10-Q/A

 UNITED STATES 

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q/A

(Amendment No. 1)

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended June 30, 2018
	Or
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from _________ to _________

Commission File Number: 001-34499

GULF RESOURCES, INC.

(Exact name of registrant as specified in its charter)

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,	262700
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: +86 (536) 567 0008

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.

Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every, Interactive Data File required to be submitted and posted 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 and post such files).

Yes x No o

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. 

Large accelerated filer o	Accelerated filer o
Non-accelerated filer (Do not check if a smaller reporting company) o	Smaller reporting company x
	Emerging Growth Company o

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).

Yes o No x

As of August 6, 2018, the registrant had outstanding 46,803,791 shares of common stock.

 Explanatory Note

This Amendment No. 1 on Form 10-Q/A is being filed to reflect the correction of an error in the previously reported quarterly financial statements for the period ended June 30, 2018 filed on August 10, 2018 related to the one-time mandatory federal transition tax on accumulated foreign earnings accrued in the fiscal year 2017. See Note 2 to the Consolidated Financial Statements included in item 1 for additional information and a reconciliation of the previously reported amounts to the restated amounts. Items that have not been amended have been omitted from this amendment. The Company is also concurrently filing previously issued financial statements to restate the error described above (i) Amendment No. 2 to the Annual Report for the fiscal year ended December 31, 2017 and (ii) Amendment No. 1 to the Quarterly Report for the three months ended March 31, 2018.

The following are the sections that are impacted by the correction of the error:

Part I, Item 1 – Financial Statement

Part I, Item 4 – Controls and Procedures

Part II, Item 6 - Exhibits

Table of Contents

Part I – Financial Information
Item 1. Financial Statements	1
Item 4. Controls and Procedures	20
Part II – Other Information
Item 6. Exhibits	21
Signatures	22

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

GULF RESOURCES, INC.

 AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Expressed in U.S. dollars) 

	June 30, 2018 Unaudited (Restated)			December 31, 2017 Audited
Current Assets
Cash	$	215,975,864		$	208,906,759
Accounts receivable		4,650,250			29,765,884
Inventories, net		181,094			1,196,785
Prepayments and deposits		1,456,090			1,395,289
Prepaid land leases		773,480			246,640
Other receivable		12,952			2,089
Total Current Assets		223,049,730			241,513,446
Non-Current Assets
Property, plant and equipment, net		94,828,982			95,114,504
Property, plant and equipment under capital leases, net		394,180			492,238
Prepaid land leases, net of current portion		14,151,767			14,477,771
Deferred tax assets		9,408,852			6,526,555
Goodwill		29,010,218			29,374,909
Total non-current assets		147,793,999			145,985,977
Total Assets	$	370,843,729		$	387,499,423
Liabilities and Stockholders’ Equity
Current Liabilities
Accounts payable and accrued expenses	$	774,134		$	1,032,083
Retention payable		643,305			956,351
Capital lease obligation, current portion		128,575			203,206
Taxes payable-current		1,616,741			1,041,592
Total Current Liabilities		3,162,755			3,233,232
Non-Current Liabilities
Capital lease obligation, net of current portion		2,146,816			2,303,995
Taxes payable-non-current		—			—
Total Non-Current Liabilities		2,146,816			2,303,995
Total Liabilities	$	5,309,571		$	5,537,227
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; 47,052,940 shares issued and 46,803,791 shares outstanding as of June 30, 2018 and December 31, 2017, respectively		23,525			23,525
Treasury stock; 249,149 shares as of June 30, 2018 and December 31, 2017 at cost		(554,870	)		(554,870	)
Additional paid-in capital		94,524,608			94,524,608
Retained earnings unappropriated		243,782,458			255,572,431
Retained earnings appropriated		24,233,544			24,233,544
Accumulated other comprehensive income		3,524,893			8,162,958
Total Stockholders’ Equity		365,534,158			381,962,196
Total Liabilities and Stockholders’ Equity	$	370,843,729		$	387,499,423

See accompanying notes to the condensed consolidated financial statements.

1

GULF RESOURCES, INC.

AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS) AND COMPREHENSIVE INCOME (LOSS)

(Expressed in U.S. dollars)

(UNAUDITED)

	Three-Month Period Ended June 30,						Six-Month Period Ended June 30,
	2018			2017			2018			2017
NET REVENUE
Net revenue	$	4,594		$	47,531,989		$	2,251,861		$	80,320,482
OPERATING INCOME (EXPENSE)
Cost of net revenue		(7	)		(26,931,742	)		(1,241,816	)		(47,145,605	)
Sales, marketing and other operating expenses		(21,025	)		(100,613	)		(55,999	)		(176,446	)
Research and development cost		—			(65,274	)		—			(127,172	)
Direct labor and factory overheads incurred during plant shutdown		(5,689,486	)		—			(11,385,005	)		—
General and administrative expenses		(1,125,683	)		(2,056,943	)		(4,697,628	)		(3,785,403	)
Other operating income		—			105,055			—			209,613
		(6,836,201	)		(29,049,517	)		(17,380,448	)		(51,025,013	)
INCOME/(LOSS) FROM OPERATIONS		(6,831,607	)		18,482,472			(15,128,587	)		29,295,469
OTHER INCOME (EXPENSE)
Interest expense		(43,185	)		(42,065	)		(86,529	)		(83,976	)
Interest income		178,678			132,721			348,156			258,581
INCOME/(LOSS) BEFORE TAXES		(6,696,114	)		18,573,128			(14,866,960	)		29,470,074
INCOME TAXES (EXPENSE) BENEFIT		1,883,241			(4,821,450	)		3,076,987			(7,643,276	)
NET INCOME/(LOSS)	$	(4,812,873	)	$	13,751,678		$	(11,789,973	)	$	21,826,798
COMPREHENSIVE INCOME(LOSS):
NET INCOME/(LOSS)	$	(4,812,873	)	$	13,751,678		$	(11,789,973	)	$	21,826,798
OTHER COMPREHENSIVE INCOME (LOSS)
- Foreign currency translation adjustments		(20,586,976	)		7,261,237			(4,638,065	)		9,298,509
COMPREHENSIVE INCOME/(LOSS)	$	(25,399,849	)	$	21,012,915		$	(16,428,038	)	$	31,125,307
EARNINGS (LOSS) PER SHARE:
BASIC	$	(0.10	)	$	0.29		$	(0.25	)	$	0.47
DILUTED	$	(0.10	)	$	0.29		$	(0.25	)	$	0.47
WEIGHTED AVERAGE NUMBER OF SHARES:
BASIC		46,803,791			46,793,791			46,803,791			46,793,791
DILUTED		46,803,791			46,796,848			46,815,089			46,800,545

See accompanying notes to the condensed consolidated financial statements.

2

GULF RESOURCES, INC.

AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

SIX-MONTH PERIOD ENDED JUNE 30, 2018

(Expressed in U.S. dollars) 

	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) income			Total
														(Restated)								(Restated)
BALANCE AT DECEMBER 31, 2017 (Audited)		47,052,940		46,803,791		249,149	$	23,525	$	(554,870	)	$	94,524,608	$	255,572,431		$	24,233,544	$	8,162,958		$	381,962,196
Translation adjustment		—		—		—		—					—		—			—		(4,638,065	)		(4,638,065	)
Net loss for six-month period ended June 30, 2018		—		—		—		—		—			—		(11,789,973	)		—		—			(11,789,973	)
Transfer to statutory common reserve fund		—		—		—		—		—			—		—			—		—			—
BALANCE AT JUNE 30, 2018 (Unaudited)(Restated)		47,052,940		46,803,791		249,149	$	23,525	$	(554,870	)	$	94,524,608	$	243,782,458		$	24,233,544	$	3,524,893		$	365,534,158

See accompanying notes to the condensed consolidated financial statements.

3

GULF RESOURCES, INC.

AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Expressed in U.S. dollars)

(UNAUDITED)

	Six-Month Period Ended June 30,
	2018			2017
CASH FLOWS FROM OPERATING ACTIVITIES
Net income/(loss)	$	(11,789,973	)	$	21,826,798
Adjustments to reconcile net income(loss) to net cash provided by operating activities:
Interest on capital lease obligation		86,214			83,128
Amortization of prepaid land leases		294,676			234,307
Depreciation and amortization		9,511,515			10,809,289
Unrealized exchange (gain) loss on inter-company balances		(345,086	)		603,910
Deferred tax asset		(3,076,986	)		—
Stock-based compensation expense		—			14,700
Changes in assets and liabilities:
Accounts receivable		25,720,587			(33,349,844	)
Inventories		1,039,959			1,165,420
Prepayments and deposits		(61,251	)		(19,129	)
Other receivables		(11,289	)		(580	)
Accounts payable and accrued expenses		(256,603	)		5,582,026
Retention payable		(312,429	)		(739,329	)
Taxes payable		592,979			3,292,636
Net cash provided by operating activities		21,392,313			9,503,332
CASH FLOWS USED IN INVESTING ACTIVITIES
Additions of prepaid land leases		(693,198	)		(818,957	)
Purchase of property, plant and equipment		(10,333,721	)		(59,975	)
Net cash used in investing activities		(11,026,919	)		(878,932	)
CASH FLOWS USED IN FINANCING ACTIVITIES
Repayment of capital lease obligation		(294,295	)		(273,873	)
Net cash used in financing activities		(294,295	)		(273,873	)
EFFECTS OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS		(3,001,994	)		4,068,173
NET INCREASE IN CASH AND CASH EQUIVALENTS		7,069,105			12,418,700
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD		208,906,759			163,884,574
CASH AND CASH EQUIVALENTS - END OF PERIOD	$	215,975,864		$	176,303,274
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the periods for:
Income taxes	$	—		$	4,634,040

See accompanying notes to the condensed consolidated financial statements.

4

GULF RESOURCES, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2018

(Expressed in U.S. dollars)

(UNAUDITED)

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

(a)           Basis of Presentation and Consolidation

The accompanying condensed financial statements have been prepared by Gulf Resources, 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, 2018 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 2017 Form 10-K/A (Amendment No. 2). 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.

(b)           Nature of the Business

The Company manufactures and trades bromine and crude salt through its wholly-owned subsidiary, Shouguang City Haoyuan Chemical Company Limited ("SCHC") and manufactures chemical products for use in the oil industry, pesticides, paper manufacturing industry and for human and animal antibiotics through its wholly-owned subsidiary, Shouguang Yuxin Chemical Industry Co., Limited ("SYCI") in the People’s Republic of China (“PRC”). DCHC was established to further explore and develop natural gas and brine resources (including bromine and crude salt) in the PRC. DCHC’s business was not fully operational as of June 30, 2018.

On September 1, 2017, the Company received notification from the Government of Yangkou County, Shouguang City of PRC that production at all its 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.

The Company has been working 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. SCHC is currently under rectification process. The Company believes this rectification process will cost approximately $35 million. In addition to the $35 million, the Company expects to spend an additional $40 million in 2018 to carry out enhancement projects for its extraction wells. The Company incurred rectification and improvements in the amount of $27,048,794 and $17,938,652 as of June 30, 2018 and December 31, 2017.

Originally, six 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. Subsequently, 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. As of current date, the Company has not received any official approval from the government.

Four of the remaining bromine and crude salt factories have a slightly more complex issue that needs to be resolved. All bromine factories now require paired crude salt pans to prevent the halogen water resulting from the production process from flowing into the sea. Four of these bromine factories do not have a designated crude salt pan where the wastewater could be channeled. The Company has four alternatives for these four factories which do not have paired crude salt pans: 1. It can form partnerships with adjacent bromine facilities that do have crude salt pans. The nature of these partnerships could take many forms. At present, the Company is communicating with a third party about the waste water discharge of the Factory No 10. If an agreement is reached, the Company will invest RMB7 million to build a new aqueduct and discharge the waste water to the designated place for treatment by the designated party. 2. The Company could petition the government for a zoning change so that additional land for salt pans could be obtained. The Company believes this might be difficult but is worth pursuing; 3. The Company could negotiate a different method of dealing with this issue; or, 4. These factories could conceivably be forced to close. At the present time, the Company is also working with the government on these issues and has not reached any final solution yet.

Subsequently 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 Weifang 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 approval procedures, planning approval procedures, land use rights approval procedures and environmental protection assessment procedures. The Company believes that the government will not grant approval to the Company to allow 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. We understood from the local government that it has been coordinating with several government agencies to solve these three outstanding approval issues in a timely manner and that all the affected bromine plants are not allowed to commence production prior to obtaining those approvals.

The Company is not certain how long the temporary delay will be due to the issuance and implement of the Notice. 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.

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 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. The Company believes this relocation process will cost approximately $60 million in total. The Company incurred relocation cost in the amount of $10,925,081 and $9,732,118 as of June 30, 2018 and December 31, 2017 and estimated that the new factory will be fully operational by the beginning of 2020.

The Company does not anticipate that the Company’s new chemical factory will 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 Marine Fine Chemical Industry Park and presented a completed construction design draft and other related documents to the local authorities for approval. The Company expected to receive feedback from the local authorities. However, the Company does believe there could be a delay for the approval process given the ongoing rectification and approvals process for the Company’s other plants.

In January 2017, the Company completed the first brine water and natural gas well field construction in Sichuan Province and announced the commencement of trial production. The Company has been working with Xinan Shiyou Daxue (Southwest Petroleum University) and developed a solution to DHCH’s technical drilling problem. In resolving the problem, the Company purchased customized equipment for its natural gas project. The installation of such equipment, including providing piping and electricity, was completed in July 2018. The Company is preparing to test the equipment and anticipates to begin the trial production in September 2018.

(c)           Allowance for Doubtful Accounts

As of June 30, 2018 and December 31, 2017, allowances for doubtful accounts were nil. No allowances for doubtful accounts were charged to the condensed consolidated statements of income (loss) for the three-month and six-month periods ended June 30, 2018 and 2017.

(d)           Concentration of Credit Risk

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 $215,975,864 and $208,906,759 with these institutions as of June 30, 2018 and December 31, 2017, 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. Approximately 0% and 13% of the balances of accounts receivable as of June 30, 2018 and December 31, 2017, respectively, are outstanding for less than three months. All outstanding receivables as of June 30, 2018 and December 31, 2017 are within the credit terms. For the balances of accounts receivable aged more than 90 days and all accounts receivable as of June 30, 2018, approximately 28% were collected in July 2018. 

The rate of collection in July 2018 for accounts receivable aged more than 90 days as of June 30, 2018 was analyzed as follows:

Accounts Receivable Aging	Percent Collected
90-120 days	0%
121-150 days	0%
151-180 days	0%
181-210 days	16%
211-240 days	100%

5

GULF RESOURCES, INC. 

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2018

(Expressed in U.S. dollars)

(UNAUDITED)

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

(e)           Property, Plant and Equipment

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 plant, machinery and equipment. Costs incurred are capitalized and transferred to property and equipment upon completion.

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

	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

Property, plant and equipment under the capital 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 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.

(f)           Retirement Benefits

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 income (loss) on an accrual basis when they are due. The Company’s contributions totaled $301,657 and $257,660 for the three-month period ended June 30, 2018 and 2017, respectively, and totaled $604,075 and $512,876 for the six-month period ended June 30, 2018 and 2017, respectively.

(g)           Revenue Recognition

Net revenue is net of discount and value added tax and comprises the sale of bromine, crude salt and chemical products. Revenue is recognized 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.

6

GULF RESOURCES, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2018

 (Expressed in U.S. dollars)

(UNAUDITED)

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

(h)           Recoverability of Long-lived Assets

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, 2018 and 2017, the Company determined that there were no events or circumstances indicating possible impairment of its long-lived assets.

(i)           Basic and Diluted Earnings per Share of Common Stock

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 89,684 and 39,155 shares for the three-month period ended June 30, 2018 and 2017, respectively, and amounted to 82,649 and 32,077 shares for the six-month period ended June 30, 2018 and 2017, 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.

7

GULF RESOURCES, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2018

 (Expressed in U.S. dollars)

(UNAUDITED)

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

(i)           Basic and Diluted Earnings per Share of Common Stock – Continued

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

	Three-Month Period Ended June  30,					Six-Month Period Ended June 30,
	2018			2017		2018			2017
Numerator
Net income/(loss)	$	(4,812,873	)	$	13,751,678	$	(11,789,973	)	$	21,826,798
Denominator
Basic: Weighted-average common shares outstanding during the period		46,803,791			46,793,791		46,803,791			46,793,791
Add: Dilutive effect of stock options		—			3,057		11,298			6,754
Diluted		46,803,791			46,796,848		46,815,089			46,800,545
Net income/(loss) per share
Basic	$	(0.10	)	$	0.29	$	(0.25	)	$	0.47
Diluted	$	(0.10	)	$	0.29	$	(0.25	)	$	0.47

(j)           Reporting Currency and Translation

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 income (loss). The statement of income (loss) and comprehensive income (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 income (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.

(k)           Foreign Operations

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.

(l)           Exploration Costs

Exploration costs, which included the cost of researching appropriate places to drill wells and the cost of well drilling in search of potential natural brine or other resources, are charged to the income (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 to 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.

