Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

As of ~~July 19, 2019,~~August 15, 2020, the registrant had outstanding ~~47,583,072~~9,517,427 shares of common stock.

	June 30, 2019 Unaudited			December 31, 2018 Audited			June 30, 2020 Unaudited			December 31, 2019 Audited
Current Assets
Cash	$	160,354,069		$	178,998,935		$	89,972,591		$	100,301,986
Accounts receivable		6,714,820			—			3,060,565			4,877,106
Inventories, net		453,664			—			523,628			690,087
Prepayments and deposits		1,364,457			8,096,636			2,930,094			1,332,970
Prepaid land leases		176,264			235,459
Other receivable		10,886			12,506			559			559
Total Current Assets		169,074,160			187,343,536			96,487,437			107,202,708
Non-Current Assets
Property, plant and equipment, net		121,296,991			82,282,630			132,848,600			137,994,949
Finance lease right-of use assets		184,875			250,757			174,293			179,526
Operating lease right-of –use assets		9,198,933			—			8,429,714			8,817,884
Prepaid land leases, net of current portion		9,077,501			9,639,009			9,349,625			9,115,276
Deferred tax assets		20,731,267			19,030,858			17,498,544			15,940,642
Total non-current assets		160,489,567			111,203,254			168,300,776			172,048,277
Total Assets	$	329,563,727		$	298,546,790		$	264,788,213		$	279,250,985

Liabilities and Stockholders’ Equity
Current Liabilities
Payable and accrued expenses	$	27,360,782		$	905,258
Accounts , other payable and accrued expenses							$	1,086,958		$	1,106,048
Retention payable		2,006,764			332,416			—			3,805,483
Taxes payable-current		1,954,023			1,188,687			1,085,061			779,623
Finance lease liability, current portion		132,178			197,480			137,103			198,506
Operating lease liabilities, current portion		474,363			—			429,771			416,604
Total Current Liabilities		31,928,110			2,623,841			2,738,893			6,306,264
Non-Current Liabilities
Finance lease liability, net of current portion		1,933,958			2,069,545			1,740,882			1,905,772
Operating lease liabilities, net of current portion		7,859,840			—			7,279,206			7,931,849
Total Non-Current Liabilities	$	9,793,798		$	2,069,545			9,020,088			9,837,621
Total Liabilities	$	41,721,908		$	4,693,386		$	11,758,981		$	16,143,885
Commitment and Loss Contingencies

Stockholders’ Equity
PREFERRED STOCK; $0.001 par value; 1,000,000 shares authorized; none outstanding							$	—		$	—
COMMON STOCK; $0.0005 par value; 80,000,000 shares authorized; 47,812,221 and 47,502,940 shares issued; and 47,583,072 and 46,803,791 shares outstanding as of June 30, 2019 and December 31, 2018	$	23,904		$	23,525
Treasury stock; 229,149 and 249,149 shares as of June 30, 2019 and December 31, 2018 at cost		(510,329	)		(554,870	)
COMMON STOCK; $0.0005 par value; 80,000,000 shares authorized; 9,563,257 and 9,563,257 shares issued; and 9,517,427 and 9,517,427 shares outstanding as of June 30, 2020 and December 31, 2019, respectively								23,904			23,904
Treasury stock; 45,830 and 45,830 shares as of June 30, 2020 and December 31, 2019 at cost								(510,329	)		(510,329	)
Additional paid-in capital		95,043,388			95,020,808			95,043,388			95,043,388
Retained earnings unappropriated		179,966,601			185,608,445			154,024,022			159,808,400
Retained earnings appropriated		24,233,544			24,233,544			24,233,544			24,233,544
Accumulated other comprehensive loss		(10,915,289	)		(10,478,048	)		(19,785,297	)		(15,491,807	)
Total Stockholders’ Equity		287,841,819			293,853,404			253,029,232			263,107,100
Total Liabilities and Stockholders’ Equity	$	329,563,727		$	298,546,790		$	264,788,213		$	279,250,985

	Three-Month Period Ended June 30,						Six-Month Period Ended June 30,						Three-Month Period Ended June 30,						Six-Month Period Ended June 30,
	2019			2018			2019			2018			2020			2019			2020			2019

NET REVENUE
Net revenue	$	6,009,409		$	4,594		$	6,047,979		$	2,251,861		$	5,359,483		$	6,009,409		$	5,917,153		$	6,047,979

OPERATING INCOME (EXPENSE)
Cost of net revenue		(2,990,330	)		(7	)		(3,026,737	)		(1,241,816	)		(5,022,896	)		(2,990,330	)		(5,944,216	)		(3,026,737	)
Sales, marketing and other operating expenses		(6,613	)		(21,025	)		(6,613	)		(55,999	)		(10,838	)		(6,613	)		(13,081	)		(6,613	)
Direct labor and factory overheads incurred during plant shutdown		(2,875,285	)		(5,689,486	)		(7,168,307	)		(11,385,005	)		(1,737,599	)		(2,875,285	)		(5,348,022	)		(7,168,307	)
General and administrative expenses		(1,335,347	)		(1,125,683	)		(3,440,518	)		(4,697,628	)		(1,541,702	)		(1,335,347	)		(2,385,039	)		(3,440,518	)
Other operating income (loss)														—			—			(15,776	)		—
		(7,207,575	)		(6,836,201	)		(13,642,175	)		(17,380,448	)		(8,313,035	)		(7,207,575	)		(13,706,134	)		(13,642,175	)

LOSS FROM OPERATIONS		(1,198,166	)		(6,831,607	)		(7,594,196	)		(15,128,587	)		(2,953,552	)		(1,198,166	)		(7,788,981	)		(7,594,196	)

OTHER INCOME (EXPENSE)
Interest expense		(38,396	)		(43,185	)		(77,220	)		(86,529	)		(34,888	)		(38,396	)		(70,316	)		(77,220	)
Interest income		132,873			178,678			268,452			348,156			71,188			132,873			145,844			268,452
LOSS BEFORE TAXES		(1,103,689	)		(6,696,114	)		(7,402,964	)		(14,866,960	)		(2,917,252	)		(1,103,689	)		(7,713,453	)		(7,402,964	)

INCOME TAX BENEFIT		365,983			1,883,241			1,761,120			3,076,987			672,633			365,983			1,929,076			1,761,120
NET LOSS	$	(737,706	)	$	(4,812,873	)	$	(5,641,844	)	$	(11,789,973	)	$	(2,244,619	)	$	(737,706	)	$	(5,784,377	)	$	(5,641,844	)

COMPREHENSIVE LOSS:
NET LOSS	$	(737,706	)	$	(4,812,873	)	$	(5,641,844	)	$	(11,789,973	)	$	(2,244,619	)	$	(737,706	)	$	(5,784,377	)	$	(5,641,844	)
OTHER COMPREHENSIVE LOSS
- Foreign currency translation adjustments		(6,603,591	)		(20,586,976	)		(437,241	)		(4,638,065	)		221,869			(6,603,591	)		(4,293,490	)		(437,241	)
COMPREHENSIVE LOSS	$	(7,341,297	)	$	(25,399,849	)	$	(6,079,085	)	$	(16,428,038	)	$	(2,022,750	)	$	(7,341,297	)	$	(10,077,867	)	$	(6,079,085	)

LOSS PER SHARE:
BASIC	$	(0.02	)	$	(0.10	)	$	(0.12	)	$	(0.25	)
DILUTED	$	(0.02	)	$	(0.10	)	$	(0.12	)	$	(0.25	)
BASIC AND DILUTED													$	(0.24	)	$	(0.08	)	$	(0.61	)	$	(0.60	)

WEIGHTED AVERAGE NUMBER OF SHARES:

BASIC		47,214,075			46,803,791			47,068,417			46,803,791
DILUTED		47,214,075			46,803,791			47,068,417			46,815,089
BASIC AND DILUTED														9,517,427			9,442,815			9,517,427			9,413,683

	Six-Month Period Ended June 30,						Six-Month Period Ended June 30,
	2019			2018			2020			2019

CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$	(5,641,844	)	$	(11,789,973	)	$	(5,784,377	)	$	(5,641,844	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Interest on finance lease obligation		76,940			86,214			70,009			76,940
Amortization of prepaid land leases		—			294,676
Depreciation and amortization		6,964,880			9,511,515			7,559,224			6,964,880
Unrealized exchange gain on inter-company balances		(44,427	)		(345,086	)
Unrealized exchange gain on translation of inter-company balances								(382,331	)		(44,427	)
Deferred tax asset		(1,761,118	)		(3,076,986	)		(1,929,553	)		(1,761,118	)
Common stock issued for services		21,600			—			—			21,600
Issuance of stock options to employee		45,900			—			—			45,900
Changes in assets and liabilities:
Accounts receivable		(6,775,954	)		25,720,587			1,807,547			(6,775,954	)
Inventories		(457,780	)		1,039,959			152,369			(457,780
Prepayments and deposits		(17,037	)		(61,251	)		32,807			(17,037	)
Other receivables		1,631			(11,289	)		—			1,631
Payable and accrued expenses		321,706			(256,603	)
Accounts and Other payable and accrued expenses								(9,284	)		321,706
Retention payable		—			(312,429	)		—			—
Taxes payable		768,072			592,979			298,599			768,072
Prepaid land leases								(369,066	)		—
Operating lease		(268,620	)		—			(268,192	)		(268,620	)
Net cash (used in) provided by operating activities		(6,766,051	)		21,392,313
Net cash provided by (used in) by operating activities								1,177,752			(6,766,051	)

CASH FLOWS USED IN INVESTING ACTIVITIES
Additions of prepaid land leases		—			(693,198	)
Purchase of property, plant and equipment		(11,501,738	)		(10,333,721	)		(9,860,142	)		(11,501,738	)
Net cash used in investing activities		(11,501,738	)		(11,026,919	)		(9,860,142	)		(11,501,738	)

CASH FLOWS USED IN FINANCING ACTIVITIES
Repayment of finance lease obligation		(275,506	)		(294,295	)		(264,976	)		(275,506	)
Net cash used in financing activities		(275,506	)		(294,295	)		(264,976	)		(275,506	)

EFFECTS OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS		(101,571	)		(3,001,994	)		(1,382,029	)		(101,571	)
NET(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS		(18,644,866	)		7,069,105
NET DECREASE IN CASH AND CASH EQUIVALENTS								(10,329,395	)		(18,644,866	)
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD		178,998,935			208,906,759			100,301,986			178,998,935
CASH AND CASH EQUIVALENTS - END OF PERIOD	$	160,354,069		$	215,975,864		$	89,972,591		$	160,354,069

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the periods for:
Income taxes	$	—		$	—		$	—		$	—
Operating right-of-use assets obtained in exchange for lease obligations	$	8,241,818		$	—		$	—		$	8,241,818
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
Purchase of Property,plant and equipment included in Payable and other accrued expense and Retention payable	$	28,094,696		$	—
Purchase of Property, plant and equipment included in Payable and other accrued expense and Retention payable							$	—		$	28,094,696
Par value of common stock issued upon cashless exercise of options	$	379		$	—		$	—		$	379

The accompanying condensed financial statements have been prepared by Gulf Resources, ~~Inc~~Inc. (“Gulf Resources”). a Nevada corporation and its subsidiaries (collectively, the “Company”), without audit, in accordance with the instructions to Form 10-Q and, therefore, do not necessarily include all information and footnotes necessary for a fair statement of its financial position, results of operations and cash flows in accordance with accounting principles generally accepted in the United States (“US GAAP”).

In the opinion of management, the unaudited financial information for the three and six months ended June 30, ~~2019~~2020 presented reflects all adjustments, which are only normal and recurring, necessary for a fair statement of results of operations, financial position and cash flows. These condensed financial statements should be read in conjunction with the financial statements included in the Company’s ~~2018~~Annual Report on Form ~~10-K.~~10-K for the fiscal year ended December 31, 2019 (the “2019 Form 10-K”). . Operating results for the interim periods are not necessarily indicative of operating results for an entire fiscal year.

The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the amounts that are reported in the financial statements and accompanying disclosures. Although these estimates are based on management’s best knowledge of current events and actions that the Company may undertake in the future, actual results may be different from the estimates. The Company also exercises judgments in the preparation of these condensed financial statements in certain areas, including classification of leases and related party transactions. 

The consolidated financial statements include the accounts of Gulf Resources, Inc. and its wholly-owned subsidiary, Upper Class Group Limited, a company incorporated in the British Virgin Islands, which owns 100% of Hong Kong Jiaxing Industrial Limited, a company incorporated in Hong Kong (“HKJI”). HKJI owns 100% of Shouguang City Haoyuan Chemical Company Limited ("SCHC") which owns 100% of Shouguang Yuxin Chemical Industry Co., Limited (“SYCI”) and Daying County Haoyuan Chemical Company Limited (“DCHC”). All material intercompany transactions have been eliminated on consolidation.

The Company manufactures and trades bromine and crude salt through its wholly-owned subsidiary, Shouguang City Haoyuan Chemical Company Limited ("SCHC"), which is also planning to engage in seawater desalination technology research and service and to handle the import and export of goods and technologies within the scope permitted by the State. The Company also manufactures chemical products for use in the oil industry, pesticides, paper manufacturing industry and for human and animal antibiotics through its wholly-owned subsidiary, Shouguang Yuxin Chemical Industry Co., Limited ("SYCI") in the People’s Republic of China (“PRC”). DCHC was established to further explore and develop natural gas and brine resources (including bromine and crude salt) in the PRC. ~~DCHC’s business~~DCHC commenced trial operation in January 2019 but suspended production temporarily in May 2019 as required by the government to obtain project approval (see Note 1 (b)(iii)) below).

On March 11, 2020, the World Health Organization (WHO) officially declared CoVID-19 a pandemic, pointing to the over 118,000 cases of COVID-19 illness in over 110 countries and territories around the world and the sustained risk of further global spread. On May 8, 2020, WHO reported that there were more than 18 million of confirmed cases of COVID-19 including 702,642 deaths globally. Given this fact, the duration and intensity of the impact of the COVID-19 and resulting disruption to the Company’s operations is uncertain. While our operations are currently not materially affected, it is unknown whether or how they may be affected if such a pandemic persists for an extended period. While not yet quantifiable, the Company believes this situation did not have a material adverse impact on its operating results in the first six months of 2020 and will continue to assess the financial impact for the remainder of the year. The virus outbreak slightly delayed the commencement of the operations for Factory No.1, No.4, No.7, No.9, and it may also delay the approval for the remaining three factories No.2, No.8 and No.10.

On ~~September 1, 2017,~~November 25, 2019, the ~~Company received notification from the Government~~government of ~~Yangkou County,~~ Shouguang City ~~of PRC that production at~~issued a notice ordering all ~~its factories should be halted with immediate effect~~bromine facilities in ~~order for the Company to perform rectification and improvement in accordance with the county’s new safety and environmental protection requirements.~~

The Company worked closely with the county authorities to develop rectification plans for both its bromine and crude salt businesses and agreed on a plan in October 2017. In the fiscal year ended December 31, 2018, the Company incurred $16,243,677 in the rectification and improvements of plant and equipment of the bromine and crude salt factories resulting in a cumulative amount of $34,182,329 incurred as of December 31, 2018 recorded in the plant, property and equipment in the consolidated balance sheet. No such costs were incurred in the three-month and six-month periods ended June 30, 2019 and the Company does not expect to incur any additional capital expenditure in the rectification of its bromine and crude salt factories in respect of meeting the county's new safety and environmental protection requirement.

In the first quarter of 2018, six out of its ten bromine factories completed their rectification process within factory areas (i.e. excluding crude salt field area) and were approved and scheduled for production commencement by April 2018 as verbally indicated by the local government. The remaining four factories were still undergoing rectification at that time. Three factories (Factory no. 3, Factory no. 4 and Factory no. 11) had to be demolished in September 2018 as required by the government and rectification for Factory no. 10 was completed in November 2018.

