 30, 2023

June 30, 2022

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)

Six-month period ended June 30, 2022

Six-month period ended June 30, 2023

Variance of the six-month period ended June 30, 2023 and 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.

Bromine segment

For the six-month period ended June 30, 2023,

the cost of net revenue for the bromine segment was $13,192,124.

For the six-month period ended June 30, 2022,

the cost of net revenue for the bromine segment was $10,786,157.

Crude salt segment

For the six-month period ended June 30, 2023,

the cost of net revenue for the crude salt segment was $898,019.

For the six-month period ended June 30, 2022,

the cost of net revenue for the crude salt segment was $1,864,848.

Natural gas segment

Cost of net revenue for our natural gas segment

for the six-month period ended June 30, 2023 and 2022 was $373 and $83, respectively.

Gross Profit.

Gross profit was $3,217,273,

or 19%, of net revenue for six-month period ended June 30, 2023 compared to $11,991,363, or 49%, of net revenue for the same period in

Gross Profit (Loss) by Segment

% Point Change

Six-Month Period Ended

June 30, 2023

June 30, 2022

Profit Margin

Gross Profit (loss) Margin

Gross Profit Margin

Chemical Products

Total Gross Profit

Bromine segment

For the six-month period ended June 30, 2023,

the gross profit margin for our bromine segment was 17%, compared to 51% in the six-month period ended June 30, 2022.

The decrease in

gross profit margin was primarily attributable to the higher average selling price of bromine of $3,580 per ton in the six-month period

ended June 30, 2023 compared to $7,863 per ton in the six-month period ended March 31, 2022.

For the six-month period ended June 30, 2022,

the gross profit margin for our bromine segment was 51%.

Crude salt segment

For the six-month period ended June 30, 2023,

the gross profit margin for our crude salt segment was 35%.

For the six-month period ended June 30, 2022 the

gross loss margin for our crude salt segment was 28%.

Chemical products segment

For the six-month period ended June 30, 2023,

the gross profit margin for our chemical segment was 0% due to the closure of our plant and factories to perform rectification and improvement.

As a result, there were no chemical products for sale for the six-month period ended June 30, 2023.

Direct labor and factory overheads incurred

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 $3,464,265

and $4,111,888 incurred for the three-month periods ended June 30, 2023 and 2022, respectively, for the factories that have not resumed

production were presented as part of the operating expense.

General and Administrative Expenses.

General and administrative expenses were $1,503,376 for the six-month period ended June 30, 2023, a decrease of $1,296,214 (or 46%) as

compared to $2,799,590 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 June 30, 2023 compared to an unrealized foreign currency transaction gain on

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

Income (Loss) from Operations.

from operations was $1,718,656 for the six-month period ended June 30, 2023, compared to income from operations of $5,044,076 in the same

period in 2022.

Income(loss) from Operations by Segment

Six-Month Period Ended

June 30, 2023

Six-Month Period Ended

June 30, 2022

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

Loss from operations from our bromine segment

was $1,197,201 for the six-month period ended June 30, 2023, compared to an income from operations of $6,674,375 in the same period in

This decrease was due to a 58% increase in tonnes sold and a 54% decrease in average selling price.

Crude salt segment

Income from operations from our crude salt segment

was $404,013 for the six-month period ended June 30, 2023, compared to a loss from operations of $378,953 in the same period in 2022.

Chemical products segment

Loss from operations from our chemical products

segment was $833,892 for the six-month period ended June 30, 2023, compared to a loss from operations of $988,483 in the same period in

Natural gas segment

Income from operations from our natural gas segment

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.

by equipment lease was $9,855 for the six-month period ended June 30, 2023, compared to a loss from operations of $88,438 in the same

period in 2022.

Other Income, Net.

Other income,

net of $85,838 represented bank interest income, net of capital lease interest expense for the six -month period ended June 30, 2023,

an increase of $2,750 (or approximately 3%) as compared to the same period in 2022.

Net Income (Loss).

$1,239,563 for the six-month period ended June 30, 2023, compared to a net income of $3,781,848 in the same period in 2022.

LIQUIDITY AND CAPITAL RESOURCES

As of March 31, 2023, cash and cash equivalents

As of June 30, 2023, cash and cash equivalents

were $115,273,479 as compared to $108,226,214 as of December 31, 2022.