(m)  Goodwill

Goodwill represents the excess of the purchase price over the net of the fair value of the identifiable tangible and intangible assets acquired and the fair value of liabilities assumed in business acquisitions. Goodwill impairment is assessed based on qualitative factors to determine whether it is more likely than not that the fair value of a reporting entity is less than its carrying amount, including goodwill. If the Company determines that it is more likely than not that the fair value of a reporting entity is less than its carrying amount, the two-step goodwill impairment test will be performed. The Company performs its impairment assessment annually and between annual tests in certain circumstances and determined that the two-step goodwill impairment test is not required to be carried out as of June 30, 2018.

(n)           New Accounting Pronouncements

Recently Adopted Accounting Pronouncements

In May 2014 and April 2016, the FASB issued ASU No. 2014-09 and ASU No. 2016-10, Revenue from Contracts with Customers (Topic 606). The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In August 2015, FASB issued ASU 2015-14, which deferred the effective date of Update 2014-09 to annual reporting periods beginning after December 15, 2017. The Company adopted this Update as of January 1, 2018. This adoption did not have a material impact on the Company’s condensed consolidated financial statements as of and for the three and six months ended June 30, 2018 as the amount and timing of all the Company’s revenue will continue to be recognized at a point in time. As required by the Update, the Company disclosed its revenues from contracts with customers into disaggregated categories in Note 14.

In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230), Classification of Certain Cash Receipts and Cash Payments. The Update addresses eight specific changes to how cash receipts and cash payments are presented and classified in the statement of cash flows. The amendments in this Update are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted. An entity that elects early adoption must adopt all of the amendments in the same period. The amendments in this Update should be applied using a retrospective transition method to each period presented. If it is impracticable to apply the amendments retrospectively for some of the issues, the amendments for those issues would be applied prospectively as of the earliest date practicable. The Company adopted this Update as of January 1, 2018 with no material impact on the condensed consolidated financial statements as of and for the three and six months ended June 30, 2018.

In May 2017, the FASB issued ASU No. 2017-09, Compensation – Stock Compensation (Topic 718), Scope of Modification Accounting. The amendments in this Update provide guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting. The amendments in this Update are effective for all entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. The amendments in this Update should be applied prospectively to an award modified on or after the adoption date. The Company adopted this Update as of January 1, 2018 with no material impact on the condensed consolidated financial statements as of and for the three and six months ended June 30, 2018.

Recently Issued Accounting Pronouncements Not Yet Adopted

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 leases. For public business entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company is currently evaluating the effect of this on the consolidated financial statements and related disclosure.

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. The Company is currently evaluating the effect of this on the consolidated financial statements and related disclosure.

In January 2017, the FASB issued ASU No. 2017-04, Intangibles – Goodwill and Other (Topic 350), Simplifying the Test for Goodwill Impairment. To simplify the subsequent measurement of goodwill, the Board eliminated Step 2 from the goodwill impairment test. Instead, under the amendments in this Update, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. A public business entity that is a U.S. Securities and Exchange Commission (SEC) filer should adopt the amendments in this Update for its annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. The Company is currently evaluating effect of this on the consolidated financial statements and related disclosure.

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, Top 718 applied only to share-based transactions to employees. Consistent with the accounting requirements for employee share-based payment awards, nonemployee share-based payment awards within the scope of Topic 718 are measured at grant-date fair value of the equity instruments that an entity 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 in the Update are effective for public business entities form fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. Early adoption is permitted, but no earlier than an entity’s adoption date of Topic 606. This is not expected to have a material effect on the Company’s consolidated financial statements.

NOTE 2 – RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS

The Company determined that the entire one-time mandatory federal transition tax on accumulated foreign earnings accrued in fiscal year 2017 can be offset against a portion of the Company’s US federal net operating loss carryovers and foreign tax credit carryovers. As a result, the Company did not need to accrue the $5,402,000 of income taxes in fiscal year 2017 and the Company is restating condensed consolidated financial statements as of June 30, 2018 to correct this error.

The table below sets forth the effect of the restatement on the consolidated balance sheet as of June 30, 2018.

	As Reported		Correction			As Restated
Taxes payable-current	$	2,049,741	$	(433,000	)	$	1,616,741
Total CurrentLiabilities		3,595,755		(433,000	)		3,162,755
Taxes payable-non-current		4,969,000		(4,969,000	)		—
Total non-Current Liabilities		7,115,816		(4,969,000	)		2,146,816
Total Liabilities		10,711,571		(5,402,000	)		5,309,571
Retained earnings unappropriated		238,380,458		5,402,000			243,782,458
Total Stockholders’ Equity	$	360,132,158	$	5,402,000		$	365,534,158

The table below sets forth the effect of the restatement on the consolidated statement of stockholders’ equity as of June 30, 2018.

	Retained earnings unappropriated		Total
Balance at June 30, 2018 as reported	$	238,380,458	$	360,132,158
Correction	$	5,402,000	$	5,402,000
Balance at June 30, 2018 as restated	$	243,782,458	$	365,534,158

8

GULF RESOURCES, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2018

 (Expressed in U.S. dollars)

(UNAUDITED)

NOTE 3 – INVENTORIES

Inventories consist of:

	June 30, 2018		December 31, 2017
Raw materials	$	14,414	$	396,482
Finished goods		166,680		844,224
Allowance for obsolete and slow-moving inventory		—		(43,921	)
	$	181,094	$	1,196,785

NOTE 4 – PREPAID LAND LEASES

The Company prepaid for land leases with lease terms for periods ranging from one to fifty years to use the land on which the production facilities and warehouses of the Company are situated. The prepaid land lease is amortized on a straight line basis.

The Company paid $9,732,118 for a 50-year lease of a parcel of land for the new factory at Bohai Marine Fine Chemical Industrial Park in December, 2017. The land use certificate is being processed by the government and the commencement date of the lease will be known upon completion of the application process when the land use certificate will be issued. Amortization of the lease will commence on the day the lease term starts.

During the three and six months period ended June 30, 2018, amortization of prepaid land leases totaled $150,579 and $294,676, which amounts were recorded as direct labor and factory overheads incurred during plant shutdown. 

During the three and six months period ended June 30, 2017, amortization of prepaid land leases totaled $126,846 and $234,307, which amounts were recorded as cost of net revenue. 

The Company has the rights to use certain parcels of land located in Shouguang, PRC, through lease agreements signed with local townships or the government authority. For parcels of land that are collectively owned by local townships, the Company cannot obtain land use rights certificates. The parcels of land that the Company cannot obtain land use rights certificates cover a total of approximately 54.99 square kilometers with an aggregate carrying value of $1,067,939 and approximately 54.97 square kilometers with an aggregate carrying value of $645,761 as at June 30, 2018 and December 31, 2017, respectively.

NOTE 5 – PROPERTY, PLANT AND EQUIPMENT, NET

Property, plant and equipment, net consist of the following:

	June 30, 2018			December 31, 2017
At cost:
Mineral rights	$	4,653,325			4,711,822
Buildings		66,907,410			67,748,512
Plant and machinery		205,294,156			200,742,652
Motor vehicles		8,683			8,792
Furniture, fixtures and office equipment		4,099,059			4,150,588
Construction in process		1,358,535			183,036
Total		282,321,168			277,545,402
Less: Accumulated depreciation and amortization		(169,016,305	)		(163,597,407	)
Impairment		(18,475,881	)		(18,833,491	)
Net book value	$	94,828,982		$	95,114,504

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. 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 $26,162,718 and $27,432,351 as at June 30, 2018 and December 31, 2017, respectively.

9

GULF RESOURCES, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2018

 (Expressed in U.S. dollars)

(UNAUDITED)

NOTE 5 – PROPERTY, PLANT AND EQUIPMENT, NET – Continued

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.

During the three-month period ended June 30, 2017, depreciation and amortization expense totaled $5,294,777, of which $5,001,792 and $292,985 were recorded as cost of net revenue and administrative expenses, respectively. During the six-month period ended June 30, 2017, depreciation and amortization expense totaled $10,658,819, of which $10,074,234 and $584,585 were recorded as cost of net revenue and administrative expenses respectively.

NOTE 6 – PROPERTY, PLANT AND EQUIPMENT UNDER CAPITAL LEASES, NET

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

	June 30, 2018			December 31,   2017
At cost:
Buildings	$	124,375		$	125,939
Plant and machinery		2,285,465			2,314,196
Total		2,409,840			2,440,135
Less: Accumulated depreciation and amortization		(2,015,660	)		(1,947,897	)
Net book value	$	394,180		$	492,238

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, 2018, depreciation and amortization expense totaled $69,115 and $138,397, respectively, which was recorded in direct labor and factory overheads incurred during plant shutdown.

During the three and six months period ended June 30, 2017, depreciation and amortization expense totaled $75,413 and $150,470, respectively, which was recorded as cost of net revenue.