In 2018, the Shandong Provincial government required the local government to conduct “four rating and one comprehensive evaluation” for all of the chemical companies within its jurisdiction. This has delayed the production commencement schedule of the six bromine and crude salt factories in which rectification work was completed. On June 29 2018, the Company received a formal notice (dated June 25, 2018) jointly issued by various provincial government agencies in Shandong Province (the “Notice”) forwarded by the WeifangShouguang City, Special Operations Leading Group Office of Safe Production, Transformation and Upgrading of Chemical Industry. In the Notice, the provincial government agencies set forth further requirements and procedures covering the following four aspects for the chemical industrial enterprises: project approval, planning approval, land use rights approval and environmental protection assessment approval. Those standards and procedures apply to all chemical industrial enterprises in Shandong Province including the Company’s bromine ~~plants that have not completed project~~facilities, including Factory No.1 and Factory No. 7, to temporarily stop production from December 16, 2019 to February 10, 2020. Subsequently, due to the coronavirus outbreak in China, the local government ordered those bromine facilities to postpone the commencement of production. Subsequently, the Company received an approval ~~procedures, planning approval procedures, land use rights approval procedures and environmental protection assessment procedures. The Company believes that~~dated on February 27, 2020 issued by the ~~government will not grant approval to~~local governmental authority which allowed the Company to ~~allow~~resume production after the winter temporary closure. Further, the Company received another approval from the Shouguang Yangkou People’s Government dated on March 5, 2020 allowing the Company to resume production at its bromine ~~and crude salt plants to resume operations until the Company has fully complied with the aforesaid rules set forth in the Notice.~~

The Shouguang City Bromine Association, on behalf of all the bromine plants in Shouguang, has 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 understoodfactories No.1, No. 4 (which was renamed 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 are not allowed to commence production prior to obtaining those approvals. In April 2019, Factory No.1, Factory No.5 and Factory No.7 (Factory no. 5 is considered part of Factory no.7 and both are managed as one factory since 2010) restarted operations upon receipt of verbal notification from local government of Yangkou County. On May 7, 2019, the Company renamed its Subdivision Factory No. 1), No.7 and No. 9 in order to meet the needs of bromide products for epidemic prevention and control (the “March 2020 Approval”). The Company’s Factories No. 1 ~~to Factory~~and No. 4;7 commenced trial production in mid-March 2020 and ~~Factory~~commercial production on April 3, 2020 and its Factories No. ~~5 (which was previously considered part of Factory~~4 and No. ~~7) to Factory No. 7.~~

The Company is not certain when the issuance of the approval documents will be effected. 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 Company believes the issues related to the remaining five bromine and crude salt factories which have passed inspection are almost resolved. The Company is actively working with the local government to obtain the documentation for approval of project, planning, land use rights and environmental protection evaluation.9 commenced commercial production on May 6, 2020.

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 to the Bohai Marine Fine Chemical Industrial Park (“Bohai Park”). This is because the two plants are located in a residential area and their production activities will impact the living environment of the residents. This is as a result of the country’s effort to improve the development of the chemical industry, manage safe production and curb environmental pollution accidents effectively, and ensure the quality of the living environment of residents. All chemical enterprises which do not comply with the requirements of the safety and environmental protection regulations will be ordered to shut down.

In December 2017, the Company secured from the government the land use rights for its chemical plants located at the Bohai Park and in June 2018, the Company presented a completed construction design draft and other related documents to the local authorities for approval. In January 2020, the Company obtained the environmental protection assessment approval performed by the government of Shouguang City, Shandong Province for the proposed new Yuxin chemical factory. With this approval, the Company is permitted to construct the new chemical factory and began the construction in the second quarter of 2020.

The Company believes this relocation process will cost approximately $60 million in total. The Company incurred relocation costs comprising prepaid land lease, ~~and~~ professional fees related to the design of the new chemical factory, and progress payment and deposit for the construction of the new factory building in the amount of ~~$10,925,081,~~$16,538,768 and $10,320,017, which were recorded in the prepaid land leases and property, plant and equipment in the consolidated balance sheets as of June 30, ~~2019~~2020 and December 31, ~~2018.~~

The Company does not anticipate that the Company’s new chemical factory to be significantly impacted by the Notice. The Company has secured from the government the land use rights for its chemical plants located at the Bohai Park and presented a completed construction design draft and other related documents to the local authorities for approval. The Company is still waiting for the last approval report and is uncertain when the approval will be issued. There could be a delay in the approval process given the ongoing rectification and approvals process for the Company’s other plants. As the construction of the new factory cannot commence until the final approval from the government is received, the delay in the receipt of the final approval will delay the commencement date of the construction of the new factory.2019.

In January 2017, the Company completed the first brine water and natural gas well field construction in Daying located in Sichuan Province and commenced trial production in January 2019. On May 29, 2019, the Company received a verbal notice from the government of Tianbao Town ,Daying County, Sichuan Province, whereby the Company is required to obtain project approval for its well located in Daying, including the whole natural gas and brine water project, and approvals for safety production inspection, environmental protection assessment, and to solve the related land issue. Until these approvals have been received, the Company has to temporarily halt trial production at its natural gas well in Daying. In compliance with the Chinese government new policies, the Company is also required to obtain an exploration license and a mining license for bromine and natural gas, respectively. Pursuant to the Opinions of the Ministry of Natural Resources on Several Issues in Promoting the Reform of Mineral Resources Management (Trial) promulgated by the Ministry of Natural Resources of PRC on January 9, 2020, which came into effect on May 1, 2020, privately owned enterprises are allowed to participate in the natural gas production. The Company plans to proceed with its applications for the natural gas and brine project approvals with related government departments after the governmental planning has been finalized.

As of June 30, ~~2019~~2020 and December 31, ~~2018, There~~2019, there were no allowances for doubtful accounts. No allowances for doubtful accounts were charged to the condensed consolidated statements of loss for the three-month and six-month periods ended June 30, ~~2019~~2020 and ~~2018.~~2019.

The Company collected from on its accounts receivable an amount of $1,933,814 from July 1 2020 through August 7, 2020.

The Company is exposed to credit risk in the normal course of business, primarily related to accounts receivable and cash and cash equivalents. Substantially all of the Company’s cash and cash equivalents are maintained with financial institutions in the PRC, namely, Industrial and Commercial Bank of China Limited, China Merchants Bank Company Limited and Sichuan Rural Credit Union, which are not insured or otherwise protected. The Company placed ~~$160,354,069~~$89,972,591 and ~~$178,998,935~~$100,301,986 with these institutions as of June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively. The Company has not experienced any losses in such accounts in the PRC.

Concentrations of credit risk with respect to accounts receivable exists as the Company sells a substantial portion of its products to a limited number of customers. However, such concentrations of credit risks are limited since the Company performs ongoing credit evaluations of its customers’ financial condition and extends credit terms as and when appropriate.

As of June 30, 2019, there were no accounts receivable balance outstanding for more than 90 days and approximately $0.3 million was settled in July 2019. As of December 31, 2018, there were no accounts receivable balances as they were all collected in the year ended December 31, 2018.

NOTE 1 – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – Continued

Property, plant and equipment are stated at cost less accumulated depreciation and any impairment losses. Expenditures for new facilities or equipment, and major expenditures for betterment of existing facilities or equipment are capitalized and depreciated, when available for intended use, using the straight-line method at rates sufficient to depreciate such costs less 5% residual value over the estimated productive lives. All other ordinary repair and maintenance costs are expensed as incurred.

Mineral rights are recorded at cost less accumulated depreciation and any impairment losses. Mineral rights are amortized ratably over the term of the lease, or the equivalent term under the units of production method, whichever is shorter.

Construction in process primarily represents direct costs of construction of property, plant and equipment. Costs incurred are capitalized and transferred to property, plant and equipment upon completion and depreciation will commence when the completed assets are placed in service.

The Company’s depreciation and amortization policies on property, plant and equipment, other than mineral rights and construction in process, are as follows:

Property, plant and equipment under the finance lease are depreciated over their expected useful lives on the same basis as owned assets, or where shorter, the term of the lease, which is 20 years.

Producing oil and gas properties are depreciated on a unit-of-production basis over the proved developed reserves. Common facilities that are built specifically to service production directly attributed to ~~designated~~designate oil and gas properties are depreciated based on the proved developed reserves of the respective oil and gas properties on a pro-rata basis. Common facilities that are not built specifically to service identified oil and gas properties are depreciated using the straight-line method over their estimated useful lives. Costs associated with significant development projects are not depreciated until commercial production commences and the reserves related to those costs are excluded from the calculation of depreciation.

Pursuant to the relevant laws and regulations in the PRC, the Company participates in a defined contribution retirement plan for its employees arranged by a governmental organization. The Company makes contributions to the retirement plan at the applicable rate based on the employees’ salaries. The required contributions under the retirement plans are charged to the condensed consolidated statement of loss on an accrual basis when they are due. The Company’s contributions totaled ~~$292,800 and $301,657 for~~$43,838and $292,800for the three-month period ended June 30, ~~2019~~2020 and ~~2018,~~2019, respectively, and totaled ~~$603,737~~$183,946 and ~~$604,075~~$603,737 for the six-month period ended June 30, ~~2019~~2020 and ~~2018,~~2019, respectively.

Net revenue is net of discount and value added tax and comprises the sale of bromine, crude salt and chemical products. Revenue is recognized when the control of the promised goods is transferred to the customers in an amount that reflects the consideration that the Company expects to receive from the customers in exchange for those goods. The acknowledgement of receipt of goods by the customers is when control of the product is deemed to be transferred. Invoicing occurs upon acknowledgement of receipt of the goods by the customers. Customers have no rights to return the goods upon acknowledgement of receipt of goods. Revenue from contracts with customers is disaggregated in Note 15.

NOTE 1 – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – Continued

In accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 360-10-35“Impairment or Disposal of Long-lived Assets”, long-lived assets to be held and used are analyzed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be fully recoverable or that the useful lives of those assets are no longer appropriate. The Company evaluates at each balance sheet date whether events and circumstances have occurred that indicate possible impairment.

The Company determines the existence of such impairment by measuring the expected future cash flows (undiscounted and without interest charges) and comparing such amount to the carrying amount of the assets. An impairment loss, if one exists, is then measured as the amount by which the carrying amount of the asset exceeds the discounted estimated future cash flows. Assets to be disposed of are reported at the lower of the carrying amount or fair value of such assets less costs to sell. Asset impairment charges are recorded to reduce the carrying amount of the long-lived asset that will be sold or disposed of to their estimated fair values. Charges for the asset impairment reduce the carrying amount of the long-lived assets to their estimated salvage value in connection with the decision to dispose of such assets.

For the three and six months period ended June 30, 2020and 2019, ~~and 2018,~~ the Company determined that there were no events or circumstances indicating possible impairment of its long-lived assets.

Basic earnings per common share are based on the weighted average number of shares outstanding during the periods presented. Diluted earnings per share are computed using weighted average number of common shares plus dilutive common share equivalents outstanding during the period. Potential common shares that would have the effect of increasing diluted earnings per share are considered to be anti-dilutive, i.e. the exercise prices of the outstanding stock options were greater than the market price of the common stock. Anti-dilutive common stock equivalents which were excluded from the calculation of number of dilutive common stock equivalents amounted ~~to 169,905~~to74,781 and ~~89,684~~33,981 shares for the three-month period ended June 30, 2020and 2019, ~~and 2018,~~ respectively, and amounted to ~~253,948 and 82,649~~94,075 and50,790 shares for the six-month period ended June 30, ~~2019~~2020 and ~~2018,~~2019, respectively. These awards could be dilutive in the future if the market price of the common stock increases and is greater than the exercise price of these awards.

As the Company reported a net loss for the three and six months ended June 30, 2020 and 2019, common stock equivalents including stock options and warrants were anti-dilutive. Therefore, the amounts reported for basic and diluted loss per share were the same.

NOTE 1 – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – Continued

~~The following table sets forth the computation of basic and diluted earnings per share:~~

The financial statements of the Company’s foreign subsidiaries are measured using the local currency, Renminbi (“RMB”), as the functional currency; whereas the functional currency and reporting currency of the Company is the United States dollar (“USD” or “$”).

As such, the Company uses the “current rate method” to translate its PRC operations from RMB into USD, as required under FASB ASC 830 “Foreign Currency Matters”. The assets and liabilities of its PRC operations are translated into USD using the rate of exchange prevailing at the balance sheet date. The capital accounts are translated at the historical rate. Adjustments resulting from the translation of the balance sheets of the Company’s PRC subsidiaries are recorded in stockholders’ equity as part of accumulated other comprehensive loss. The statement of loss and comprehensive loss is translated at average rate during the reporting period. Gains or losses resulting from transactions in currencies other than the functional currencies are recognized in net loss for the reporting periods as part of general and administrative expense. The statement of cash flows is translated at average rate during the reporting period, with the exception of the consideration paid for the acquisition of business which is translated at historical rates.

All of the Company’s operations and assets are located in PRC. The Company may be adversely affected by possible political or economic events in this country. The effect of these factors cannot be accurately predicted.

~~Exploration~~Inventories are stated at the lower of cost, determined on a first-in first-out cost basis, or net realizable value. Costs of work-in-progress and finished goods comprise direct materials, direct labor and an attributable portion of manufacturing overhead. Net realizable value is based on estimated selling price less costs ~~which included the cost of researching appropriate places~~ to ~~drill wells~~complete and the cost of well drilling in search of potential natural brine or other resources, are charged to the loss statement as incurred. Once the commercial viability of a project has been confirmed, all subsequent costs are capitalized.

For oil and gas properties, the successful efforts method of accounting is adopted. The Company carries exploratory well costs as an asset when the well has found a sufficient quantity of reserves to justify its completion as a producing well and where the Company is making sufficient progress assessing the reserves and the economic and operating viability of the project. Exploratory well costs not meeting these criteria are charged toselling expenses. Exploratory wells that discover potentially economic reserves in areas where major capital expenditure will be required before production would begin and when the major capital expenditure depends upon the successful completion of further exploratory work remain capitalized and are reviewed periodically for impairment.

The Company determines if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”) assets and operating lease liabilities in the consolidated balance sheets. Finance leases are included in finance lease ROU assets and finance lease liabilities in the consolidated balance sheets.

ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating lease and finance lease ROU assets and liabilities are recognized at January 1, 2019 based on the present value of lease payments over the lease term discounted using the rate implicit in the lease. In cases where the implicit rate is not readily determinable, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. Lease expense for lease payments is recognized on a straight-line basis over the lease term.

The Company does not recognize operating lease ROU assets and liabilities arising from lease arrangements with lease term of twelve months or less.

~~Common stock, stock options and stock warrants~~Stock-based awards issued to employees are recorded at their fair values estimated at grant date using the Black-Scholes model and the portion that is ultimately expected to vest is recognized as compensation cost over the requisite service period.

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

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). The amendments in this Update specify the accounting for leases. The core principle of Topic 842 is that a lessee should recognize the assets and liabilities that arise from operating leases. The Company adopted the standard effective January 1, 2019 under the optional transition method which allows an entity to apply the new lease standard at the adoption date and recognize a cumulative-effect adjustment, if any, to the opening balance of retained earnings in the period of adoption. The Company elected the available practical expedients. As a result of the adoption of this standard, the Company recognized operating lease ROU assets of $9,198,933, operating lease liabilities of $8,334,203, and the remaining balance in the, prepaid land lease and cash in the condensed consolidated financial statements as of June 30, 2019 with no cumulative-effect adjustment to retained earnings as of January 1, 2019.