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Statement of Cash Flows

Three-Month Period Ended March 31,

Net cash provided by operating activities

Six-Month Period Ended June 30,

Net cash (used in) 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 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,

$ (16,651,832 )

For the six-month period ended June 30, 2023,

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

Net Cash (used in) Provided by Operating Activities

During the six-month period ended June 30, 2023,

cash flow provided by operating activities of approximately $11.00 million was mainly due to a net loss of $1.24 million, a decrease in

accounts receivable of $3.15 million, a decrease in accounts payable of $1.56 million, a decrease in deferred taxes of $0.4 million, and

a non-cash adjustment related to depreciation and amortization of property, plant and equipment of $10.6 million, offset by increases

in operating leases, and prepayments.

During the six-month period ended June 30, 2022,

cash flow provided by operating activities of approximately $18.5 million was mainly due to a net income of $3.8 million, a decrease in

accounts receivable of $4.68 million, an increase in accounts payable of $2.2 million, an increase in deferred taxes of $1.3 million,

and a non-cash adjustment related to depreciation and amortization of property, plant and equipment of $10.28 million, offset by increases

in operating leases, and prepayments.

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

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a major impact on our overall liquidity.

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

The following table presents the aging analysis of our accounts receivable as of June 30, 2023

and December 31, 2022.

March 31, 2023

June 30, 2023

December 31, 2022

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The overall accounts receivable balance as of

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

June 30, 2023 decreased by $3,246,756, as compared to those of December 31, 2022.

We have policies in place to ensure that sales are made

1 unchanged sentence

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

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

allowance for doubtful accounts for the three-month and six-month periods ended June 30, 2023 is required.

Our inventory consists of the following:

March 31, 2023

June 30, 2023

December 31, 2022

1 unchanged sentence

Finished goods

The net inventory level as of March 31, 2023 decreased

The net inventory level as of June 30, 2023 decreased

by $801,958 (or 50%), as compared to the net inventory level as of December 31, 2022.

Raw materials increased by $2,741 as of March

Raw materials increased by $1,292 as of June 30,

2023 as compared to December 31, 2022.

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

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

Our finished goods decreased by $803,250 as of

June 30, 2023 as compared to December 31, 2022.

Net Cash Used in Investing Activities

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,

For the six-month period ended June 30, 2023,

we used approximately $0.05 million to acquire property, plant and equipment.

For the six-month period ended June 30, 2022,

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

installation of high and low voltage lines for these bromide Wells.

Net Cash Used in Financing Activities.

We have no financing activities for the three-month

periods ended March 31, 2023 and 2022.

For the six-month period ended June 30, 2023 and

2022, we used $0.3 million to fulfil finance lease obligations.

We believe that our available funds and cash flows

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next twelve (12) months.

We had available cash of approximately $115.8

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 had available cash of approximately $115 million

at June 30, 2023, all which is in highly liquid current deposits earning 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 may not be able to identify, successfully integrate

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of risks, including possible adverse effects on our operating results, diversion of management’s attention, inability to retain

key personnel, risks associated with unanticipated events, risks associated with the COVID-19 pandemic and the financial statement effect

of potential impairment of acquired intangible assets, any of which could have a materially adverse effect on our condition and results of

In addition, if competition for acquisition candidates or operations were to increase, the cost of acquiring businesses could

increase materially.

We may effect an acquisition with a target business which may be financially unstable, under-managed, or in its early

stages of development or growth.

Our inability to implement and manage our expansion strategy successfully may have a material adverse

effect on our business and future prospects.

key personnel, risks associated with unanticipated events, and the financial statement effect of potential impairment of acquired intangible

assets, any of which could have a materially adverse effect on our condition and results of operations.

In addition, if competition

for acquisition candidates or operations were to increase, the cost of acquiring businesses could increase materially.

We may effect an

acquisition with a target business which may be financially unstable, under-managed, or in its early stages of development or growth.

Our inability to implement and manage our expansion strategy successfully may have a material adverse effect on our business and future

Contractual Obligations and Commitments

We have no significant contractual obligations

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”.

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 June 30, 2023 is provided in the notes to our consolidated financial

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

Material Off-Balance Sheet Arrangements

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used by us in the preparation of our financial statements:

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.

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 2022 Form 10-K.

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