10

GULF RESOURCES, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2018

 (Expressed in U.S. dollars)

(UNAUDITED)

NOTE 7 – ACCOUNTS PAYABLE AND ACCRUED EXPENSES

Accounts payable and accrued expenses consist of the following:

	June 30,		December 31,
	2018		2017
Salary payable	$	252,261	$	393,617
Social security insurance contribution payable		133,692		135,203
Other payables		388,181		503,263
Total	$	774,134	$	1,032,083

NOTE 8 – RELATED PARTY TRANSACTIONS

During the three-month and six-month periods ended June 30, 2018, the Company borrowed $66,000 and $251,912, respectively, 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 amounts due to Jiaxing Lighting were unsecured, interest free and repayable on demand and were fully settled in the three-month period ended June 30, 2018. There was no balance owing to Jiaxing Lighting as of June 30, 2018.

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 $99,200 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, 2018 was approximately $24,500 and $49,000.

NOTE 9 – TAXES PAYABLE

Taxes payable consists of the following:

	June 30,		December 31,
	2018 Restated		2017
Natural resource tax	$	—	$	156,147
Land use tax payable		1,616,741		810,841
Other tax payables		—		74,604
Total current taxes payable	$	1,616,741	$	1,041,592

NOTE 10 – CAPITAL LEASE OBLIGATIONS

The components of capital lease obligations are as follows:

	Imputed		June 30,			December 31,
	Interest rate		2018			2017
Total capital lease obligations		6.7%	$	2,275,391		$	2,507,201
Less: Current portion				(128,575	)		(203,206	)
Capital lease obligations, net of current portion			$	2,146,816		$	2,303,995

Interest expenses from capital lease obligations amounted to $43,055 and $41,375 for the three-month period ended June 30, 2018 and 2017, respectively, which were charged to the condensed consolidated statement of income (loss). Interest expenses from capital lease obligations amounted to $86,214 and $83,128 for the six-month period ended June 30, 2018 and 2017, respectively, which were charged to the condensed consolidated statement of income (loss).

11

GULF RESOURCES, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2018

 (Expressed in U.S. dollars)

(UNAUDITED)

NOTE 11 ––EQUITY

(a) Authorized shares

During the annual general meeting held on June 18, 2013, the shareholders of the Company approved the amendment to the Certificate of Incorporation to decrease the number of the authorized shares of the Company’s common stock to 80,000,000. The Company filed an amended and restated Certificate of Incorporation with the Secretary of the State of Delaware to decrease the number of authorized shares of the Company’s common stock. Accordingly, 80,000,000 is disclosed as the authorized shares of the Company’s common stock in the consolidated balance sheets as of June 30, 2018 and December 31, 2017.

(b) Retained Earnings - Appropriated

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:

Statutory Common Reserve Funds

SCHC, SYCI and DCHC are required each year to transfer at least 10% of the profit after tax as reported under the PRC statutory financial statements to the Statutory Common Reserve 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, 2018 for SCHC, SYCI and DCHC is 46%, 14% and 0% of its registered capital respectively.

NOTE 12 – STOCK-BASED COMPENSATION

Pursuant to the Company’s Amended and Restated 2007 Equity Incentive Plan approved in 2011(“Plan”), the aggregate 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, 2018, the number of shares of the Company’s common stock available for issuance under the Plan is 6,739,989.

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.

During the six months ended June 30, 2018, there were no options issued to employees or non-employees.

The following table summarizes all Company stock option transactions between January 1, 2018 and June 30, 2018.

	Number of Option Outstanding and exercisable			Weighted- Average Exercise price of Option		Range of Exercise Price per Common Share
Balance, January 1, 2018		808,500		$	1.61		$1.44 - $4.80
Granted and vested during the period Ended June 30, 2018		—			—		—
Expired during the period ended June 30, 2018		(25,000	)	$	2.31		$2.07-2.55
Balance, June 30, 2018		783,500		$	1.58		$1.44 - $4.80

12

GULF RESOURCES, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2018

 (Expressed in U.S. dollars)

(UNAUDITED)

NOTE 12 – STOCK-BASED COMPENSATION – Continued

	Stock Options Exercisable and Outstanding
			Weighted Average
			Remaining
	Outstanding at June 30, 2018	Range of Exercise Prices	Contractual Life  (Years)
Exercisable and outstanding	783,500	$1.44 - $4.80	2.70

The aggregate intrinsic value of options outstanding and exercisable as of June 30, 2018 was $0.

NOTE 13 – INCOME TAXES (Restated)

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

(a)          United States (“US”)

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, 2018 and 2017, 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 federal 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 carryovers 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.  

(b)           British Virgin Islands (“BVI”)

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, 2018 and 2017.

(c)           Hong Kong

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, 2018 and 2017.  The applicable statutory tax rates for the three-month and six-month periods ended June 30, 2018 and 2017 are 16.5%. There is no dividend withholding tax in Hong Kong.

(d)           PRC

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 [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.

13

GULF RESOURCES, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2018

 (Expressed in U.S. dollars)

(UNAUDITED)

NOTE 13 – INCOME TAXES (Restated) – Continued

As of June 30, 2018 and December 31, 2017, the accumulated distributable earnings under the Generally Accepted Accounting Principles (GAAP”) of PRC of the FIE of the Company that are subject to WHT are $285,284,985 and $282,660,981, 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, 2018 and December 31, 2017, 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, 2018 and December 31, 2017, the unrecognized WHT are $13,234,848 and $14,133,049, 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 2014 are 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 2011 through 2017, HKJI did not report any taxable income. It did not file any income tax returns during these years except for 2014. 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 are currently subject to examination.

The components of the provision for income tax expense (benefit) from continuing operations are:

	Three-Month Period Ended June  30,					Six-Month Period Ended June 30,
	2018			2017		2018			2017
Current taxes – PRC	$	—		$	4,821,450	$	—		$	7,643,276
Deferred taxes – PRC		(1,883,241	)		—		(3,076,987	)		—
	$	(1,883,241	)	$	4,821,450	$	(3,076,987	)	$	7,643,276

The effective income tax rate differ 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,
Reconciliations	2018			2017			2018			2017
Statutory income tax rate		25	%		25	%		25	%		25	%
Non-deductible expense		(1	%)		1	%		(4	%)		1	%
Non-taxable items		5	%		—			1	%		—
Change in valuation allowance		(1	%)		—			(1	%)		—
Effective tax rate		28	%		26	%		21	%		26	%

Significant components of the Company’s deferred tax assets and liabilities at June 30, 2018 and December 31, 2017 are as follows:

	June 30,			December 31,
	2018 (Restated)			2017
Deferred tax liabilities	$	—		$	—
Deferred tax assets:
Allowance for obsolete and slow-moving inventories	$	—		$	10,980
Impairment on property, plant and equipment		3,706,211			4,610,228
Exploration costs		1,881,693			1,905,347
Compensation costs of unexercised stock options		94,287			98,092
PRC tax losses		3,820,948			—
US federal net operating loss		59,400			—
Total deferred tax assets		9,562,539			6,624,647
Valuation allowance		(153,687	)		(98,092	)
Net deferred tax asset	$	9,408,852		$	6,526,555

The increase in valuation allowance for each of the three-month periods ended June 30, 2018 and 2017 is $28,499 and $32,600, respectively.

The increase in valuation allowance for the six-month period ended June 30, 2018 and 2017 is $55,595 and $73,400.

There were no unrecognized tax benefits and accrual for uncertain tax positions as of June 30, 2018 and December 31, 2017.

14

GULF RESOURCES, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2018

 (Expressed in U.S. dollars)

(UNAUDITED)

NOTE 14 – BUSINESS SEGMENTS

The Company has four reportable segments:  bromine, crude salt, chemical products and natural gas. The reportable segments are consistent with how management views the markets served by the Company and the financial information that is reviewed by its chief operating decision maker.