In June 2018, the FASB issued ASU No.2018-07, Compensation- Stock Compensation (Topic 718). Improvements to Nonemployee Share-Based Payment Accounting. The amendments in this update expand the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. Prior to this update, Topic 718 applied only to share-based transactions to employees. Consistent with the accounting ~~requirements~~requirement for employee ~~share-based payment~~stock-based awards, nonemployee ~~share-based payment~~stock-based awards ~~within the scope of Topic 718~~ are measured at the grant-date fair value of the equity instruments that ~~an entity~~the Company is obligated to issue when the good has been delivered or the service has been rendered and any other conditions necessary to earn the right to benefit from the instruments have been satisfied.

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

The Company accrues for costs relating to litigation, including litigation defense costs, claims and other contingent matters, including liquidated damage liabilities, when such liabilities become probable and reasonably estimable. Such estimates may be based on advice from third parties or on management's judgment, as appropriate. Revisions to accruals are reflected in earnings (loss) in the ~~Update are effective for public business entities form fiscal years beginning after December 15, 2018, including interim periods within~~period in which different facts or information become known or circumstances change that ~~fiscal year. The Company adopted this standard as~~affect the Company's previous assumptions with respect to the likelihood or amount of ~~January 1, 2019. This adoption~~loss. Amounts paid upon the ultimate resolution of ~~this standard does not have a material impact on the Company’s condensed consolidated financial statements.~~such liabilities may be materially different from previous estimates.

The Company accounts for income taxes in accordance with the Income Taxes Topic of the FASB ASC, which requires the use of the liability method of accounting for deferred income taxes. Under this method, deferred income taxes are recorded to reflect the tax consequences on future years of temporary differences between the tax basis of assets and liabilities and their reported amounts at each period end. Deferred tax assets and liabilities are measured using tax rates that are expected to apply to taxable income for the years in which those tax assets and liabilities are expected to be realized or settled. The deferred income tax effects of a change in tax rates are recognized in the period of enactment. If it is more likely than not that some portion or all of a deferred tax asset will not be realized, a valuation allowance is recognized. The guidance also provides criteria for the recognition, measurement, presentation and disclosures of uncertain tax positions. A tax benefit from an uncertain tax position may be recognized if it is “more likely than not” that the position is sustainable based solely on its technical merits. Interests and penalties associated with unrecognized tax benefits are included within the (benefit from) provision for income tax in the consolidated statement of income (loss).

There were no recent accounting pronouncements adopted during the six months ended June 30, 2020.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments. The amendments in this Update affect loans, debt securities, trade receivables, and any other financial assets that have the contractual right to receive cash. The ASU requires an entity to recognize expected credit losses rather than incurred losses for financial assets. For public entities, the amendments are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. For the Company which is a smaller reporting company, ASU No. 2019-10 extends the effective dates for two years. The Company is currently evaluating the effect of this on the condensed consolidated financial statements and related disclosure.

	June 30, 2019		December 31, 2018			June 30, 2020		December 31, 2019

Raw materials	$	17,880	$	—		$	29,304	$	20,928
Finished goods		435,784		65,169			494,324		669,159
Allowance for obsolete and slow-moving inventory		—		(65,169	)
	$	453,664		—		$	523,628	$	690,087

The Company has the rights to use certain parcels of land located in Shouguang, the PRC, through lease agreements signed with local townships or the government authority. The production facilities and warehouses of the Company are located on these parcels of land. The lease term ranges from ten to fifty years. Some of the lease contracts were paid in one lump sum upfront and some are paid annually at the beginning of each anniversary date. These leases have no purchase option at the end of the lease term and were classified as operating lease prior to and as of January 1, 2019 when the new lease standard was adopted. Prior to January 2019, the prepaid land lease was amortized on a straight line basis. As of January 1, 2019, all these leases that have commenced were classified as operating lease right-of-use assets (“ROU”). See Note 6.

In December 2017, the Company paid a one lump sum upfront amount of ~~$9,250~~,~~091~~$8,982,369 for a 50-year lease of a parcel of land at Bohai Marine Fine Chemical Industrial Park (“Bohai”) for the new chemical factory to be built. There is no purchase option at the end of the lease term. This was classified as an operating lease prior to and as of January 1, 2019. The land use certificate ~~is being processed by the government and the commencement date~~was issued on October 25, 2019. The lease term expires on August 12, 2069. The amount paid was recorded as prepaid land leases, net of ~~the lease will be known upon completion of the application process. Since the construction plan of the factory at Bohai is still~~current portion in the ~~process~~consolidated balance sheet as of ~~being approved by~~June 30 2020 and December 31, 2019. As of June 30, 2020, the ~~government and the lease term of the land has not commenced, the Company classified the lease payment in~~ prepaid land lease ~~instead of Right-of –use assets. No amortization~~increased to $9,349,625 due to an additional amount paid for stamp duty and related land use rights fees. Amortization of this prepaid land lease ~~was recorded as of June 30, 2019.~~will commence when the chemical factory is built and placed in service.

~~During~~In June 2020, the ~~three-month period ended June 30, 2018, amortization~~construction of ~~prepaid land lease totaled $150,579 was recorded as direct labor~~the new chemical factory commenced and ~~factory overheads incurred during plant shutdown.~~

~~During the six-month period ended June 30, 2018, amortization of prepaid land lease totaled $294,676 was recorded as direct labor and factory overheads incurred during plant shutdown.~~

For parcels of land that are collectively owned by local townships, the Company cannot obtain land use rights certificates. The parcels of land of which the Company cannot obtain land use rights certificates cover a total of approximately 38.6 square kilometers of aggregate carrying value of $599,747 as at December 31, 2018 and the parcels of land of which the Company cannot obtain land use rights certificates covers a total of approximately 38.6 square kilometers of aggregate carrying value of $8,693,886 as at June 30, 2019.is expected to complete in May 2021.

	June 30, 2019			December 31, 2018			June 30, 2020			December 31, 2019
At cost:
Mineral rights	$	2,805,348		$	2,809,977		$	2,724,154		$	2,764,462
Buildings		60,766,201			60,866,462			59,007,466			59,880,567
Plant and machinery		201,039,726			161,178,816			231,247,364			234,669,007
Motor vehicles		6,219			6,230			6,039			6,129
Furniture, fixtures and office equipment		3,283,592			3,289,010			3,188,556			3,235,736
Construction in process		12,352,571			6,535,808			5,562,402			1,204,742
Total		280,253,657			234,686,303			301,735,981			301,760,643
Less: Accumulated depreciation and amortization		(141,263,815	)		(134,681,628	)		(151,706,607	)		(146,330,705	)
Impairment		(17,692,851	)		(17,722,045	)		(17,180,774	)		(17,434,989	)
Net book value	$	121,296,991		$	82,282,630		$	132,848,600		$	137,994,949

The Company has certain buildings and salt pans erected on parcels of land located in Shouguang, PRC, and such parcels of land are collectively owned by local townships or the government authority. The Company has not been able to obtain property ownership certificates over these buildings and salt pans. The aggregate carrying values of these properties situated on parcels of the land are ~~$20,882,068~~$18,725,141 and ~~$20,409,998 as~~$19,894,947as at June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively.

During the three-month period ended June 30, 2020, depreciation and amortization expense totaled $4,103,026 of which $1,167,114, $198,413 and $2,737,500 were recorded in direct labor and factory overheads incurred during plant shutdown, administrative expenses and cost of net revenue. During the six-month period ended June 30, 2020,depreciation and amortization expense totaled $7,556,589 of which $3,745,884, $399,819 and $3,410,886 were recorded in direct labor and factory overheads incurred during plant shutdown, administrative expenses and cost of net revenue.

During the three-month period ended June 30, 2019, depreciation and amortization expense totaled $3,586,272 of which $2,019,128, $222,444 and ~~$1,344,700 were~~$1,344,700were recorded in direct labor and factory overheads incurred during plant shutdown, administrative expenses and cost of net revenue.During the six-month period ended June 30, 2019,depreciation and amortization expense totaled $6,898,179 of which $5,086,024, $447,274 and $1,364,881 were recorded in direct labor and factory overheads incurred during plant shutdown, administrative expenses and cost of net revenue.

During the three-month period ended June 30, 2018, depreciation and amortization expense totaled $4,684,870, of which $4,420,180 and $262,689 were recorded in direct labor and factory overheads incurred during plant shutdown and administrative expenses, respectively. During the six-month period ended June 30, 2018, depreciation and amortization expense totaled $9,373,118, of which $8,857,147 and $515,971 were recorded in direct labor and factory overheads incurred during plant shutdown and administrative expenses, respectively.

Property, plant and equipment under finance leases, net consist of the following:

	June 30, 2019			December 31, 2018			June 30, 2020			December 31, 2019
At cost:
Buildings	$	119,701		$	119,899		$	116,237		$	117,956
Plant and machinery		2,189,762			2,193,375			2,126,386			2,157,848
Total		2,309,463			2,313,274			2,242,623			2,275,804
Less: Accumulated depreciation and amortization		(2,124,588	)		(2,062,517	)		(2,068,330	)		(2,096,278	)
Net book value	$	184,875		$	250,757		$	174,293		$	179,526

The above buildings erected on parcels of land located in Shouguang, PRC, are collectively owned by local townships. The Company has not been able to obtain property ownership certificates over these buildings as the Company could not obtain land use rights certificates on the underlying parcels of land.

During the three and six months period ended June 30, ~~2019,~~2020, depreciation and amortization expense totaled ~~$1,360 and $66,701,~~$1,308 and$2,635, respectively, which was recorded in direct labor and factory overheads incurred during plant shutdown.

During the three and six months period ended June 30, ~~2018,~~2019, depreciation and amortization expense totaled ~~$69,115 and $138,397,~~$1,360 and$66,701, respectively, which was recorded in direct labor and factory overheads incurred during plant shutdown.

As of June 30, ~~2019,~~2020, the total operating lease ROU assets was ~~$9,198,933.~~$8,429,714. The total operating lease cost for the three-month period ended June 30, 2020 and 2019 ~~and 2018~~ was ~~$225,022 and $283,051.~~$216,422and $225,022.

The total operating lease cost for the six-month period ended June 30, 2020 and 2019 was $436,109 and ~~2018 was $452,241 and $564,664.~~$452,241.

The Company has the rights to use certain parcels of land located in Shouguang, the PRC, through lease agreements signed with local townships or the government authority (See Note 3). For parcels of land that are collectively owned by local townships, the Company cannot obtain land use rights certificates. The parcels of land of which the Company cannot obtain land use rights certificates covers a total of approximately 38.6 square kilometers of aggregate carrying value of ~~$8,693,886 as~~$7,946,227as at June 30, ~~2019.~~2020.

~~Payable~~Accounts payable, other payable and accrued expenses consist of the following:

	June 30,		December 31,		June 30,		December 31,
	2019		2018		2020		2019
Accounts payable	$	389,780	$	—	$	286,401	$	—
Salary payable		209,645		241,343		289,734		310,097
Social security insurance contribution payable		119,523		140,326		41,511		105,750
Other payable-related party (see Note 8)		45,373		90,900		44,060		89,424
Deposit on subscription of a subsidiary’s share						141,250		144,798
Accrued expense-construction		26,250,327		104,246		96,485		97,913
Accrued expense-others		346,134		328,443		187,517		358,066
Total	$	27,360,782	$	905,258	$	1,086,958	$	1,106,048

The deposit on subscription of a subsidiary's share of $141,250 as of June 30, 2020 relates to sale of non-controlling interests in DCHC.

During the ~~three-month period~~three months ended June 30, 2020 and June 30, 2019, the Company borrowed ~~a sum of~~$0 and $60,000 from ~~Jiaxing Lighting Appliance Company Limited (Jiaxing Lighting”), in which Mr. Ming Yang,~~ a shareholder and the Chairman of the Company, has a 100% equity interest. The amount due to Jiaxing Lighting was unsecured, interest free and repayable on demand and was fully settled in the three-month period ended June 30, 2019.related company. There was no balance owing to ~~Jiaxing Lighting~~this related company as of June 30, ~~2019~~2020 and December 31, ~~2018.~~2019.

On September 25, 2012, the Company purchased five floors of a commercial building in the PRC, through SYCI, from Shandong Shouguang Vegetable Seed Industry Group Co., Ltd. (the “Seller”) at a cost of approximately $5.7 million in cash, of which Mr. Ming Yang, the Chairman of the Company, had a 99% equity interest in the Seller. During the first quarter of 2018, the Company entered into an agreement with the Seller, a related party, to provide property management services for an annual amount of approximately ~~$90,474~~$88,121 for five years from January 1, 2018 to December 31, 2022. The expense associated with this agreement for the three and six months ended June 30, ~~2019 was~~2020was approximately ~~$22,687~~$22,030 and ~~$45,849.The~~$44,043.The expense associated with this agreement for the three and six months ended June 30, ~~2018 was~~2019was approximately ~~$24,500~~$22,687 and ~~$49,000.~~$45,849.

~~Taxes payable relates to land use tax payable of $1,556,870 and value-added tax and other tax payables of $397,153 as of June 30, 2019 and land use tax payable of $1,188,687 as of December 31, 2018.~~

	Imputed		June 30,			December 31,			Imputed		June 30,			December 31,
	Interest rate		2019			2018			Interest rate		2020			2019
Total finance lease liability		6.7%	$	2,066,136		$	2,267,025			6.7%	$	1,877,985		$	2,104,278
Less: Current portion				(132,178	)		(197,480	)				(137,103	)		(198,506	)
Finance lease liability, net of current portion			$	1,933,958		$	2,069,545				$	1,740,882		$	1,905,772

Interest expenses from capital lease obligations amounted to ~~$38,281~~$34,747 and ~~$43,055 for~~$38,281for the three-month period ended June 30, ~~2019~~2020 and ~~2018,~~2019, respectively, which were charged to the condensed consolidated statement of income (loss). Interest expenses from capital lease obligations amounted to ~~$76,940 and $86,214~~$70,009 and$76,940 for the six-month period ended June 30, ~~2019~~2020 and ~~2018,~~2019, respectively, which were charged to the condensed consolidated statement of income (loss)..The remaining finance lease term at June 30, 2020 was 11 years.

	Imputed		June 30,			December 31,		Imputed		June 30,			December 31,
	Interest rate		2019			2018		Interest rate		2020			2019
Total Operating lease liabilities		4.89%	$	8,334,203		$	—		4.89%	$	7,708,977		$	8,348,453
Less: Current portion				(474,363	)		—				(429,771	)		(416,604	)
Operating lease liabilities, net of current portion			$	7,859,840		$	—			$	7,279,206		$	7,931,849

The weighted average remaining operating lease term at June 30, ~~2019 was 23 years~~2020was 22years and the weighted average discounts rate was 4.89%..Lease payments for the three-month period ended June 30, 2020 and 2019, respectively, were $522,636 and $543,405. Lease payments for the six-month period ended June 30, 2020 and 2019, respectively, were $704,301 and $724,144.

	Financial lease			Operating Lease			Financial lease			Operating Lease
Payable within:
the next 12 months	$	273,028		$	784,297		$	265,126		$	772,135
the next 13 to 24 months		273,028			795,148			265,126			628,001
the next 25 to 36 months		273,028			646,720			265,126			631,628
the next 37 to 48 months		273,028			650,453			265,126			632,586
the next 49 to 60 months		273,028			651,439			265,126			636,503
thereafter		1,638,174			11,679,069			1,325,634			10,704,542
Total		3,003,314			15,207,126			2,651,264			14,005,395
Less: Amount representing interest		(937,178	)		(6,872,923	)		(773,279	)		(6,296,418	)
Present value of net minimum lease payments	$	2,066,136		$	8,334,203		$	1,877,985		$	7,708,977

On January 27, 2020, the Company completed a 1-for-5 reverse stock split of the company’s common stock, such that for each five shares outstanding prior to the stock split there was one share outstanding after the reverse stock split. All shares of common stock referenced in this report have been adjusted to reflect the stock split figures.

There is no change to the authorized shares of the Company' common stock which remain at 80,000,000.