An operating segment’s performance is primarily evaluated based on segment operating income (loss), 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 (loss), 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, 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 taxes(benefit)		(5,577,272	)		(1,731,592	)		(727,595	)		(45,295	)		(8,081,754	)		1,250,147		(6,831,607	)
Income taxes expense (benefit)		(1,579,514	)		(240,367	)		(63,360	)		—			(1,883,241	)		—		(1,883,241	)
Income (loss) from operations after income taxes(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

Three-Month Period Ended June 30, 2017	Bromine*		Crude  Salt*		Chemical   Products		Natural Gas			Segment   Total		Corporate			Total
Net revenue (external customers)	$	18,423,133	$	2,521,883	$	26,586,973	$	—		$	47,531,989	$	—		$	47,531,989
Net revenue (intersegment)		2,910,743		—		—		—			2,910,743		—			2,910,743
Income(loss) from operations before income taxes		9,740,981		1,051,202		8,318,480		(33,529	)		19,077,134		(594,662	)		18,482,472
Income taxes		2,464,085		245,164		2,112,201		—			4,821,450		—			4,821,450
Income (loss) from operations after income taxes		7,276,896		806,038		6,206,279		(33,529	)		14,255,684		(594,662	)		13,661,022
Total assets		162,696,276		32,749,355		207,885,555		1,819,284			405,150,470		114,373			405,264,843
Depreciation and amortization		3,794,600		624,226		951,364		—			5,370,190		—			5,370,190
Goodwill		—		—		28,332,661		—			28,332,661		—			28,332,661

15

GULF RESOURCES, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2018

 (Expressed in U.S. dollars)

(UNAUDITED)

NOTE 14 – BUSINESS SEGMENTS – Continued

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 taxes (benefit)		(11,167,828	)		(2,539,475	)		(1,402,366	)		(80,950	)		(15,190,619	)		62,032		(15,128,587	)
Income taxes expense (benefit)		(2,970,666	)		(442,338	)		336,017			—			(3,076,987	)		—		(3,076,987	)
Income (loss) from operations after income taxes(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

Six-Month Period Ended June 30, 2017	Bromine*		Crude  Salt*		Chemical  Products		Natural Gas			Segment  Total		Corporate			Total
Net revenue (external customers)	$	32,345,527	$	4,335,661	$	43,639,294	$	—		$	80,320,482	$	—		$	80,320,482
Net revenue (intersegment)		5,089,236		—		—		—			5,089,236		—			5,089,236
Income(loss) from operations before income taxes		15,012,915		1,937,089		13,264,657		(57,287	)		30,157,374		(861,905	)		29,295,469
Income taxes		3,794,188		468,746		3,380,342		—			7,643,276		—			7,643,276
Income (loss) from operations after income taxes		11,218,727		1,468,343		9,884,315		(57,287	)		22,514,098		(861,905	)		21,652,193
Total assets		162,696,276		32,749,355		207,885,555		1,819,284			405,150,470		114,373			405,264,843
Depreciation and amortization		7,793,181		1,078,673		1,937,435		—			10,809,289		—			10,809,289
Goodwill		—		—		28,332,661		—			28,332,661		—			28,332,661

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

16

GULF RESOURCES, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2018

 (Expressed in U.S. dollars)

(UNAUDITED)

NOTE 14 – BUSINESS SEGMENTS – Continued

	Three-Month Period Ended June 30,						Six-Month Period Ended June 30,
Reconciliations	2018			2017			2018			2017
Total segment operating income (loss)	$	(8,081,754	)	$	19,077,134		$	(15,190,619	)	$	30,157,374
Corporate costs		(153,791	)		(128,007	)		(283,054	)		(257,995	)
Unrealized gain/(loss) on translation of intercompany balance		1,403,938			(466,655	)		345,086			(603,910	)
Income (loss) from operations		(6,831,607	)		18,482,472			(15,128,587	)		29,295,469
Other income, net of expense		135,493			90,656			261,627			174,605
Income (loss) before income taxes	$	(6,696,114	)	$	18,573,128		$	(14,866,960	)	$	29,470,074

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

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	$ —	$ 534	$ 155	$  689	30.6%
2	Shandong Brother Technology Limited, Kuerle Xingdong Trading Limited	$ —	$ 670	$ —	$  670	29.8%
3	Shouguang Weidong Chemical Company Limited	$ —	$ 435	$ —	$  435	19.3%

The following table shows the major customer(s) (10% or more) for the six-month period ended June 30, 2017.

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	$ 5,705	$ 1,251	$ 2,768	$  9,724	12.1%

NOTE 15 – CUSTOMER CONCENTRATION

During the six-month period ended June 30, 2018, the Company sold 89% of its products to its top five customers, respectively. As of June 30, 2018, amounts due from these customers were $4,650,250. During the six-month period ended June 30, 2017, the Company sold 35.0% of its products to its top five customers. As of June 30, 2017, amounts due from these customers were $38,735,709. This concentration makes the Company vulnerable to a near-term severe impact, should the relationships be terminated.

NOTE 16 – MAJOR SUPPLIERS

During the six-month period ended June 30, 2018, the Company did not purchase any raw materials. During the six-month period ended June 30, 2017, the Company purchased 67.5% of its raw materials from its top five suppliers.  As of June 30, 2017, amounts due to those suppliers were $6,833,430.

17

GULF RESOURCES, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2018

 (Expressed in U.S. dollars)

(UNAUDITED)

NOTE 17 – FAIR VALUE OF FINANCIAL INSTRUMENTS

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, 2018 and December 31, 2017.

NOTE 18 –COMMITMENTS

As of June 30, 2018, the Company has leased real property adjacent to Factory No. 1, with the related production facility, channels and ducts, other production equipment and the buildings located on the property, under a capital lease. The future minimum lease payments required under the capital lease, together with the present value of such payments, are included in the table shown below.

The Company has leased ten parcels of land under non-cancelable operating leases, with fixed rentals and expire through December 2021, December 2023, December 2030, December 2031, December 2032, April 2038, December 2040, February 2059, August 2059 and June 2060, respectively.

The following table sets forth the Company’s contractual obligations as of June 30, 2018:

	Capital Lease Obligations			Operating Lease Obligations		Property Management Fees		Capital Expenditure
Payable within:
the next 12 months	$	283,690		$	1,008,208	$	94,291	$	39,822
the next 13 to 24 months		283,690			1,032,548		94,291		—
the next 25 to 36 months		283,690			1,054,710		94,291		—
the next 37 to 48 months		283,690			911,914		94,291		—
the next 49 to 60 months		283,690			927,797		94,291		—
thereafter		1,985,828			15,688,637		—		—
Total	$	3,404,278		$	20,623,814	$	471,455	$	39,822
Less: Amount representing interest		(1,128,887	)
Present value of net minimum lease payments	$	2,275,391

18

GULF RESOURCES, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2018

 (Expressed in U.S. dollars)

(UNAUDITED)

NOTE 18 – COMMITMENTS – Continued

Rental expenses related to operating leases of the Company amounted to $283,051 and $256,447, which were charged to the condensed consolidated statements of income (loss) for the three months ended June 30, 2018 and 2017, respectively. Rental expenses related to operating leases of the Company amounted to $564,664 and $511,566, which were charged to the condensed consolidated statements of income (loss) for the six months ended June 30, 2018 and 2017, respectively.

19

Item 4. Controls and Procedures

(a) Evaluation of Disclosure Controls and Procedures

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 due to the material weakness described below, our disclosure controls and procedures were ineffective as of the end of the period covered by this Form 10-Q/A to provide reasonable assurance that information required to be disclosed by us in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC'S rules and forms, and were not effective as of the end of the period covered by this Form 10-Q/A to provide reasonable assurance that such information is accumulated and communicated to our management, including our CEO and CFO, to allow timely decisions regarding required disclosure..

(b) Changes in internal controls

Subsequent to the filing of the Company’s quarterly report on Form 10-Q for the period ended June 30, 2018,  the Company filed Amendment No. 2 on Form 10-K/A to reflect the correction of an error in the previously reported fiscal year 2017 financial statements as filed on March 23, 2018 related to the one-time mandatory federal transition tax on accumulated foreign earnings.

Management is actively engaged in the planning for, and implementation of, remediation efforts to address the material weakness identified above. The remediation plan includes i) the implementation of new controls designed to evaluate the appropriateness of foreign tax recognition policies and procedures, ii) new controls over recording of foreign tax transactions, and iii) additional training for the accounting and financial reporting personnel.

Management believes the measures described above and others that may be implemented will remediate the material weakness that we have identified. As management continues to evaluate and improve internal control over financial reporting, we may decide to take additional measures to address control deficiencies or determine to modify, or in appropriate circumstances not to complete, certain of the remediation measures identified.

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.

20

PART II—OTHER INFORMATION

Item 6. Exhibits

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.

101                          The following financial statements from Gulf Resources, Inc.’s Quarterly Report on Form 10-Q/A (Amendment No. 1) for the quarterly period ended June 30, 2018 formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Balance Sheets; (ii) the Consolidated Statements of Operations and Other Comprehensive Income (Loss); (iii) the Consolidated Statements of Changes in Equity; (iv) the Consolidated Statement of Cash Flows; and, (v) the Notes to Consolidated Financial Statements, tagged as blocks of text.

21

SIGNATURES

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.