In accordance with the relevant PRC regulations and the PRC subsidiaries’ Articles of Association, the Company’s PRC subsidiaries are required to allocate its profit after tax to the following reserve:

SCHC, SYCI and DCHC are required each year to transfer at least 10% of the profit after tax as reported under the PRC statutory financial statements to the Statutory Common Reserve Funds until the balance reaches 50% of the registered share capital. This reserve can be used to make up any loss incurred or to increase share capital. Except for the reduction of losses incurred, any other application should not result in this reserve balance falling below 25% of the registered capital. The Statutory Common Reserve Fund as of June 30, ~~2019~~2020 for SCHC, SYCI and DCHC is ~~46%~~16%, 14% and 0% of its registered capital respectively.

In January 2019, the Company issued ~~20,000~~4,000 shares of common stock from the treasury shares to one of its consultants. The shares were valued at the closing market price on the date of the agreement and recorded as general and administrative expense in the ~~condensed~~ consolidated statement of loss and comprehensive loss for the ~~six months~~year ended ~~June 3~~0,December 31, 2019. The shares issued were deducted from the treasury shares at weighted average cost and the excess of the cost over the closing market price was charged to additional paid-in-capital.

On September 13, 2019, the Company received a staff deficiency notice from The Nasdaq Stock Market informing the Company that it has failed to comply with Nasdaq’s shareholder approval requirements relating to shares issued to this consultant. A total of 8,000 restricted shares issued to this consultant from treasury were canceled. On January 14, 2020, the Company reissued the shares from the 2019 Omnibus Equity Incentive Plan adopted by the board of directors of the Company and approved by the stockholders at the annual stockholders meeting held on December 18, 2019.

On January 23, 2020, the Company received a letter from the Nasdaq Stock Market Listing Qualifications Staff (the “Staff”) notifying that the Company has regained compliance with the shareholder approval requirements set forth in Nasdaq Listing Rule 5635(c) in connection with shares issued to a consultant based on the Staff’s review of the Company’s submitted materials.

Pursuant to the Company’s ~~Amended~~2019 Omnibus Equity Incentive Plan adopted and ~~Restated~~approved in 2019 (“ 2019 Plan”), awards under the 2019 Plan is limited in the aggregate to 2,068,398 shares of our common stock, inclusive of the awards that were previously issued and outstanding under the Company’s 2007 Equity Incentive Plan, ~~approved in 2011(“~~as amended (the “2007 Plan”),. Upon adoption and approval of the ~~aggregate~~2019 Plan, the 2007 Plan was frozen, no new awards will be granted under the 2007 Plan, and outstanding awards under the 2007 Plan will continue to be governed by the terms and condition of the 2007 Plan and applicable award agreement. As of June 30, 2020, the number of shares of the Company’s common stock available for grant of stock options and issuance is 4,341,989 shares. On October 5, 2015, during the annual meeting of the Company’s stockholders, the aggregate number of shares reserved and available for grant and issuance pursuant to the Plan was increased to 10,341,989. As of June 30, 2019, the number of shares of the Company’s common stock available for issuance under the 2019 Plan is ~~4,895,989.~~989,698 shares.

The fair value of each option award is estimated on the date of grant using the Black-Scholes option-pricing model. The risk free rate is based on the yield-to-maturity in continuous compounding of the US Government Bonds with the time-to-maturity similar to the expected tenor of the option granted, volatility is based on the annualized historical stock price volatility of the Company, and the expected life is based on the historical option exercise pattern.

~~On April 01,~~For the three and six months ended June 30, 2020 and 2019, total compensation costs for options granted recorded in the ~~Company~~consolidated statement of loss were $0 and $45,900.

During the three and six months ended June 30, 2020, there were no options granted to one employee staff options to purchase 150,000 shares of the Company’s common stock, at an exercise price of $0.91 per share and the options vested immediately. The options were valued at $45,900 fair value, with assumed 45.26% volatility, a four-year expiration term with an expected tenor of 1.60 years, a risk free rate of 2.37% and no dividend yield.employees or non-employees.

The following table summarizes all Company stock option transactions between January 1, ~~2019~~2020 and June 30, ~~2019.~~2020.

The aggregate intrinsic value of options outstanding and exercisable as of June 30, ~~2019~~2020 was ~~$8,610.~~$10,710.

During the three months ended June 30, 2020 and 2019, ~~662,312 shares~~there were 0 and 132,462shares of common stock ~~were~~ issued upon cashless exercise of ~~1,652,000~~0 and 330,400 options.

During the six months ended June 30, 2020 and 2019, ~~759,281~~there were 0 and 151,856 shares of common stock ~~were~~ issued upon cashless exercise of ~~1,897,000~~0 and 379,400 options.

The aggregate intrinsic value of options exercised during the three months ended June 30, ~~2019~~2020 was ~~$808,014. There was no option~~$0.The aggregate intrinsic value of options exercised during the three months ended June 30, ~~2018.~~2019 was $808,014.

The aggregate intrinsic value of options exercised during the six months ended June 30, ~~2019~~2020 was ~~$922,429. There was no option~~$0.The aggregate intrinsic value of options exercised during the six months ended June 30, ~~2018.~~2019 was $922,429.

The Company utilizes the asset and liability method of accounting for income taxes in accordance with FASB ASC 740-10.

Gulf Resources, Inc. may be subject to the United States of America Tax laws at a tax rate of 21%. No provision for the US federal income taxes has been made as the Company had no US taxable income for the three-month and six-month periods ended June 30, 2020and 2019, ~~and 2018,~~ and management believes that its earnings are permanently invested in the PRC.

On December 22, 2017, the Tax Cuts and Jobs Act (“TCJA”) was enacted in law. With the new tax law, the corporation income tax rate is reduced from 35% to 21% and there is a one-time mandatory transition tax on accumulated foreign earnings. The Company computed this one-time mandatory transition tax on accumulated foreign earnings to be approximately $5.4 million. However, as the Company has available US federal net operating loss carry forwards and foreign tax credit to fully offset the mandatory inclusion of the accumulated foreign earnings, no net tax liability arose from the inclusion of these accumulated foreign earnings.

Upper Class Group Limited, a subsidiary of Gulf Resources, Inc., was incorporated in the BVI and, under the current laws of the BVI, it is not subject to tax on income or capital gain in the BVI. Upper Class Group Limited did not generate assessable profit for the three-month and six-month periods ended June 30, ~~2019~~2020 and ~~2018.~~2019.

HKJI, a subsidiary of Upper Class Group Limited, was incorporated in Hong Kong and is subject to Hong Kong taxation on its activities conducted in Hong Kong and income arising in or derived from Hong Kong. No provision for income tax has been made as it has no taxable income for the three-month and six-month periods ended June 30, ~~2019~~2020 and ~~2018.~~2019. The applicable statutory tax rates for the three-month and six-month periods ended June 30, ~~2019~~2020 and ~~2018 are~~2019are 16.5%. There is no dividend withholding tax in Hong Kong.

Enterprise income tax (“EIT”) for SCHC, SYCI and DCHC in the PRC is charged at 25% of the assessable profits.

The operating subsidiaries SCHC, SYCI and DCHC are wholly foreign-owned enterprises (“FIE”) incorporated in the PRC and are subject to PRC Local Income Tax Law. The PRC tax losses may be carried forward to be utilized against future taxable profit for ten years for High-tech enterprises and small and medium-sized enterprises of science and technology and for five years for other companies. Tax losses of the operating subsidiaries of the Company may be carried forward for five years.

On February 22, 2008, the Ministry of Finance (“MOF”) and the State Administration of Taxation (“SAT”) jointly issued ~~CaiShui~~Cai Shui [2008] Circular 1 (“Circular 1”). According to Article 4 of Circular 1, distributions of accumulated profits earned by a FIE prior to January 1, 2008 to foreign investor(s) in 2008 will be exempted from withholding tax (“WHT”) while distribution of the profit earned by an FIE after January 1, 2008 to its foreign investor(s) shall be subject to WHT at 5% effective tax rate.

As of June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, the accumulated distributable earnings under the Generally Accepted Accounting Principles (GAAP”) of PRC that are subject to WHT are ~~$230,022,318~~$114,295,118 and ~~$240,563,868,~~$124,616,722, respectively. Since the Company intends to reinvest its earnings to further expand its businesses in mainland China, its foreign invested enterprises do not intend to declare dividends to their immediate foreign holding companies in the foreseeable future. Accordingly, as of June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, the Company has not recorded any WHT on the cumulative amount of distributable retained earnings of its foreign invested enterprises that are subject to WHT in China. As of June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, the unrecognized WHT are ~~$10,510,400~~$4,752,714 and ~~$11,035,843,~~$5,254,560, respectively.

The Company’s income tax returns are subject to the various tax authorities’ examination. The federal, state and local authorities of the United States may examine the Company’s income tax returns filed in the United States for three years from the date of filing. The Company’s US income tax returns since ~~2015 are~~2016are currently subject to examination.

Inland Revenue Department of Hong Kong (“IRD”) may examine the Company’s income tax returns filed in Hong Kong for seven years from date of filing. For the years 2012 through ~~2018,~~2019, HKJI did not report any taxable income. It did not file any income tax returns during these years except for 2014 and 2018. For companies which do not have taxable income, IRD typically issues notification to companies requiring them to file income tax returns once in every four years. The tax returns for 2014 and 2018 ~~are currently subject to examination.~~have been examined, and there is no Hong Kong Profits Tax was charged.

The components of the ~~provision for~~ income tax benefit from continuing operations are:

The effective income tax rate ~~differ~~differs from the PRC statutory income tax rate of 25% from continuing operations in the PRC as follows:

	Three-Month Period Ended June 30,						Six-Month Period Ended June 30,						Three-Month Period Ended June 30,						Six-Month Period Ended June 30,
Reconciliations	2019			2018			2019			2018			2020			2019			2020			2019
Statutory income tax rate		25	%		25	%		25	%		25	%		25	%		25	%		25	%		25	%
Non-taxable income,(Non-deductible expense) and change in valuation allowance		8	%		3	%		(1	%)		(4	%)		(2	%)		8	%		—			(1	%)
Effective tax rate		33	%		28	%		24	%		21	%		23	%		33	%		25	%		24	%

Significant components of the Company’s deferred tax assets and liabilities at June 30, ~~2019~~2020 and December ~~31, 2018 are~~31,2019are as follows:

	June 30,			December 31,			June 30,			December 31,
	2019			2018			2020			2019
Deferred tax liabilities	$	—		$	—		$	—		$	—

Deferred tax assets:
Allowance for obsolete and slow-moving inventories	$	—		$	16,292
Impairment on property, plant and equipment		3,525,701			3,696,332			2,764,893			2,974,542
Impairment on prepaid land lease		838,671			840,284			814,620			826,673
Exploration costs		1,810,977			1,813,965			1,758,563			1,784,583
Compensation costs of unexercised stock options		171,672			194,016			74,883			171,672
PRC tax losses		14,555,918			12,663,985			20,571,271			18,737,005
US federal net operating loss		486,290			119,000			311,000			432,000
Total deferred tax assets		21,389,229			19,343,874			26,295,230			24,926,475
Valuation allowance		(657,962	)		(313,016	)		(8,796,686	)		(8,985,833	)
Net deferred tax asset	$	20,731,267		$	19,030,858		$	17,498,544		$	15,940,642

The ~~increase~~decrease in valuation allowance for the three-month period ended June 30, ~~2019~~2020 is ~~$330,005.~~$60,279.

The increase in valuation allowance for the three-month period ended June 30, ~~2018 is $28,499.~~2019is $330,005.

The decrease in valuation allowance for the six-month period ended June 30, 2020is $189,147.

The increase in valuation allowance for the six-month period ended June 30, ~~2019 is~~2019is $344,946.

~~The increase in valuation allowance for the six-month period ended June 30, 2018 is $55,595.~~

There were no unrecognized tax benefits and accrual for uncertain tax positions as of June 30, ~~2019~~2020 and December 31, ~~2018.~~2019 and no amounts accrued for penalties and interest for the three and six months ended June 30, 2020 and 2019.

An operating segment’s performance is primarily evaluated based on segment operating income, which excludes share-based compensation expense, certain corporate costs and other income not associated with the operations of the segment. These corporate costs (income) are separately stated below and also include costs that are related to functional areas such as accounting, treasury, information technology, legal, human resources, and internal audit. The Company believes that segment operating income, as defined above, is an appropriate measure for evaluating the operating performance of its segments. All the customers are located in PRC.

Three-Month Period Ended June 30, 2019	Bromine*			Crude Salt*			Chemical Products			Natural Gas			Segment Total			Corporate		Total
Three-Month Period Ended June 30, 2020																					Bromine*			Crude Salt*			Chemical Products			Natural Gas			Segment Total			Corporate			Total
Net revenue (external customers)	$	5,751,164		$	245,079		$	—		$	13,166		$	6,009,409		$	—	$	6,009,409		$	4,487,017		$	872,466		$	—		$	—		$	5,359,483		$	—		$	5,359,483
Net revenue (intersegment)																						—			—			—			—			—			—			—
Income(loss) from operations before income tax benefit		(36,713	)		(828,736	)		(656,424	)		(61,401	)		(1,583,274	)		385,108		(1,198,166	)		(1,479,084	)		(611,472	)		(654,652	)		(53,270	)		(2,798,478	)		(155,074	)		(2,953,552	)
Income tax benefit		9,540			215,360			141,083			—			365,983			—		365,983			350,708			172,849			149,076			—			672,633			—			672,633
Income(loss) from operations after income tax benefit		(27,173	)		(613,376	)		(515,341	)		(61,401	)		(1,217,291	)		385,108		(832,183	)
Income (loss) from operations after income tax benefit																						(1,128,376	)		(438,623	)		(505,576	)		(53,270	)		(2,125,845	)		(155,074	)		(2,280,919	)
Total assets		169,870,183			29,241,474			128,641,174			1,773,689			329,526,520			37,207		329,563,727			115,956,839			38,299,428			108,862,565			1,599,014			264,717,846			70,367			264,788,213
Depreciation and amortization		2,476,960			958,352			116,240			36,080			3,587,632			—		3,587,632			3,038,936			919,003			111,797			34,598			4,104,334			—			4,104,334
Capital expenditures		10,857,541			644,197			—			—			11,501,738			—		11,501,738			—			—			2,443,931			—			2,443,931			—			2,443,931

* Certain common production overheads, operating and administrative expenses and asset items (mainly cash and certain office equipment) of bromine and crude salt segments in SCHC were split by reference to the average selling price and production volume of respective segment.