	GULF RESOURCES, INC.
Dated: November 9, 2018	By:	/s/ Xiaobin Liu
		Xiaobin Liu
		Chief Executive Officer
Dated: November 9, 2018	By:	/s/ Min Li
		Min Li
		Chief Financial Officer

22

EX-31.1

Exhibit 31.1

Certification of Chief Executive Officer

Pursuant to Rule 13A-14(A)/15D-14(A)

of the Securities Exchange Act of 1934

I, Xiaobin Liu, certify that:

1.   I have reviewed this Quarterly Report on Form 10-Q/A (Amendment No. 1) for the period ended June 30, 2018 of Gulf Resources, Inc.;

2.   Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.   Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.   The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

c. evaluated the effectiveness of registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.   The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a. all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.

	By:	/s/ Xiaobin Liu
		Xiaobin Liu
		Chief Executive Officer
Dated: November 9, 2018

EX-31.2

Exhibit 31.2

Certification of Chief Financial Officer

Pursuant to Rule 13A-14(A)/15D-14(A)

of the Securities Exchange Act of 1934

I, Min Li, certify that:

1.   I have reviewed this Quarterly Report on Form 10-Q/A (Amendment No. 1) for the period ended June 30, 2018 of Gulf Resources, Inc.;

2.   Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.   Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.   The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

c. evaluated the effectiveness of registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.   The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a. all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.

	By:	/s/ Min Li
		Min Li
		Chief Financial Officer
Dated: November 9, 2018

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350 AND EXCHANGE ACT RULES 13a-14(b) AND 15d-14(b)

(Section 906 of the Sarbanes-Oxley Act of 2002)

In connection with the Quarterly Report of Gulf Resources, Inc. on Form 10-Q/A (Amendment No. 1) for the period ended June 30, 2018, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), each of the undersigned do hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of his or her knowledge and belief:

(1)   the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)   the information contained in the Report fairly presents, in all material respects, the financial condition and results of the operation of the Company.

Dated: November 9, 2018
	By:	/s/ Xiaobin Liu
		Xiaobin Liu
		Chief Executive Officer

Dated: November 9, 2018
	By:	/s/ Min Li
		Min Li
		Chief Financial Officer

XML

Document and Entity Information - shares	6 Months Ended
	Jun. 30, 2018	Aug. 06, 2018
Document And Entity Information
Entity Registrant Name	GULF RESOURCES, INC.
Entity Central Index Key	0000885462
Document Type	10-Q/A
Document Period End Date	Jun. 30, 2018
Amendment Flag	true
Amendment Description	<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">This Amendment No. 1 on Form 10-Q/A is being filed to reflect the correction of an error in the previously reported quarterly financial statements for the period ended June 30, 2018 filed on August 10, 2018 related to the one-time mandatory federal transition tax on accumulated foreign earnings accrued in the fiscal year 2017. See Note 2 to the Consolidated Financial Statements included in item 1 for additional information and a reconciliation of the previously reported amounts to the restated amounts. Items that have not been amended have been omitted from this amendment. The Company is also concurrently filing previously issued financial statements to restate the error described above (i) Amendment No. 2 to the Annual Report for the fiscal year ended December 31, 2017 and (ii) Amendment No. 1 to the Quarterly Report for the three months ended March 31, 2018.</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0">The following are the sections that are impacted by the correction of the error:</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0"> </p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0">Part I, Item 1 – Financial Statement</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0"> </p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0">Part I, Item 4 – Controls and Procedures</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0"> </p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0">Part II, Item 6 - Exhibits</p>
Current Fiscal Year End Date	--12-31
Is Entity's Reporting Status Current?	Yes
Entity Filer Category	Non-accelerated Filer
Entity Common Stock, Shares Outstanding		46,803,791
Document Fiscal Period Focus	Q2
Document Fiscal Year Focus	2018
Entity Emerging Growth Company	false
Entity Small Business	true

XML

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) - USD ($)	Jun. 30, 2018	Dec. 31, 2017
Current Assets
Cash	$ 215,975,864	$ 208,906,759
Accounts receivable	4,650,250	29,765,884
Inventories, net	181,094	1,196,785
Prepayments and deposits	1,456,090	1,395,289
Prepaid land leases	773,480	246,640
Other receivable	12,952	2,089
Total Current Assets	223,049,730	241,513,446
Non-Current Assets
Property, plant and equipment, net	94,828,982	95,114,504
Property, plant and equipment under capital leases, net	394,180	492,238
Prepaid land leases, net of current portion	14,151,767	14,477,771
Deferred tax assets	9,408,852	6,526,555
Goodwill	29,010,218	29,374,909
Total non-current assets	147,793,999	145,985,977
Total Assets	370,843,729	387,499,423
Current Liabilities
Accounts payable and accrued expenses	774,134	1,032,083
Retention Payable	643,305	956,351
Capital lease obligation, current portion	128,575	203,206
Taxes payable-current	1,616,741	1,041,592
Total Current Liabilities	3,162,755	3,233,232
Non-Current Liabilities
Capital lease obligation, net of current portion	2,146,816	2,303,995
Taxes payable-non-current	0	0
Total Non-Current Liabilities	2,146,816	2,303,995
Total Liabilities	5,309,571	5,537,227
Stockholders Equity
PREFERRED STOCK; $0.001 par value; 1,000,000 shares authorized; none outstanding	0	0
COMMON STOCK; $0.0005 par value; 80,000,000 shares authorized; 47,052,940 shares issued and 46,803,791 shares outstanding as of June 30, 2018 and December 31, 2017, respectively	23,525	23,525
Treasury stock; 249,149 shares as of June 30, 2018 and December 31, 2017 at cost	(554,870)	(554,870)
Additional paid-in capital	94,524,608	94,524,608
Retained earnings unappropriated	243,782,458	255,572,431
Retained earnings appropriated	24,233,544	24,233,544
Accumulated other comprehensive income	3,524,893	8,162,958
Total Stockholders Equity	365,534,158	381,962,196
Total Liabilities and Stockholders Equity	$ 370,843,729	$ 387,499,423

XML

CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares	Jun. 30, 2018	Dec. 31, 2017
Statement of Financial Position [Abstract]
PREFERRED STOCK, par or stated value per share	$ 0.001	$ 0.001
PREFERRED STOCK, shares authorized	1,000,000	1,000,000
PREFERRED STOCK, shares outstanding	0	0
COMMON STOCK, par value per share	$ 0.0005	$ 0.0005
COMMON STOCK, shares authorized	80,000,000	80,000,000
COMMON STOCK, shares issued	47,052,940	47,052,940
COMMON STOCK, shares outstanding	46,803,791	46,803,791
Treasury stock, shares	249,149	249,149

XML

CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (Unaudited) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
NET REVENUE
Net revenue	$ 4,594	$ 47,531,989	$ 2,251,861	$ 80,320,482
OPERATING INCOME (EXPENSE)
Cost of net revenue	(7)	(26,931,742)	(1,241,816)	(47,145,605)
Sales, marketing and other operating expenses	(21,025)	(100,613)	(55,999)	(176,446)
Research and development cost	0	(65,274)	0	(127,172)
Direct labor and factory overheads incurred during plant shutdown	(5,689,486)	0	(11,385,005)	0
General and administrative expenses	(1,125,683)	(2,056,943)	(4,697,628)	(3,785,403)
Other operating income	0	105,055	0	209,613
Total Costs and Expenses	(6,836,201)	(29,049,517)	(17,380,448)	(51,025,013)
INCOME/(LOSS) FROM OPERATIONS	(6,831,607)	18,482,472	(15,128,587)	29,295,469
OTHER INCOME (EXPENSE)
Interest expense	(43,185)	(42,065)	(86,529)	(83,976)
Interest income	178,678	132,721	348,156	258,581
INCOME/(LOSS) BEFORE TAXES	(6,696,114)	18,573,128	(14,866,960)	29,470,074
INCOME TAX (EXPENSE) BENEFIT	1,883,241	(4,821,450)	3,076,987	(7,643,276)
NET INCOME/(LOSS)	(4,812,873)	13,751,678	(11,789,973)	21,826,798
COMPREHENSIVE INCOME:
NET INCOME/(LOSS)	(4,812,873)	13,751,678	(11,789,973)	21,826,798
OTHER COMPREHENSIVE INCOME (LOSS)
Foreign currency translation adjustments	(20,586,976)	7,261,237	(4,638,065)	9,298,509
COMPREHENSIVE INCOME	$ (25,399,849)	$ 21,012,915	$ (16,428,038)	$ 31,125,307
EARNINGS (LOSS) PER SHARE:
BASIC	$ (0.10)	$ 0.29	$ (0.25)	$ 0.47
DILUTED	$ (0.10)	$ 0.29	$ (0.25)	$ 0.47
WEIGHTED AVERAGE NUMBER OF SHARES:
BASIC	46,803,791	46,793,791	46,803,791	46,793,791
DILUTED	46,803,791	46,796,848	46,815,089	46,800,545