Six-Month Period Ended June 30, 2019	Bromine*			Crude Salt*			Chemical Products			Natural Gas			Segment Total			Corporate			Total
Six-Month Period Ended June 30, 2020																						Bromine*			Crude Salt*			Chemical Products			Natural Gas			Segment Total			Corporate		Total
Net revenue (external customers)	$	5,751,164		$	245,079		$	—		$	51,736		$	6,047,979		$	—		$	6,047,979		$	4,949,863		$	967,290		$	—		$	—		$	5,917,153		$	—	$	5,917,153
Net revenue (intersegment)																							—			—			—			—			—			—		—
Loss from operations before income tax benefit		(3,661,727)			(2,240,545	)		(1,329,974	)		(103,384	)		(7,335,630	)		(258,566	)		(7,594,196	)		(4,345,522	)		(2,125,054	)		(1,365,561	)		(102,116	)		(7,938,253	)		149,272		(7,788,981	)
Income tax benefit		906,887			568,312			285,921			—			1,761,120			—			1,761,120			1,068,146			551,245			309,685			—			1,929,076			—		1,929,076
Loss from operations after income tax benefit		(2,754,840	)		(1,672,233	)		(1,044,053	)		(103,384	)		(5,574,510	)		(258,566	)		(5,833,076	)		(3,277,376	)		(1,573,809	)		(1,055,876	)		(102,116	)		(6,009,177	)		149,272		(5,859,905	)
Total assets		169,870,183			29,241,474			128,641,174			1,773,689			329,526,520			37,207			329,563,727			115,956,839			38,299,428			108,862,565			1,599,014			264,717,846			70,367		264,788,213
Depreciation and amortization		4,595,037			2,063,460			233,628			72,755			6,964,880			—			6,964,880			5,236,780			2,027,445			225,281			69,718			7,559,224			—		7,559,224
Capital expenditures		10,857,541			644,197			—			—			11,501,738			—			11,501,738			3,157,669			646,752			6,055,721			—			9,860,142			—		9,860,142

	Three-Month Period Ended June 30,						Six-Month Period Ended June 30,						Three-Month Period Ended June 30,						Six-Month Period Ended June 30,
Reconciliations	2019			2018			2019			2018			2020			2019			2020			2019
Total segment operating loss	$	(1,583,274	)	$	(8,081,754	)	$	(7,335,630	)	$	(15,190,619	)	$	(2,798,478	)	$	(1,583,274	)	$	(7,938,253	)	$	(7,335,630	)
Corporate costs		(162,547	)		(153,791	)		(302,993	)		(283,054	)		(136,956	)		(162,547	)		(233,059	)		(302,993	)
Unrealized gain on translation of intercompany balance		547,655			1,403,938			44,427			345,086			(18,118	)		547,655			382,331			44,427
Loss from operations		(1,198,166	)		(6,831,607	)		(7,594,196	)		(15,128,587	)		(2,953,552	)		(1,198,166	)		(7,788,981	)		(7,594,196	)
Other income, net of expense		94,477			135,493			191,232			261,627			36,300			94,477			75,528			191,232
Loss before taxes	$	(1,103,689	)	$	(6,696,114	)	$	(7,402,964	)	$	(14,866,960	)	$	(2,917,252	)	$	(1,103,689	)	$	(7,713,453	)	$	(7,402,964	)

The following table shows the major customer(s) (10% or more) for the three-month period ended June 30, 2020.

The following table shows the major customer(s) (10% or more) for the six-month period ended June 30, 2020.

The following table shows the major customer(s) (10% or more) for the three-month period ended June 30, 2019.

The following table shows the major customer(s) (10% or more) for the six-month period ended June 30, 2019.

~~The following table shows the major customer(s) (10% or more) for the six-month period ended June 30, 2018.~~

During the six-month period ended June 30, 2020, the Company sold 82.4% of its products to its top five customers, respectively. As of June 30, 2020, amounts due from these customers were $2,488,001.

During the six-month period ended June 30, 2019, the Company sold 84% of its products to its top five customers, respectively. As of June 30, 2019, amounts due from these customers were $5,663,578.

During the six-month period ended June 30, ~~2018,~~2020 the Company ~~sold 89%~~purchased 100% of its ~~products to~~raw materials from its top five ~~customers, respectively.~~suppliers. As of June 30, ~~2018,~~2020, amounts due ~~from these customers~~to those suppliers were ~~$4,650,250. This concentration makes the Company vulnerable to a near-term severe impact, should the relationships be terminated.~~

During the six-month period ended June 30, 2019, the Company purchased 100% of its raw materials from its top five suppliers. As of June 30, 2019, amounts due to those suppliers were $389,780. ~~During the six-month period ended June 30, 2018, the Company did not purchase any raw materials.~~

The carrying values of financial instruments, which consist of cash, accounts receivable and accounts payable and other payables, approximate their fair values due to the short-term nature of these instruments. There were no material unrecognized financial assets and liabilities as of June 30, ~~2019~~2020 and December 31, ~~2018.~~2019.

The following table sets forth the Company’s contractual obligations as of June 30, ~~2019:~~2020:

	Property Management Fees		Capital Expenditure		Property Management Fees		Capital Expenditure
Payable within:
the next 12 months	$	90,747	$	25,996,209	$	88,121	$	5,323,609
the next 13 to 24 months		90,747		—		88,121		407,553
the next 25 to 36 months		90,747		—		88,121		—
the next 37 to 48 months		90,747		—
Total	$	362,988	$	25,996,209	$	264,363	$	5,731,162

On or about August ~~11,~~3, 2018, written decisions of administration penalty captioned Shou Guo Tu Zi Fa Gao Zi [2018] No. 291, Shou Guo Tu Zi Fa Gao Zi [2018] No. 292, Shou Guo Tu Zi Fa Gao Zi [2018] No. 293, Shou Guo Tu Zi Fa Gao Zi [2018] No. 294, Shou Guo Tu Zi Fa Gao Zi [2018] No. 295 and Shou Guo Tu Zi Fa Gao Zi [2018] No. 296 (together, the “Written Decisions”) were served on Shouguang City Haoyuan Chemical Company Limited (“SCHC”) by Shouguang City Natural Resources and Planning Bureau (the “Bureau”), naming SCHC as respondent respectively thereof. The Decisions challenged the land use of Factory nos. 2, 9, 7, 4, 8 and 10, respectively, and alleged, among other things, that SCHC had illegally occupied and used the land in the total area of approximately 52,674 square meters, on which Factory nos. 2, 9, 7, 4, 8 and 10 were built, respectively. The Written Decisions ordered SCHC, among other things, to return the land subject to the Written Decisions to its respective legal owner, restore the land to its original state, and demolish or confiscate all the buildings and facilities thereon and pay monetary penalty of approximately RMB 1.3 million ($184,000) in the aggregate. Each of the Written Decisions shall be executed within 15 days upon serving on SCHC. Additional interest penalty shall be imposed at a daily rate of 3% in the event that SCHC does not make the monetary penalty payment in a timely manner. Subsequently, the Bureau filed enforcement actions to the People’s Court of Shouguang City, Shandong Province (the “Court”), naming SCHC as enforcement respondent and alleged, among other things, that SCHC failed to perform its obligations under each of the Written Decisions within the specified timeframe. The enforcement proceedings sought court orders to enforce the Written Decisions. On May 5, 2019, ~~Typhoon Lekima landed~~written decisions of administrative ruling captioned (2019) Lu 0783 Xing Shen No. 384, (2019) Lu 0783 Xing Shen No. 385, (2019) Lu 0783 Xing Shen No. 389, (2019) Lu 0783 Xing Shen No. 390, (2019) Lu 0783 Xing Shen No. 393, and (2019) Lu 0783 Xing Shen No. 394, respectively (together, the “Court Rulings”) were made by the Court in favor of the Bureau. The Court orders, among other relief, to enforce each of the Written Decisions, to return each subject land to its legal owner and demolish or confiscate the buildings and facilities thereon and restore the land to its original state within 10 days from the service of the Court Rulings on SCHC. The Court Rulings became enforceable immediately upon service on SCHC on May 5, 2019.

In the last twenty years, to the Company’s knowledge, there were no government regulations requiring bromine manufacturers to obtain land use and planning approval document. As such, the Company believes most of the bromine manufacturers in Shouguang City do not have land use and planning approval documents and lease their land parcels from the village associations. They are facing the same issues in connection with land use and planning as the Company.

The Company is in the process of resolving the issues in connection with SCHC’s land use and planning diligently. The Company has been in discussions closely with the local government authorities with the help from Shouguang City Bromine Association to seek reliefs and, based on verbal confirmation by local government authorities, believes the administrative penalties imposed by the Bureau according to the Written Decisions are being re-assessed by local government authorities and may be revoked. The Company has obtained one confirmation from the local government authorities that the administrative penalty imposed on Factory No. 7 , Factory No. 8 and Factory No.10 are being revoked which are waiting for the Court formal approval ,and production of Factory No. 7 was allowed to resume in April 2019. In addition, on August 28, 2019, the People’s Government of Shandong Province, issued a regulation titled “Investment Project Management Requirements of Chemical Companies in Shandong ~~Province. Shouguang City in Shandong, where~~Province” permitting the construction of facilities on existing sites or infrastructure of bromine manufacturing and ~~crude salt factories~~other chemical industry-related types of ~~the Company are located, were also affected by this Typhoon. The~~projects (clause 11 of section 3).The Company believes that ~~all~~the goal of ~~its factories may have sustained different levels~~the government is to standardize and regulate the industry and not to demolish the facilities or penalize the manufacturers. As of ~~damage. As soon as~~ the ~~flood water recedes,~~date of this report, the Company has not been notified by the local government that it will take any measure to enforce the administrative penalties. Based on information known to date, the Company believes that it is remote that the Written Decisions or Court Rulings will be enforced within the expected timeframe and a material penalty or costs and expenses against the Company will ~~assess~~result. However, there can be no assurance that there will not be any further enforcement action, the ~~extent~~occurrence of which may result in further liabilities, penalties and operational disruption.

In view of the ~~loss on its factories.~~above facts and circumstances, the Company believes that it is not necessary to accrue for any estimated losses or impairment as of June 30, 2020.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The discussion below contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act, and Section 21E of the Exchange Act. We have used words such as “believes,” “intends,” “anticipates,” “expects” and similar expressions to identify forward-looking statements. These statements are based on information currently available to us and are subject to a number of risks and uncertainties that may cause our actual results of operations, financial condition, cash flows, performance, business prospects and opportunities and the timing of certain events to differ materially from those expressed in, or implied by, these statements. Except as expressly required by the federal securities laws, we undertake no obligation to update such factors or to publicly announce the results of any of the forward-looking statements contained herein to reflect future events, developments, or changed circumstances, or for any other reason.

We are a 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. SCHC is also planning to be involved in activities related to seawater desalination, seawater desalination technology research and service and to handle the import and export of goods and technologies within the scope permitted by the state.

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.

On September 21, 2018, the Company received a closing notice from the People's Government of Yangkou Town, Shouguang City informing it that its three bromine factories ~~(Number~~(No. 3, ~~Number~~No. 4, and ~~Number~~No. 11.) are not allowed to resume production and hence the Company has to demolish these factories. The crude salt fields surrounding these factories have been reclaimed as cultivated or construction land and hence did not meet the requirement for bromine and crude salt co-production set by the relevant authority.

In January 2017, the Company completed the first brine water and natural gas well field construction in Daying located in Sichuan Province and commenced trial production in January 2019. On May 29, 2019, the Company received a verbal notice from the government of Tianbao Town ,Daying County, Sichuan Province, whereby the Company is required to obtain project approval for its well located in Daying, including the whole natural gas and brine water project, and approvals for safety production inspection, environmental protection assessment, and to solve the related land issue. Until these approvals have been received, the Company has to temporarily halt trial production at its natural gas well in Daying. In compliance with the Chinese government new policies, the Company is also required to obtain an exploration license and a mining license for bromine natural gas, respectively. Pursuant to the Opinions of the Ministry of Natural Resources on Several Issues in Promoting the Reform of Mineral Resources Management (Trial) promulgated by the Ministry of Natural Resources of PRC on January 9, 2020, which came into effect on May 1, 2020, privately owned enterprises are allowed to participate in the natural gas production. The Company plans to proceed with its applications for the natural gas and brine project approvals with related government departments.

The Company received an approval from the Shouguang Yangkou People’s Government dated on March 5, 2020 allowing the Company to resume production at its bromine factories No.1, No. 4 (which was renamed from Subdivision Factory No. 1), No.7 and No. 9 in order to meet the needs of bromide products for epidemic prevention and control. As of the date of this report, all those four bromine factories have commenced commercial production of bromine and crude salt. Factory no. 1 and no. 7 resumed operation in March 2020 and Factory no. 4 and no. 9 resumed operation in May 2020.

At the present time, our chemical factory SYCI is closed pursuant to the letter from government dated on November 24, 2017. It will be relocated to Bohai Marine Fine Chemical Industry Park, Shouguang City. To date, we have secured the land for our new chemical factory. The Company also has had the final approval regarding environmental protection assessment. The Company expects to start our new chemical factory construction within the second quarter of 2020.

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

The following table presents certain information derived from the condensed consolidated statements of operations, cash flows and stockholders equity for the three-month and six-month periods ended June 30, ~~2019~~2020 and ~~2018.~~2019.

Comparison of the Three-Month Period Ended June 30, ~~2019~~2020 and ~~2018~~2019

	Three-Month Period Ended June 30, 2019			Three-Month Period Ended June 30, 2018			Percent Change Increase/ (Decrease)			Three-Month Period Ended June 30, 2020			Three-Month Period Ended June 30, 2019			Percent Change Increase/ (Decrease)
Net revenue	$	6,009,409		$	4,594			130710	%	$	5,359,483		$	6,009,409			(11	%)
Cost of net revenue		(2,990,330	)		(7	)		42718900	%		(5,022,896	)		(2,990,330	)		68	%
Gross profit		3,019,079			4,587			65718	%		336,587			3,019,079			(89	%)
Sales, marketing and other operating expenses		(6,613	)		(21,025	)		(69	%)		(10,838	)		(6,613	)		64	%
Research and development costs					—						—			—			—
Direct labor and factory overheads incurred during plant shutdown		(2,875,285	)		(5,689,486	)		(49	%)		(1,737,599	)		(2,875,285	)		(40	%)
General and administrative expenses		(1,335,347	)		(1,125,683	)		19	%		(1,541,702	)		(1,335,347	)		15	%
Loss from operations		(1,198,166	)		(6,831,607	)		(82	%)		(2,953,552	)		(1,198,166	)		147	%
Other income		94,477			135,493			(30	%)		36,300			94,477			(62	%)
Loss before taxes		(1,103,689	)		(6,696,114	)		(84	%)		(2,917,252	)		(1,103,689	)		164	%
Income tax benefit		365,983			1,883,241			(81	%)		672,633			365,983			84	%
Net loss	$	(737,706	)	$	(4,812,873	)		(85	%)	$	(2,244,619	)	$	(737,706	)		204	%

Net revenue. The table below shows the changes in net revenue in the respective segment of the Company for the three-month period ended June 30, ~~2019~~2020 as compared to the same period in ~~2018:~~2019:

	Net Revenue by Segment													Net Revenue by Segment
	Three-Month Period Ended					Three-Month Period Ended					Percent Change Increase (Decrease)			Three-Month Period Ended					Three-Month Period Ended					Percent Change Increase (Decrease)
	June 30, 2019					June 30, 2018					of Net Revenue			June 30, 2020					June 30, 2019					of Net Revenue
Segment			% of total					% of total								% of total					% of total
Bromine	$	5,751,164		95.7	%		—		—			NA		$	4,487,017		83.72	%	$	5,751,164		95.7	%		(21.99	%)
Crude Salt		245,079		4.1	%		—		—			NA			872,466		16.28	%		245,079		4.1	%		256	%
Chemical Products		—		—			4,594		100	%		(100	%)		—		—			—		—			—
Natural Gas		13,166		0.2	%		—		—			—			—		—			13,166		0.2	%		(100	%)
Total sales	$	6,009,409		100	%	$	4,594		100	%		130710	%	$	5,359,483		100	%	$	6,009,409		100	%		(11	%)

~~Net revenue from our bromineandcrude salt segments increased to $5,751,164 and $245,079 for~~For the three-month ~~period~~periods ended June 30, 2020 and 2019, ~~compared to $0~~the net revenue for the ~~same period in 2018. This is because~~bromine segment was $4,487,017 and $5,751,164, respectively, mainly due to the ~~Company resumed~~lower volume of production ~~in Factory No.1~~ and ~~Factory No. 7 in April~~lower selling price.

For the three-month periods ended June 30, 2020 and 2019, ~~after it received a verbal notification from~~ the ~~government approving it~~net revenue for the crude salt was $872,466 and $245,079 mainly due to ~~start production in these two factories~~the higher volume of production. .

For the three-month ~~period~~periods ended June 30, 2020 and 2019, the net revenue for the chemical products segment was $0 due to the closure of our chemical factories since September 1, 2017. For the three-month period ended June 30, 2018, we only sold raw materials in the amount of $4,594 due to the closure of all of our plant and factories to perform rectification and improvement since September 1, 2017. We are setting up a new factory in Bohai Park. As a result of the closure, there were no chemical products for sale for the three-month period ended June 30, ~~2019.~~2020. We are setting up a new factory in Bohai Park.