XML

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY (Unaudited) - 6 months ended Jun. 30, 2018 - USD ($)	Common Stock	Treasury Stock	Additional Paid-In Capital	Retained Earnings	Retained earnings appropriated	Accumulated Other Comprehensive Income (Loss)	Total
Balance at Dec. 31, 2017	$ 23,525	$ (554,870)	$ 94,524,608	$ 255,572,431	$ 24,233,544	$ 8,162,958	$ 381,962,196
Shares Issued at Dec. 31, 2017	47,052,940
Balance, shares at Dec. 31, 2017	46,803,791	249,149
Translation adjustmentT						(4,638,065)	(4,638,065)
Net loss				(11,789,973)			(11,789,973)
Balance at Jun. 30, 2018	$ 23,525	$ (554,870)	$ 94,524,608	$ 243,782,458	$ 24,233,544	$ 3,524,893	$ 365,534,158
Shares Issued at Jun. 30, 2018	47,052,940
Balance, shares at Jun. 30, 2018	46,803,791	249,149

XML

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) - USD ($)	6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017
CASH FLOWS FROM OPERATING ACTIVITIES
Net income/(loss)	$ (11,789,973)	$ 21,826,798
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Interest on capital lease obligation	86,214	83,128
Amortization of prepaid land leases	294,676	234,307
Depreciation and amortization	9,511,515	10,809,289
Unrealized exchange (gain) loss on inter-company balances	(345,086)	603,910
Deferred tax asset	(3,076,986)	0
Stock-based compensation expense	0	14,700
Changes in assets and liabilities:
Accounts receivable	25,720,587	(33,349,844)
Inventories	1,039,959	1,165,420
Prepayments and deposits	(61,251)	(19,129)
Other receivables	(11,289)	(580)
Accounts payable and accrued expenses	(256,603)	5,582,026
Retention payable	(312,429)	(739,329)
Taxes payable	592,979	3,292,636
Net cash provided by operating activities	21,392,313	9,503,332
CASH FLOWS USED IN INVESTING ACTIVITIES
Additions of prepaid land leases	(693,198)	(818,957)
Purchase of property, plant and equipment	(10,333,721)	(59,975)
Net cash used in investing activities	(11,026,919)	(878,932)
CASH FLOWS USED IN FINANCING ACTIVITIES
Repayment of capital lease obligation	(294,295)	(273,873)
Net cash used in financing activities	(294,295)	(273,873)
EFFECTS OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS	(3,001,994)	4,068,173
NET INCREASE IN CASH AND CASH EQUIVALENTS	7,069,105	12,418,700
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD	208,906,759	163,884,574
CASH AND CASH EQUIVALENTS - END OF PERIOD	215,975,864	176,303,274
Cash paid during the period for:
Income taxes	$ 0	$ 4,634,040

XML

1. BASIS OF PRESENTATION AND CONSOLIDATION

6 Months Ended

Jun. 30, 2018

Accounting Policies [Abstract]

1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a)           Basis of Presentation and Consolidation

The accompanying condensed financial statements have been prepared by Gulf Resources, 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, 2018 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 2017 Form 10-K/A (Amendment No. 2). 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.

(b)           Nature of the Business

The Company manufactures and trades bromine and crude salt through its wholly-owned subsidiary, Shouguang City Haoyuan Chemical Company Limited ("SCHC") and manufactures chemical products for use in the oil industry, pesticides, paper manufacturing industry and for human and animal antibiotics through its wholly-owned subsidiary, Shouguang Yuxin Chemical Industry Co., Limited ("SYCI") in the People’s Republic of China (“PRC”). DCHC was established to further explore and develop natural gas and brine resources (including bromine and crude salt) in the PRC. DCHC’s business was not fully operational as of June 30, 2018.

On September 1, 2017, the Company received notification from the Government of Yangkou County, Shouguang City of PRC that production at all its 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.

The Company has been working 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. SCHC is currently under rectification process. The Company believes this rectification process will cost approximately $35 million. In addition to the $35 million, the Company expects to spend an additional $40 million in 2018 to carry out enhancement projects for its extraction wells. The Company incurred rectification and improvements in the amount of $27,048,794 and $17,938,652 as of June 30, 2018 and December 31, 2017.

Originally, six 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. Subsequently, 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. As of current date, the Company has not received any official approval from the government.

Four of the remaining bromine and crude salt factories have a slightly more complex issue that needs to be resolved. All bromine factories now require paired crude salt pans to prevent the halogen water resulting from the production process from flowing into the sea. Four of these bromine factories do not have a designated crude salt pan where the wastewater could be channeled. The Company has four alternatives for these four factories which do not have paired crude salt pans: 1. It can form partnerships with adjacent bromine facilities that do have crude salt pans. The nature of these partnerships could take many forms. At present, the Company is communicating with a third party about the waste water discharge of the Factory No 10. If an agreement is reached, the Company will invest RMB7 million to build a new aqueduct and discharge the waste water to the designated place for treatment by the designated party. 2. The Company could petition the government for a zoning change so that additional land for salt pans could be obtained. The Company believes this might be difficult but is worth pursuing; 3. The Company could negotiate a different method of dealing with this issue; or, 4. These factories could conceivably be forced to close. At the present time, the Company is also working with the government on these issues and has not reached any final solution yet.

Subsequently 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 Weifang 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 approval procedures, planning approval procedures, land use rights approval procedures and environmental protection assessment procedures. The Company believes that the government will not grant approval to the Company to allow 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. We understood from the local government that it has been coordinating with several government agencies to solve these three outstanding approval issues in a timely manner and that all the affected bromine plants are not allowed to commence production prior to obtaining those approvals.

The Company is not certain how long the temporary delay will be due to the issuance and implement of the Notice. 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.

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 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. The Company believes this relocation process will cost approximately $60 million in total. The Company incurred relocation cost in the amount of $10,925,081 and $9,732,118 as of June 30, 2018 and December 31, 2017 and estimated that the new factory will be fully operational by the beginning of 2020.

The Company does not anticipate that the Company’s new chemical factory will 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 Marine Fine Chemical Industry Park and presented a completed construction design draft and other related documents to the local authorities for approval. The Company expected to receive feedback from the local authorities. However, the Company does believe there could be a delay for the approval process given the ongoing rectification and approvals process for the Company’s other plants.

In January 2017, the Company completed the first brine water and natural gas well field construction in Sichuan Province and announced the commencement of trial production. The Company has been working with Xinan Shiyou Daxue (Southwest Petroleum University) and developed a solution to DHCH’s technical drilling problem. In resolving the problem, the Company purchased customized equipment for its natural gas project. The installation of such equipment, including providing piping and electricity, was completed in July 2018. The Company is preparing to test the equipment and anticipates to begin the trial production in September 2018.

(c)           Allowance for Doubtful Accounts

As of June 30, 2018 and December 31, 2017, allowances for doubtful accounts were nil. No allowances for doubtful accounts were charged to the condensed consolidated statements of income (loss) for the three-month and six-month periods ended June 30, 2018 and 2017.

(d)           Concentration of Credit Risk

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 $215,975,864 and $208,906,759 with these institutions as of June 30, 2018 and December 31, 2017, 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. Approximately 0% and 13% of the balances of accounts receivable as of June 30, 2018 and December 31, 2017, respectively, are outstanding for less than three months. All outstanding receivables as of June 30, 2018 and December 31, 2017 are within the credit terms. For the balances of accounts receivable aged more than 90 days and all accounts receivable as of June 30, 2018, approximately 28% were collected in July 2018. 

The rate of collection in July 2018 for accounts receivable aged more than 90 days as of June 30, 2018 was analyzed as follows:

Accounts Receivable Aging	Percent Collected
90-120 days	0%
121-150 days	0%
151-180 days	0%
181-210 days	16%
211-240 days	100%

(e)           Property, Plant and Equipment

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 plant, machinery and equipment. Costs incurred are capitalized and transferred to property and equipment upon completion.

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

	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

Property, plant and equipment under the capital 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 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.

(f)           Retirement Benefits

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 income (loss) on an accrual basis when they are due. The Company’s contributions totaled $301,657 and $257,660 for the three-month period ended June 30, 2018 and 2017, respectively, and totaled $604,075 and $512,876 for the six-month period ended June 30, 2018 and 2017, respectively.

(g)           Revenue Recognition

Net revenue is net of discount and value added tax and comprises the sale of bromine, crude salt and chemical products. Revenue is recognized 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.

(h)           Recoverability of Long-lived Assets

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, 2018 and 2017, the Company determined that there were no events or circumstances indicating possible impairment of its long-lived assets.

(i)           Basic and Diluted Earnings per Share of Common Stock

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 89,684 and 39,155 shares for the three-month period ended June 30, 2018 and 2017, respectively, and amounted to 82,649 and 32,077 shares for the six-month period ended June 30, 2018 and 2017, 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.