For the three-month period ended June 30, 2020, the net revenue for the natural gas was $0. On May 29, 2019, the Company received a verbal notice from the government of Tianbao Town ,Daying County, Sichuan Province, whereby the Company is required to obtain project approval for its well located in Daying, including the whole natural gas and brine water project, and approvals for safety production inspection, environmental protection assessment, and to solve the related land issue. Until these approvals have been received, the Company has to temporarily halt trial production at its natural gas well in Daying. Based on the government new policies, the Company is also required to obtain an exploration license and a mining license for bromine and natural gas, respectively.

For the three-month period ended June 30, 2019, the net revenue for the natural gas was $13,166. We commenced natural gas trial production in January 2019.

	Cost of Net Revenue by Segment										Percent Change			Cost of Net Revenue by Segment										Percent Change
	Three-Month Period Ended					Three-Month Period Ended					of Cost of			Three-Month Period Ended					Three-Month Period Ended					of Cost of
	June 30, 2019					June 30, 2018					Net Revenue			June 30, 2020					June 30, 2019					Net Revenue
Segment			% of total					% of total								% of total					% of total
Bromine	$	2,717,808		91	%	$	—		—			—		$	4,269,239		85	%	$	2,717,808		91	%		57	%
Crude Salt		258,641		8.5	%		—		—			—			753,657		15	%		258,641		8.5	%		191	%
Chemical Products		—		—			7		100	%		(100	%)		—		—			—		—			—
Natural Gas		13,881		0.5	%		—		—			—			—		—			13,881		0.5	%		(100	%)
Total	$	2,990,330		100	%	$	7		100	%		42718900	%	$	5,022,896		100	%	$	2,990,330		100	%		68	%

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. The increase in cost of revenue in the three-month period ended June 30, 2019 of $2,990,330 compared to none incurred in the same period in 2018 was because of sale of goods from two factories which resumed production in April 2019.

The table below represents the annual capacity and utilization ratios for all of our bromine producing properties:

(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.~~

~~The annual production capacity in~~tonnes of all the ~~three-months period ended June 30 2019 decreased by 11,302 tonnes to 31,506 tonnes because of the closure of Factory numbers 3,4 and 11 in September 2018.~~seven factories including those that have not commenced operations.

Our utilization ratio was 15% for the three-month period ended June 30, 2020 compared to 18% recorded for the three-month period ended June 30, 2019 ~~as only two factories resumed operations in April 2019.~~mainly because the overall market environment has not fully recovered, leading to a lower demand for our products.

For the three-month period ended June 30, 2020 the cost of net revenue for the bromine segment was $4,269,239. This $1,551,431 increase was primarily attributable to the increase in factory overhead per unit produced , which was mainly caused by the increase in depreciation charges of plant and equipment that were placed in service in March and May in 2020 for factories that resumed operation in the three-month ended June 30, 2020.

For the three-month period ended June 30, 2019 the cost of net revenue for the bromine segment was $2,717,808.

For the three-month period ended June 30, 2020 the cost of net revenue for the crude salt segment was $753,657. This $495,016 increase was primarily attributable to the increase in factory overhead per unit produced , which was mainly caused by the increase in depreciation charges of plant and equipment that were placed in service in March and May in 2020 for factories that resumed operation in the three-month ended June 30, 2020.

For the three-month period ended June 30, 2019 the cost of net revenue for the crude salt segment was $258,641.

Cost of net revenue for our chemical products segment for the three-month period ended June 30, 2020 and 2019 was $0 due to the closure of our chemical factories since September 1, 2017. ~~We are setting up a new factory in Bohai Park.~~ As a result of the closure, there were no chemical products for sale for the three-month period ended June 30, ~~2019.~~

~~Cost of net revenue for our chemical products segment for the three-month period ended June 30, 2018 was $7.~~2020. We ~~only sold raw materials~~are setting up a new factory in the amount of $4,594 due to the closure of all of our plant and factories to perform rectification and improvement since September 1, 2017. As a result, there were no chemical products in inventory for sale for the three-month period ended June 30, 2018.Bohai Park.

Cost of net revenue for our natural gas segment for the three-month period ended June 30, 2020 was $0.

Cost of net revenue for our natural gas segment for the three-month period ended June 30, 2019 was $13,881.

Gross Profit.Gross profit was ~~$3,019,079~~$336,587, or ~~50%~~6%, of net revenue for three-month period ended June 30, ~~2019~~2020, representing a decrease of $2,682,492 (or 44%), as compared to ~~$4,587~~a gross profit of $3,019,079, or 50%, of net revenue for the same period in ~~2018.~~2019.

	Gross Profit (Loss) by Segment											% Point Change		Gross Profit (Loss) by Segment											% Point Change
	Three-Month Period Ended						Three-Month Period Ended					of Gross		Three-Month Period Ended					Three-Month Period Ended						of Gross
	June 30, 2019						June 30, 2018					Profit Margin		June 30, 2020					June 30, 2019						Profit Margin
Segment				Gross Profit (loss) Margin					Gross Profit Margin							Gross Profit Margin						Gross Profit Margin
Bromine	$	3,033,356			53	%	$	—		—		53	%	$	217,778		5	%	$	3,033,356			53	%		(48	%)
Crude Salt		(13,562	)		(6	%)		—		—		(6	%)		118,809		14	%		(13,562	)		(6	%)		20	%
Chemical Products		—			—			4,587		100	%	(100	%)		—		—			—			—
Natural Gas		(715	)		—			—		—		—			—		—			(715	)		—			—
Total Gross Profit	$	3,019,079			50	%	$	4,587		100	%	50	%	$	336,587		6	%	$	3,019,079			50	%		(44	%)

For the three-month period ended June 30, 2020, the gross profit margin for our bromine segment was 5%. This 48% decrease was primarily attributable to the increase in factory overhead per unit produced mainly due to lower volume of production, lower selling price and the increase in depreciation charges of plant and equipment that were placed in service in March and April in 2020 for factories that resumed operation in the three-month ended June 30, 2020.

For the three-month period ended June 30, 2019, the gross profit margin for our bromine segment was 53%.

For the three-month period ended June 30, 2020, the gross profit margin for our crude salt segment was 14%. This 20% increase in the three-month period ended June 30, 2020 compared to the same period in 2019 was primarily attributable to higher volume of production in the three month ended June 30, 2020 compared to that recorded in the same period in 2019.

For the three-month period ended June 30, 2019, the gross loss margin for our crude salt segment was 6%

For the three-month period ended June 30, ~~2018,~~2020, the gross profit margin for our chemical segment was ~~100% because~~0% due to the ~~goods~~closure of our plant and factories to perform rectification and improvement in 2017. All chemical products inventories were sold as of June 30, 2019. As a result, there were no chemical products for sale for the three-month period ended June 30, 2020 and 2019.

For the three-month period ended June 30, 2020, the gross loss margin for our natural gas segment was ~~raw materials in which we had recorded a 100% allowance for obsolescence in the fiscal year 2017.~~0%.

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 Park. As a result,The direct labor and factory overhead costs (including depreciation of plant and machinery) in the amount of $1,737,599and $2,875,285 ~~and $5,689,486~~ incurred for the three-month period end June 30, 2020and 2019, ~~and 2018,~~ respectively, ~~which would~~were that of the factories that have ~~been presented~~not resumed operations in the ~~cost of net revenue were presented as part of the operating expense.~~three-month periods ended June 30, 2020 and 2019.

General and Administrative Expenses.General and administrative expenses were ~~$1,335,347~~$1,541,702 for the three-month period ended June 30, ~~2019,~~2020, an increase of ~~$209,664~~$206,355(or 15.5%) as compared to ~~$1,125,683~~$1,335,347 for the same period in ~~2018.~~2019.

Income (loss) from OperationsLoss from operations was ~~$1,198,166~~$2,953,552 for the three-month period ended June 30, ~~2019,~~2020, compared to an income of ~~$6,831,607~~$1,198,166 in the same period in ~~2018.~~2019.

	Loss from Operations by Segment												Loss from Operations by Segment
	Three-Month Period Ended June 30, 2019						Three-Month Period Ended June 30, 2018						Three-Month Period Ended June 30, 2020						Three-Month Period Ended June 30, 2019
Segment:				% of total						% of total						% of total						% of total
Bromine	$	(36,713	)		2	%	$	(5,577,272	)		69	%	$	(1,479,084	)		53	%	$	(36,713	)		2	%
Crude Salt		(828,736	)		52	%		(1,731,592	)		21	%		(611,472	)		22	%		(828,736	)		52	%
Chemical Products		(656,424	)		42	%		(727,595	)		9	%		(654,652	)		23	%		(656,424	)		42	%
Natural Gas		(61,401	)		4	%		(45,295	)		1	%		(53,270	)		2	%		(61,401	)		4	%
Loss from operations before corporate costs		(1,583,274	)		100	%		(8,081,754	)		100	%		(2,798,478	)		100	%		(1,583,274	)		100	%
Corporate costs		(162,547	)					(153,791	)					(136,956	)					(162,547	)
Unrealized gain on translation of Intercompany balance		547,655						1,403,938						(18,118	)					547,655
Loss from operations	$	(1,198,166	)				$	(6,831,607	)				$	(2,953,552	)				$	(1,198,166	)

Loss from operations from our bromine segment was ~~$36,713~~$1,479,084 for the three-month period ended June 30, ~~2019,~~2020, compared to loss from operations of ~~$5,577,272~~$36,713 in the same period in ~~2018. This decrease~~2019. The increase in this loss iswas mainly due to depreciation of plant and equipment placed in service when the ~~sale of goods produced~~four factories resumed operation in ~~Factory no. 1 and Factory no. 7 which resumed production in April 2019.~~the three-month period ended June 30, 2020.

Loss from operations from our crude salt segment was ~~$828,736~~$611,472 for the three-month period ended June 30, ~~2019,~~2020, compared to loss from operations of ~~$1,731,592~~$828,736 in the same period in ~~2018. The decrease in loss from operations is due to the sale of goods produced in Factory no. 1 and Factory no. 7 which resumed production in April~~ 2019.

Loss from operations from our chemical products segment was ~~$656,424~~$654,652 for the three-month period ended June 30, ~~2019,~~2020, compared to loss from operations of ~~$727,595~~$656,424 in the same period in ~~2018.~~2019.

Loss from operations from our natural gas segment was ~~$61,401~~$53,270 for the ~~three-month~~three -month period ended June 30, 2020, compared to a loss of $61,401 in the same period in 2019.

Other Income, Net Other income, net of ~~$94,477~~$36,300 represented bank interest income, net of capital lease interest expense for the three -month period ended June 30, ~~2019,~~2020, an decrease of ~~$41,016~~$58,177 (or approximately ~~30%~~62%) as compared to the same period in ~~2018.~~2019.

Net Income (loss)Net loss was ~~$737,706~~$2,244,619 for the three-month period ended June 30, ~~2019,~~2020, compared to ana net loss of ~~$4,812,873~~$737, 706 in the same period in ~~2018.~~2019.

Effective Tax Rate Our effective income tax benefit rate for the three-month period ended June 30, 2020 and 2019 were 23% and ~~2018 were~~ 33% ~~and 28%~~ respectively. The effective tax rate for the three-month period ended June 30, ~~2019~~2020 was ~~8% higher~~2% lower than the PRC statutory income tax rate of 25%mainly due to non-taxable items in connection with the unrealized exchange gain for the Company ~~offset~~off set by non-deductible expense.

Comparison of the Six-Month Period Ended June 30, ~~2019~~2020 and ~~2018~~2019

	Six-Month Period Ended June 30, 2019			Six-Month Period Ended June 30, 2018			Percent Change Increase/ (Decrease)			Six-Month Period Ended June 30, 2020			Six-Month Period Ended June 30, 2019			Percent Change Increase/ (Decrease)
Net revenue	$	6,047,979		$	2,251,861			169	%	$	5,917,153		$	6,047,979			(2	%)
Cost of net revenue		(3,026,737	)		(1,241,816	)		144	%		(5,944,216	)		(3,026,737	)		96	%
Gross profit		3,021,242			1,010,045			199	%		(27,063	)		3,021,242			101	%
Sales, marketing and other operating expenses		(6,613	)		(55,999	)		(88	%)		(13,081	)		(6,613	)		98	%
Direct labor and factory overheads incurred during plant shutdown		(7,168,307	)		(11,385,005	)		(37	%)		(5,348,022	)		(7,168,307	)		(25	%)
Other operating loss											(15,776	)					(100	%)
General and administrative expenses		(3,440,518	)		(4,697,628	)		(27	%)		(2,385,039	)		(3,440,518	)		(31	%)
Loss from operations		(7,594,196	)		(15,128,587	)		(50	%)		(7,788,981	)		(7,594,196	)		3	%
Other income		191,232			261,627			(27	%)		75,528			191,232			(61	%)
Loss before taxes		(7,402,964	)		(14,866,960	)		(50	%)		(7,713,453	)		(7,402,964	)		4	%
Income tax benefit		1,761,120			3,076,987			(43	%)		1,929,076			1,761,120			10	%
Net loss	$	(5,641,844	)	$	(11,789,973	)		(52	%)	$	(5,784,377	)	$	(5,641,844	)		3	%

2122

Net revenue. The table below shows the changes in net revenue in the respective segment of the Company for the six-month period ended June 30, ~~2019 as~~2020as compared to the same period in ~~2018:~~2019:

	Net Revenue by Segment													Net Revenue by Segment
	Six-Month Period Ended					Six-Month Period Ended					Percent Decrease			Six-Month Period Ended					Six-Month Period Ended					Percent Increase (Decrease)
	June 30, 2019					June 30, 2018					of Net Revenue			June 30, 2020					June 30, 2019					of Net Revenue
Segment			% of total					% of total								% of total					% of total
Bromine	$	5,751,164		95	%	$	—		—			NA		$	4,949,863		84	%	$	5,751,164		95	%		(14	%)
Crude Salt		245,079		4	%		1,638,493		73	%		(85	%)		967,290		16	%		245,079		4	%		295	%
Chemical Products		—		—			613,368		27	%		100	%		-					-		-			-
Natural Gas		51,736		1	%		—		—			NA			-					51,736		1	%		(100	%)
Total sales	$	6,047,979		100	%	$	2,251,861		100	%		169	%	$	5,917,153		100	%	$	6,047,979		100	%		(2	%)

Net revenue from our ~~crude salt~~bromine segment ~~increased~~decreased to ~~$5,751,164~~$4,949,863 for the six-month period ended June 30, ~~2019~~2020 compared to $0$5,751,164 for the same period in ~~2018.~~2019respectively, due to the lower volume of production, lower selling price.

Net revenue from our crude salt segment ~~decreased~~increased to ~~$245,079 for~~$967,290for the six-month period ended June 30, ~~2019~~2020 compared ~~$1,638,493~~$245,079 for the same period in ~~2018, The reason for~~2019,respectively, due to the ~~decrease in the second quarter in 2019 compared with the same period~~higher volume of ~~last year is that the production of only two plants resumed in April 2019, Hence, there is limited amount of crude salt available for sale in the second quarter of 2019.~~production.

For the six-month period ended June 30, 2020 and 2019, the net revenue for the chemical products segment was $0 due to the closure of our chemical factories since September 1, 2017.

For the six-month period ended June 30, ~~2018,~~2020, the net revenue for the ~~chemical products segment~~natural gas was $613,368 was from inventory on hand as of September 1, 2017. We are setting up a new factory in Bohai Park. As a result there were no chemical products for sale for the six-month period ended June 30, 2019.

For the six-month period ended June 30, 2019, the net revenue for the natural gas was $51,736.

	Cost of Net Revenue by Segment										% Change			Cost of Net Revenue by Segment										% Change
	Six-Month Period Ended					Six-Month Period Ended					of Cost of			Six-Month Period Ended					Six-Month Period Ended					of Cost of
	June 30, 2019					June 30, 2018					Net Revenue			June 30, 2020					June 30, 2019					Net Revenue
Segment			% of total					% of total								% of total					% of total
Bromine	$	2,717,808		90	%	$	—		—			—		$	4,879,059		82	%	$	2,717,808		90	%		8	%
Crude Salt		258,641		8	%		697,488		56	%		(63	%)		1,065,157		18	%		258,641		8	%		10	%
Chemical Products		—		—			544,328		44	%		(100	%)		—		—			—		—			—
Natural Gas		50,288		2	%		—		—			—			—		—			50,288		2	%		—
Total	$	3,026,737		100	%	$	1,241,816		100	%		144	%	$	5,944,216		100	%	$	3,026,737		100	%		96	%

Cost of net revenue reflects mainly the raw materials ~~consumed and the direct~~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. ~~Our cost~~

The table below represents the annual capacity and utilization ratios for all of our bromine producing properties:

(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 17% for the six-month period ended June 30, 2020 compared to 18% recorded for the six-month period ended June 30, 2019 .mainly because the overall market environment has not fully recovered, leading to a lower demand for our products.

For the six-month period ended June 30, 2020 the cost of net revenue for the bromine segment was $4,879,059. This $2,161,251 increase was primarily attributable to the increase in factory overhead per unit produced, which maily caused by the increase in depreciation charges of plant and equipment that were placed in service in March and April in 2020 for factories that resumed operation in the six-month ended June 30, 2020.

For the six-month period ended June 30, 2019 the cost of net revenue for the bromine segment was $2,717,808.

For the six-month period ended June 30, 2018, the cost of net revenue for the bromine segment was $0 due to the closure of all of our plant and factories to perform rectification and improvement since September 1, 2017. As a result, there was no bromine in inventory for sale for the six-month period ended June 30, 2018.

For the six-month period ended June 30, ~~2019~~2020 the cost of net revenue for the crude salt segment was ~~$258,641.The~~$1,065,157.The cost of net revenue for our crude salt segment for the six-month period ended June 30, ~~2018~~2019 was ~~$697,488.~~$258,641. This $806,516 increase was primarily attributable to the increase in factory overhead per unit produced , which mainly caused by the increase in depreciation charges of plant and equipment that were placed in service in March and April in 2020 for factories that resumed operation in the three-month ended June 30, 2020.

Cost of net revenue for our ~~chemical products~~natural gas segment for the six-month period ended June 30, ~~2018~~2020 was ~~$544,328.~~

Cost of net revenue for our natural gas segment for the six-month period ended June 30, 2019 was $50,288.

Gross Profit. Gross ~~profit~~loss was ~~$3,021,242,~~$27,063, or ~~50%~~0.5%, of net revenue for six-month period ended June 30, ~~2019~~2020 compared to ~~$1,010,045,~~$3,021,242, or ~~45%~~50%, of net revenue for the same period in ~~2018.~~2019.

	Gross Profit (Loss) by Segment											% Point Change			Gross Profit (Loss) by Segment												% Point Change
	Six-Month Period Ended						Six-Month Period Ended					of Gross			Six-Month Period Ended						Six-Month Period Ended						of Gross
	June 30, 2019						June 30, 2017					Profit Margin			June 30, 2020						June 30, 2019						Profit Margin
Segment				Gross Profit (loss) Margin					Gross Profit Margin									Gross Profit (loss) Margin						Gross Profit Margin
Bromine	$	3,033,356			50	%	$	—		—			50	%	$	70,804			1	%	$	3,033,356			50	%		(49	%)
Crude Salt		(13,562	)		(0.2	%)		941,005		57	%		(57.2	%)		(97,867	)		(10	%)		(13,562	)		(0.2	%)		(9.8	%)
Chemical Products		—			—			69,040		11	%		(11	%)		—			—			—			—
Natural Gas		1,448			3	%		—		—			3	%		—			—			1,448			3	%		—
Total Gross Profit	$	3,021,242			50	%	$	1,010,045		45	%		5	%	$	(27,063	)		(0.5	%)	$	3,021,242			50	%		(50.5	%)

For the six-month period ended June 30, 2020, the gross loss margin for our bromine segment was 1%. This 49% decrease was primarily attributable to the increase in factory overhead per unit produced mainly due to lower volume of production , which maily caused by the increase in depreciation charges of plant and equipment that were placed in service in March and April in 2020 for factories that resumed operation in the six-month ended June 30, 2020.

For the six-month period ended June 30, 2019, the gross profit margin for our bromine segment was 50%.

For the six-month period ended June 30, 2020, the gross loss margin for our crude salt segment was 10%.This 9.8% decrease in the six-month period ended June 30, 2020 compared to the same period in 2019 was primarily attributable to higher volume of production in the six month ended June 30, 2020 compared to that recorded in the same period in 2019.

For the six-month period ended June 30, 2019 the gross loss margin for our crude salt segment was 0.2%.

For the six-month period ended June 30, ~~2018,~~2020, the gross profit margin for our chemical segment was ~~11% because~~0% due to the ~~goods sold was raw materials in which we had recorded~~closure of our plant and factories to perform rectification and improvement. As a ~~100% allowance~~result of the course, there were no chemical products for ~~obsolescence in~~sale for the ~~fiscal year 2017.~~six-month period ended June 30, 2020.

2324

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 Park. As a result,The direct labor and factory overhead costs (including depreciation of plant and machinery) in the amount ofof$5,348,022 and $7,168,307 ~~and $11,385,005~~ incurred for the ~~three-month~~six-month period end June 30, 2020 and 2019, ~~and 2018,~~ respectively, ~~which would~~were for factories that have ~~been presented~~not resumed production in the ~~cost of net revenue were presented as part of the operating expense.~~six-month periods ended June 30, 2020 and 2019.

General and Administrative Expenses. General and administrative expenses were ~~$3,440,518~~$2,385,039 for the six-month period ended June 30, ~~2019, an~~2020, a decrease of ~~$1,257,110~~$1,055,479 (or ~~26%~~31%) as compared ~~to $4,697,628 for~~to$3,440,518for the same period in ~~2018.~~2019.

Income (Loss) from Operations.Loss from operations was ~~$7,594,196~~$7,788,981 for the six-month period ended June 30, ~~2018,~~2020, compared to a loss of ~~$15,128,587~~$7,594,196 in the same period in ~~2018.~~2019.

	Income(Loss) from Operations by Segment												Income(Loss) from Operations by Segment
	Six-Month Period Ended June 30, 2019						Six-Month Period Ended June 30, 2018						Six-Month Period Ended June 30, 2020						Six-Month Period Ended June 30, 2019
Segment:				% of total						% of total						% of total						% of total
Bromine	$	(3,661,727	)		50	%	$	(11,167,828	)		73	%	$	(4,345,522	)		55	%	$	(3,661,727	)		50	%
Crude Salt		(2,240,545	)		31	%		(2,539,475	)		17	%		(2,125,054	)		27	%		(2,240,545	)		31	%
Chemical Products		(1,329,974	)		18	%		(1,402,366	)		9	%		(1,365,561	)		17	%		(1,329,974	)		18	%
Natural Gas		(103,384	)		1	%		(80,950	)		1	%		(102,116	)		1	%		(103,384	)		1	%
Loss from operations before corporate costs		(7,335,630	)		100	%		(15,190,619	)		100	%		(7,938,253	)		100	%		(7,335,630	)		100	%
Corporate costs		(302,993	)					(283,054	)					(233,059	)					(302,993	)
Unrealized gain on translation of intercompany balance		44,427						345,086						382,331						44,427
Loss from operations before taxes	$	(7,594,196	)				$	(15,128,587	)				$	(7,788,981	)				$	(7,594,196	)

Loss from operations from our bromine segment was ~~$3,661,727~~$4,345,522 for the six-month period ended June 30, ~~2019,~~2020, compared to a loss of ~~$11,167,828~~$3,661,727 in the same period in ~~2018.~~2019.

Loss from operations from our crude salt segment was ~~$2,240,545~~$2,125,054 for the six-month period ended June 30, ~~2019,~~2020, compared to a loss of ~~$2,539,475~~$2,240,545 in the same period in ~~2018.~~2019.

Loss from operations from our chemical products segment was ~~$1,329,974~~$1,365,561 for the six-month period ended June 30, ~~2019,~~2020, compared to a loss of ~~$1,402,366~~$1,329,974 in the same period in ~~2018.~~2019.

Loss from operations from our natural gas segment was ~~$103,384~~$102,116 for the six-month period ended June 30, ~~2019,~~2020, compared to a loss of ~~$80,950 in~~$103,384in the same period in ~~2018.~~2019.

Other Income, Net. Other income, net of ~~$191,232~~$75,528 represented bank interest income, net of capital lease interest expense for the six -month period ended June 30, ~~2019, an~~2020, a decrease of ~~$70,395~~$115,704 (or ~~approximately 27%~~approximately61%) as compared to the same period in ~~2018.~~2019.

Net Income (Loss). Net loss was ~~$5,641,844~~$5,784,377 for the six-month period ended June 30, ~~2019,~~2020, compared to a net loss of ~~$11,789,973~~$5,641,844 in the same period in ~~2018. This increase was attributable to Resume production and sales of two factories~~2019.

Effective Tax Rate.Our effective income tax benefit rate for the six-month period ended June 30, 2020 and 2019 was 25% and ~~2018 was~~ 24% ~~and 21%~~, respectively. The effective tax rate for the six-month period ended June 30, ~~2019~~2020 was ~~1% lower than~~the same as the PRC statutory income tax rate of 25%, due to non-deductible expense, offset by non-taxable items. The effective tax benefit rate for the six-month period ended June 30, ~~2018 was 4%~~2019was 1% lower than the PRC statutory income tax rate of 25% mainly due to non-deductible expense offset by non-taxable item in connection with the unrealized exchange loss for the Company.

2425

As of June 30, ~~2019,~~2020, cash and cash equivalents were ~~$160,354,069~~$89,972,591 as compared to ~~$178,998,935~~$100,301,986 as of December 31, ~~2018.~~2019. The components of this decrease of ~~$18,644,866~~$10,329,395 are reflected below.

	Six-Month Period Ended June 30,						Six-Month Period Ended June 30,
	2019			2018			2020			2019
Net cash (used in) provided by operating activities	$	(6,766,051	)	$	21,392,313		$	1,177,752		$	(6,766,051	)
Net cash used in investing activities		(11,501,738	)		(11,026,919	)		(9,860,142	)		(11,501,738	)
Net cash used in financing activities		(275,506	)		(294,295	)		(264,976	)		(275,506	)
Effects of exchange rate changes on cash and cash equivalents		(101,571	)		(3,001,994	)		(1,382,029	)		(101,571	)
Net (decrease) increasein cash and cash equivalents	$	(18,644,866	)	$	7,069,105
Net decrease in cash and cash equivalents							$	(10,329,395	)	$	(18,644,866	)

For the six-month period ended June 30, ~~2019,~~2020, we met our working capital and capital investment requirements by using cash on hand.

During the six-month period ended June 30, 2020, cash flow provided by operating activities of approximately $1.18 million was mainly due to a decrease in accounts receivable of $1.8 million, and a non-cash adjustment related to depreciation and amortization of property, plant and equipment, reduced by a net loss of $7.6 million and an adjustment for income tax benefit of $1.93million.

During the six-month period ended June 30, 2019, cash flow used in operating activities of approximately $6.8 million was mainly due to a net loss of $5.6 million, an increase in accounts receivable of $6.8 million and inventories of $0.5 million, and a non-cash adjustment related to an increase in deferred tax assets of $1.8 million reduced by a non-cash adjustment related to depreciation and amortization of property, plant and equipment.

During the six-month period ended June 30, 2018, cash flow from operating activities of approximately $21.4 million, mainly due to (i) substantial non-cash charges in the amounts of approximately $6.5 million, mainly in the form of depreciation and amortization of property, plant and equipment; partially offset by deferred tax assets; and (ii)cash generated from working capital of approximately $26.7 million, which mainly consisted of the decrease in accounts receivable and inventories and an increase in taxes payable.

Cash collections on our accounts receivable had a major impact on our overall liquidity. The following table presents the aging analysis of our accounts receivable as of June 30, ~~2019~~2020 and December 31, ~~2018.~~2019.

	June 30, 2019					December 31, 2018				June 30, 2020					December 31, 2019
			% of total					% of total				% of total					% of total
Aged 1-30 days	$	2,934,356		43.7	%	$	—		—	$	2,446,037		80	%	$	—		—
Aged 31-60 days		2,714,744		40.4	%		—		—		614,528		20	%		—		—
Aged 61-90 days		1,065,720		15.9	%		—		—		—			%		—		—
Aged 91-120 days		—		—			—		—		—		—			—		—
Aged 121-150 days		—		—			—		—		—		—			506,703		10	%
Aged 151-180 days		—		—			—		—		—		—			2,368,495		49	%
Aged 181-210 days		—		—			—		—		—		—			2,001,908		41	%
Aged 211-240 days		—		—			—		—		—		—			—		—
Total	$	6,714,820		100	%	$	—		—	$	3,060,565		100	%	$	4,877,106		(100	%)

The overall accounts receivable balance as of June 30, ~~2019 increased~~2020 decreased by ~~$6,714,820,~~$1,816,541, as compared to those of December 31, ~~2018.~~2019. 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 ~~debts~~accounts for the three-month and six-month ~~period~~periods ended June 30, ~~2019~~2020 is required.

	June 30, 2019					December 31, 2018						June 30, 2020					December 31, 2019
			% of total						% of total					% of total					% of total
Raw materials	$	17,880		4	%	$	—			—		$	29,304		6	%	$	20,928		3	%
Finished goods		435,784		96	%		—			—			494,324		94	%		669,159		97	%
Work-in-progress		—		—			65,169			100	%
	$	453,664		100	%	$	65,169			100	%
Allowance for obsolete and slowing-moving inventory		—		—			(65,169	)		—
Total	$	453,664		100	%	$	—			—		$	523,628		100	%	$	690,087		100	%

The net inventory level as of June 30, ~~2019 increased~~2020 decreased by ~~$453,664~~$174,835 (or ~~100%~~26%), as compared to the net inventory level as of December 31, ~~2018.~~

~~Raw materials increased by $17,880 as of June 30, 2019 as compared to December 31, 2018.~~

~~Our finished goods increased by $500,846 as of June 30, 2019 as compared to December 31, 2018.~~2019.

2526

Raw materials increased by $8,376 as of June 30, 2020 as compared to December 31, 2019.

Our finished goods decreased by $174,835 as of June 30, 2020 as compared to December 31, 2019.

For the six-month period ended June 30, ~~2019,~~2020, we used approximately ~~$11.5~~$9.9 million to acquire property, plant and equipment.

For the six-month period ended ~~June 30, 2018,~~June30, 2019, we used approximately ~~$0.7 million cash for the prepayment of land leases. We also used approximately $10.33 million~~$11.5million to ~~perform the rectification~~acquire property, plant and ~~improvements of our bromine and crude salt factories, the relocation of our chemical factories for the six-month period ended June 30, 2018.~~equipment.

~~We have no major financing activities for~~For the six-month period ended June 30, ~~2019.~~2020 and 2019, we used $0.3 million to repay finance lease obligation.

We believe that our available funds and cash flows generated from operations will be sufficient to meet our anticipated ongoing operating needs and our obligations as they full due in the next twelve (12) months.

We had available cash of approximately ~~$160.3~~$90 million at June 30, ~~2019, most of~~2020, all 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 believe that there is enough funds to cover the rectification and improvement, the setting up of the new chemical factory and the operating expense of the Company during the rectification and relocation period.

We intend to continue to focus our efforts on the activities of SCHC, SYCI and DCHC as these segments continue to expand within the Chinese market.

We may not be able to identify, successfully integrate or profitably manage any businesses or business segment we may acquire, or any expansion of our business. An expansion may involve a number 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 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 prospects.

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. Additional information regarding our contractual obligations and commitments at June 30, 2018 is provided in the notes to our consolidated financial statements. See “Notes to Condensed Consolidated Financial Statements, Note 17 – Capital Commitment and Operating Lease Commitments”.

We do not currently have any off balance sheet arrangements falling within the definition of Item 303(a) of Regulation S-K.

Our consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and this requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. We base its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Accordingly, actual results may differ significantly from these estimates under different assumptions or conditions. We have identified the following critical accounting policies and estimates used by us in the preparation of our financial statements: accounts receivable and allowance for doubtful accounts, ~~assets retirement obligation,~~leases, property, plant and equipment, recoverability of long lived assets, ~~mineral rights,~~ revenue recognition, income taxes, loss contingencies, and stock-based compensation. These policies and estimates are described in the Company’s ~~2018~~2019 Form 10-K.

Pursuant to Item 305(e) of Regulation S-K (§ 229.305(e)), the Company is not required to provide the information required by this Item as it is a “smaller reporting company,” as defined by Rule 229.10(f)(1).

2627

We maintain disclosure controls and procedures (as such term is defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) that are designed to ensure that information required to be disclosed in our reports filed pursuant to the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules, regulations and related forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), as appropriate, to allow timely decisions regarding required disclosure.

Under the supervision and with the participation of our management, including our CEO and CFO, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. Based on this evaluation, our CEO and CFO concluded that our disclosure controls and procedures were effective as of the end of the period covered by this Form 10-Q.

There were no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) under the Exchange Act) during our most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

~~None.~~On or about August 3, 2018, written decisions of administration penalty captioned Shou Guo Tu Zi Fa Gao Zi [2018] No. 291, Shou Guo Tu Zi Fa Gao Zi [2018] No. 292, Shou Guo Tu Zi Fa Gao Zi [2018] No. 293, Shou Guo Tu Zi Fa Gao Zi [2018] No. 294, Shou Guo Tu Zi Fa Gao Zi [2018] No. 295 and Shou Guo Tu Zi Fa Gao Zi [2018] No. 296 (together, the “Written Decisions”) were served on Shouguang City Haoyuan Chemical Company Limited (“SCHC”) by Shouguang City Natural Resources and Planning Bureau (the “Bureau”), naming SCHC as respondent respectively thereof. The Decisions challenged the land use of Factory nos. 2, 9, 7, 4, 8 and 10, respectively, and alleged, among other things, that SCHC had illegally occupied and used the land in the total area of approximately 52,674 square meters, on which Factory nos. 2, 9, 7, 4, 8 and 10 were built, respectively. The Written Decisions ordered SCHC, among other things, to return the land subject to the Written Decisions to its respective legal owner, restore the land to its original state, and demolish or confiscate all the buildings and facilities thereon and pay monetary penalty of approximately RMB 1.3 million ($184,000) in the aggregate. Each of the Written Decisions shall be executed within 15 days upon serving on SCHC. Additional interest penalty shall be imposed at a daily rate of 3% in the event that SCHC does not make the monetary penalty payment in a timely manner. Subsequently, the Bureau filed enforcement actions to the People’s Court of Shouguang City, Shandong Province (the “Court”), naming SCHC as enforcement respondent and alleged, among other things, that SCHC failed to perform its obligations under each of the Written Decisions within the specified timeframe. The enforcement proceedings sought court orders to enforce the Written Decisions. On May 5, 2019, written decisions of administrative ruling captioned (2019) Lu 0783 Xing Shen No. 384, (2019) Lu 0783 Xing Shen No. 385, (2019) Lu 0783 Xing Shen No. 389, (2019) Lu 0783 Xing Shen No. 390, (2019) Lu 0783 Xing Shen No. 393, and (2019) Lu 0783 Xing Shen No. 394, respectively (together, the “Court Rulings”) were made by the Court in favor of the Bureau. The Court orders, among other relief, to enforce each of the Written Decisions, to return each subject land to its legal owner and demolish or confiscate the buildings and facilities thereon and restore the land to its original state within 10 days from the service of the Court Rulings on SCHC. The Court Rulings became enforceable immediately upon service on SCHC on May 5, 2019.

The Company is in the process of resolving the issues in connection with SCHC’s land use and planning diligently. The Company has been in discussions closely with the local government authorities with the help from Shouguang City Bromine Association to seek reliefs and, based on verbal confirmation by local government authorities, believes the administrative penalties imposed by the Bureau according to the Written Decisions are being re-assessed by local government authorities and may be revoked. The Company has obtained one confirmation from the local government authorities that the administrative penalty imposed on Factory No. 7 , Factory No. 8 and Factory No.10 are being revoked which are waiting for the Court formal approval ,and production of Factory No. 7 was allowed to resume in April 2019. In addition, on August 28, 2019, the People’s Government of Shandong Province, issued a regulation titled “Investment Project Management Requirements of Chemical Companies in Shandong Province” permitting the construction of facilities on existing sites or infrastructure of bromine manufacturing and other chemical industry-related types of projects (clause 11 of section 3).The Company believes that the goal of the government is to standardize and regulate the industry and not to demolish the facilities or penalize the manufacturers. As of the date of this report, the Company has not been notified by the local government that it will take any measure to enforce the administrative penalties. Based on information known to date, the Company believes that it is remote that the Written Decisions or Court Rulings will be enforced within the expected timeframe and a material penalty or costs and expenses against the Company will result. However, there can be no assurance that there will not be any further enforcement action, the occurrence of which may result in further liabilities, penalties and operational disruption.

2728

~~There have~~This information has been ~~no changes with respect to risk factors~~omitted based on the Company’s status as ~~previously disclosed in our 2018 Form 10-K. Investing in our common stock involves~~ a high degree of risk. Before you invest you should carefully consider the risks and uncertainties described below and in our 2018 Form 10-K, under the caption “Risk Factors”, our Management’s Discussion and Analysis of Financial Condition and Results of Operations set forth in Item 2 of Part I of this Quarterly Report on Form 10-Q, our consolidated financial statements and related notes included in Item 1 of Part I of this Quarterly Report on Form 10-Q and our consolidated financial statements and related notes, as well as our Management’s Discussion and Analysis of Financial Condition and Results of Operations and the other information in our 2018 Form 10-K. Readers should carefully review those risks, as well as additional risks described in other documents we file from time to time with the Securities and Exchange Commission.smaller reporting company

2829

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

	For the quarterly period ended June 30, ~~2019~~2020

	Or

o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

	For the transition period from _________ to _________

Nevada		13-3637458
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

Level 11,Vegetable Building, Industrial Park of the East City, Shouguang City, Shandong, China		262700
(Address of principal executive offices)		(Zip Code)

Title of each class	Trading Symbol (s)	Name of each exchange on which registered
Common Stock, $0.0005 par value	GURE	NASDAQ Global Select Market

Large accelerated filer o	Accelerated filer o
Non-accelerated filer o	Smaller reporting company x
	Emerging Growth Company o

~~Title of each class~~		~~Trading Symbol(s)~~		~~Name of each exchange on which registered~~
~~Common Stock, $0.0005 par value~~		~~GURE~~		~~NASDAQ Global Select Market~~

Part I – Financial Information
Item 1. Financial Statements	1
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	17
Item 3. Quantitative and Qualitative Disclosures about Market Risk	2627
Item 4. Controls and Procedures	2728
Part II – Other Information
Item 1. Legal Proceedings	2728
Item 1A. Risk Factors	2829
Item 2. Unregistered Sale of Equity Securities and Use of Proceeds	2829
Item 3. Defaults Upon Senior Securities	2829
Item 4. Mine Safety Disclosures	2829
Item 5. Other Information	2829
Item 6. Exhibits	2829
Signatures	2930

	Common stock																			Accumulated
	Number		Number		Number							Additional			Retained			Retained		other
	of shares		of shares		of treasury				Treasury			paid-in			earnings			earnings		comprehensive
	issued		outstanding		stock		Amount		stock			capital			unappropriated			appropriated		loss			Total

BALANCE AT MARCH 31, 2019 (Unaudited)		47,149,909		46,920,760		229,149	$	23,573	$	(510,329	)	$	94,997,819		$	180,704,307		$	24,233,544	$	(4,311,698	)	$	295,137,216
Translation adjustment		—		—		—		—					—			—			—		(6,603,591	)		(6,603,591	)
Issuance of stock options to employees								—					45,900			—			—		—			45,900
Cashless exercise of stock options		662,312		662,312		—		331		—			(331	)		—			—-		—			—
Net loss for three-month period ended June 30, 2019		—		—		—		—		—			—			(737,706	)		—		—			(737,706	)
BALANCE AT JUNE 30, 2019 (Unaudited)		47,812,221		47,583,072		229,149	$	23,904	$	(510,329	)	$	95,043,388		$	179,966,601		$	24,233,544	$	(10,915,289	)	$	287,841,819

	Useful life (in years)
Buildings (including salt pans)		8 - 20
Plant and machinery (including protective shells, transmission channels and ducts)		3 - 8
Motor vehicles		5
Furniture, fixtures and equipment		3-8

	Number of Option and Warrants Outstanding and exercisable			Weighted- Average Exercise price of Option and Warrants		Range of Exercise Price per Common Share
Balance, January 1, 2019		2,518,000		$	0.97		$0.71 - $4.80
Granted and vested during the period ended June 30, 2019		150,000		$	0.91	$	0.91
Exercised during the period ended June 30, 2019		(1,897,000	)	$	0.73	$	0.73
Expired during the period ended June 30, 2019		(40,500	)	$	2.61	$	2.61
Balance, June 30, 2019		730,500		$	1.48		$0.71 - $2.55

Three-Month Period Ended June 30, 2018	Bromine*			Crude Salt*			Chemical Products			Natural Gas			Segment Total			Corporate		Total
Net revenue (external customers)	$	—		$	—		$	4,594		$	—		$	4,594		$	—	$	4,594
Net revenue (intersegment)		—			—			—			—			—			—		—
Income(loss) from operations before income tax benefit		(5,577,272	)		(1,731,592	)		(727,595	)		(45,295	)		(8,081,754	)		1,250,147		(6,831,607	)
Income tax benefit		1,579,514			240,367			63,360			—			1,883,241			—		1,883,241
Income (loss) from operations after income tax benefit		(3,997,758	)		(1,491,225	)		(664,235	)		(45,295	)		(6,198,513	)		1,250,147		(4,948,366	)
Total assets		138,510,016			47,572,477			182,669,040			2,011,378			370,762,911			80,818		370,843,729
Depreciation and amortization		4,018,318			611,499			124,167			—			4,753,984			—		4,753,984
Capital expenditures		7,813,714			1,189,075			1,192,963			16,259			10,212,011					10,212,011
Goodwill		—			—			29,010,218			—			29,010,218			—		29,010,218

Six-Month Period Ended June 30, 2018	Bromine*			Crude Salt*			Chemical Products			Natural Gas			Segment Total			Corporate		Total
Net revenue (external customers)	$	—		$	1,638,493		$	613,368		$	—		$	2,251,861		$	—	$	2,251,861
Net revenue (intersegment)		—			—			—			—			—			—		—
Income(loss) from operations before income tax benefit		(11,167,828	)		(2,539,475	)		(1,402,366	)		(80,950	)		(15,190,619	)		62,032		(15,128,587	)
Income tax benefit		2,970,666			442,338			(336,017	)		—			3,076,987			—		3,076,987
Income (loss) from operations after income tax benefit		(8,197,162	)		(2,097,137	)		(1,738,383	)		(80,950	)		(12,113,632	)		62,032		(12,051,600	)
Total assets		138,510,016			47,572,477			182,669,040			2,011,378			370,762,911			80,818		370,843,729
Depreciation and amortization		7,738,030			1,524,850			248,635			—			9,511,515			—		9,511,515
Capital expenditures		7,906,888			1,203,254			1,192,963			30,616			10,333,721					10,333,721
Goodwill		—			—			29,010,218			—			29,010,218			—		29,010,218

Number	Customer	Bromine (000’s)		Crude Salt (000’s)		Chemical Products (000’s)		Total Revenue (000’s)		Percentage of Total Revenue (%)
1	Shandong Morui Chemical Company Limited	$	809	$	321	$	—	$	1,130		21.1	%
2	Shandong Brother Technology Limited	$	550	$	300	$	—	$	850		15.8	%
3	Shouguang Weidong Chemical Company Limited	$	982	$	251	$	—	$	1,233		23	%
4	Dongying Bomeite Chemical Company Limited	$	537	$	—	$	—	$	537		10	%
5	Shandong Shouguang Shenrunfa Ocean Chemical Company Limited	$	711	$	—	$	—	$	711		13.3	%

~~Bromine and crude salt segments~~	~~Three-Month Period Ended~~				~~Percentage Change~~
~~product sold in tonnes~~	~~June 30, 2019~~		~~June 30, 2018~~		~~Increase~~
~~Bromine (excluding volume sold to SYCI)~~		~~1,299~~		—	NA
~~Crude Salt~~		~~9,827~~		—	NA

	~~Three-Month Period Ended~~				~~Percentage Change~~
~~Natural gas segments product sold in cubic metre~~	~~June 30, 2019~~		~~June 30, 2018~~
~~Natural Gas~~		~~89,699~~		—		—

Bromine and crude salt segments	Three-Month Period Ended				Percentage Change
product sold in tonnes	June 30, 2020		June 30, 2019		Increase (Decrease)
Bromine		1,222		1,299		(6	%)
Crude Salt		53,532		9,827		445	%

	Product Mix of Chemical Products Segment									Percent
	Three-Month Period Ended				Three-Month Period Ended					Change of
	June 30, 2019				June 30, 2018					Net Revenue
Chemical Products			% of total				% of total
Oil and gas exploration additives	$	—		—	$	—		—			—
Paper manufacturing additives		—		—		—		—			—
Pesticides manufacturing additives		—		—		—		—			—
Pharmaceutical intermediates		—		—		—		—			—
By product		—		—		—		—			—
Raw materials		—		—		4,594		100	%		(100	%)
Total sales	$	—		—	$	4,594		100	%		(100	%)

	Annual Production Capacity (in tonnes)			Utilization Ratio (i)
Three-month period ended June 30, 2018		42,808			—
Three-month period ended June 30, 2019		31,506			18	%
Variance of the three-month period ended June 30, 2019 and 2018		(11,302	)		—

	Annual Production Capacity (in tonnes)		Utilization Ratio (i)
Three-month period ended June 30, 2019		31,506		18	%
Three-month period ended June 30, 2020		31,506		15	%
Variance of the three-month period ended June 30, 2020 and 2019		—		(3	%)

	Six-Month Period Ended				Percentage Change
Chemical products segment sold in tonnes	June 30, 2019		June 30, 2018		Decrease
Oil and gas exploration additives		—		—		—
Paper manufacturing additives		—		—		—
Pesticides manufacturing additives		—		14		(100	%)
Pharmaceutical intermediate		—		—		—
By product		—		96		(100	%)
Overall		—		110		—

	Annual Production Capacity (in tonnes)			Utilization Ratio (i)
Six-month period ended June 30, 2018		42,808			—
Six-month period ended June 30, 2019		31,506			18	%
Variance of the six-month period ended June 30, 2019 and 2018		(11,302	)		—

Exhibit No.	Description

31.1	Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2	Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

	GULF RESOURCES, INC.

Dated: August 14, ~~2019~~2020	By:	/s/ Xiaobin Liu
		Xiaobin Liu
		Chief Executive Officer
		(principal executive officer)

Dated: August 14, ~~2019~~2020	By:	/s/ Min Li
		Min Li
		Chief Financial Officer
		(principal financial and accounting officer)

Stock Options and Warrants Outstanding and Exercisable

Weighted Average

Outstanding at June 30, 2020

Range of
Exercise Prices

Contractual Life
(Years)

Outstanding and exercisable

$3.57 - $7.27