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

	Three-Month Period Ended June  30,					Six-Month Period Ended June 30,
	2018			2017		2018			2017
Numerator
Net income/(loss)	$	(4,812,873	)	$	13,751,678	$	(11,789,973	)	$	21,826,798
Denominator
Basic: Weighted-average common shares outstanding during the period		46,803,791			46,793,791		46,803,791			46,793,791
Add: Dilutive effect of stock options		—			3,057		11,298			6,754
Diluted		46,803,791			46,796,848		46,815,089			46,800,545
Net income/(loss) per share
Basic	$	(0.10	)	$	0.29	$	(0.25	)	$	0.47
Diluted	$	(0.10	)	$	0.29	$	(0.25	)	$	0.47

(j)           Reporting Currency and Translation

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 income (loss). The statement of income (loss) and comprehensive income (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 income (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.

(k)           Foreign Operations

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.

(l)           Exploration Costs

Exploration costs, which included the cost of researching appropriate places to drill wells and the cost of well drilling in search of potential natural brine or other resources, are charged to the income (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 to 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.

(m)  Goodwill

Goodwill represents the excess of the purchase price over the net of the fair value of the identifiable tangible and intangible assets acquired and the fair value of liabilities assumed in business acquisitions. Goodwill impairment is assessed based on qualitative factors to determine whether it is more likely than not that the fair value of a reporting entity is less than its carrying amount, including goodwill. If the Company determines that it is more likely than not that the fair value of a reporting entity is less than its carrying amount, the two-step goodwill impairment test will be performed. The Company performs its impairment assessment annually and between annual tests in certain circumstances and determined that the two-step goodwill impairment test is not required to be carried out as of June 30, 2018.

(n)           New Accounting Pronouncements

Recently Adopted Accounting Pronouncements

In May 2014 and April 2016, the FASB issued ASU No. 2014-09 and ASU No. 2016-10, Revenue from Contracts with Customers (Topic 606). The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In August 2015, FASB issued ASU 2015-14, which deferred the effective date of Update 2014-09 to annual reporting periods beginning after December 15, 2017. The Company adopted this Update as of January 1, 2018. This adoption did not have a material impact on the Company’s condensed consolidated financial statements as of and for the three and six months ended June 30, 2018 as the amount and timing of all the Company’s revenue will continue to be recognized at a point in time. As required by the Update, the Company disclosed its revenues from contracts with customers into disaggregated categories in Note 14.

In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230), Classification of Certain Cash Receipts and Cash Payments. The Update addresses eight specific changes to how cash receipts and cash payments are presented and classified in the statement of cash flows. The amendments in this Update are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted. An entity that elects early adoption must adopt all of the amendments in the same period. The amendments in this Update should be applied using a retrospective transition method to each period presented. If it is impracticable to apply the amendments retrospectively for some of the issues, the amendments for those issues would be applied prospectively as of the earliest date practicable. The Company adopted this Update as of January 1, 2018 with no material impact on the condensed consolidated financial statements as of and for the three and six months ended June 30, 2018.

In May 2017, the FASB issued ASU No. 2017-09, Compensation – Stock Compensation (Topic 718), Scope of Modification Accounting. The amendments in this Update provide guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting. The amendments in this Update are effective for all entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. The amendments in this Update should be applied prospectively to an award modified on or after the adoption date. The Company adopted this Update as of January 1, 2018 with no material impact on the condensed consolidated financial statements as of and for the three and six months ended June 30, 2018.

Recently Issued Accounting Pronouncements Not Yet Adopted

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 leases. For public business entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company is currently evaluating the effect of this on the consolidated financial statements and related disclosure.

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. The Company is currently evaluating the effect of this on the consolidated financial statements and related disclosure.

In January 2017, the FASB issued ASU No. 2017-04, Intangibles – Goodwill and Other (Topic 350), Simplifying the Test for Goodwill Impairment. To simplify the subsequent measurement of goodwill, the Board eliminated Step 2 from the goodwill impairment test. Instead, under the amendments in this Update, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. A public business entity that is a U.S. Securities and Exchange Commission (SEC) filer should adopt the amendments in this Update for its annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. The Company is currently evaluating effect of this on the consolidated financial statements and related disclosure.

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, Top 718 applied only to share-based transactions to employees. Consistent with the accounting requirements for employee share-based payment awards, nonemployee share-based payment awards within the scope of Topic 718 are measured at grant-date fair value of the equity instruments that an entity 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 in the Update are effective for public business entities form fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. Early adoption is permitted, but no earlier than an entity’s adoption date of Topic 606. This is not expected to have a material effect on the Company’s consolidated financial statements.

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2. RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS

6 Months Ended

Jun. 30, 2018

Restatement Of Previously Issued Financial Statements

RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS

The Company determined that the entire one-time mandatory federal transition tax on accumulated foreign earnings accrued in fiscal year 2017 can be offset against a portion of the Company’s US federal net operating loss carryovers and foreign tax credit carryovers. As a result, the Company did not need to accrue the $5,402,000 of income taxes in fiscal year 2017 and the Company is restating condensed consolidated financial statements as of June 30, 2018 to correct this error.

The table below sets forth the effect of the restatement on the consolidated balance sheet as of June 30, 2018.

	As Reported		Correction			As Restated
Taxes payable-current	$	2,049,741	$	(433,000	)	$	1,616,741
Total CurrentLiabilities		3,595,755		(433,000	)		3,162,755
Taxes payable-non-current		4,969,000		(4,969,000	)		—
Total non-Current Liabilities		7,115,816		(4,969,000	)		2,146,816
Total Liabilities		10,711,571		(5,402,000	)		5,309,571
Retained earnings unappropriated		238,380,458		5,402,000			243,782,458
Total Stockholders’ Equity	$	360,132,158	$	5,402,000		$	365,534,158

The table below sets forth the effect of the restatement on the consolidated statement of stockholders’ equity as of June 30, 2018.

	Retained earnings unappropriated		Total
Balance at June 30, 2018 as reported	$	238,380,458	$	360,132,158
Correction	$	5,402,000	$	5,402,000
Balance at June 30, 2018 as restated	$	243,782,458	$	365,534,158

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3. INVENTORIES

6 Months Ended

Jun. 30, 2018

Inventory Disclosure [Abstract]

3. INVENTORIES

Inventories consist of:

	June 30, 2018		December 31, 2017
Raw materials	$	14,414	$	396,482
Finished goods		166,680		844,224
Allowance for obsolete and slow-moving inventory		—		(43,921	)
	$	181,094	$	1,196,785

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4. PREPAID LAND LEASES

6 Months Ended

Jun. 30, 2018

Notes to Financial Statements

4. PREPAID LAND LEASES

The Company prepaid for land leases with lease terms for periods ranging from one to fifty years to use the land on which the production facilities and warehouses of the Company are situated. The prepaid land lease is amortized on a straight line basis.

The Company paid $9,732,118 for a 50-year lease of a parcel of land for the new factory at Bohai Marine Fine Chemical Industrial Park in December, 2017. The land use certificate is being processed by the government and the commencement date of the lease will be known upon completion of the application process when the land use certificate will be issued. Amortization of the lease will commence on the day the lease term starts.

During the three and six months period ended June 30, 2018, amortization of prepaid land leases totaled $150,579 and $294,676, which amounts were recorded as direct labor and factory overheads incurred during plant shutdown. 

During the three and six months period ended June 30, 2017, amortization of prepaid land leases totaled $126,846 and $234,307, which amounts were recorded as cost of net revenue. 

The Company has the rights to use certain parcels of land located in Shouguang, PRC, through lease agreements signed with local townships or the government authority. For parcels of land that are collectively owned by local townships, the Company cannot obtain land use rights certificates. The parcels of land that the Company cannot obtain land use rights certificates cover a total of approximately 54.99 square kilometers with an aggregate carrying value of $1,067,939 and approximately 54.97 square kilometers with an aggregate carrying value of $645,761 as at June 30, 2018 and December 31, 2017, respectively.

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5. PROPERTY, PLANT AND EQUIPMENT, NET

6 Months Ended

Jun. 30, 2018

Property, Plant and Equipment [Abstract]

5. PROPERTY, PLANT AND EQUIPMENT, NET

Property, plant and equipment, net consist of the following:

	June 30, 2018			December 31, 2017
At cost:
Mineral rights	$	4,653,325			4,711,822
Buildings		66,907,410			67,748,512
Plant and machinery		205,294,156			200,742,652
Motor vehicles		8,683			8,792
Furniture, fixtures and office equipment		4,099,059			4,150,588
Construction in process		1,358,535			183,036
Total		282,321,168			277,545,402
Less: Accumulated depreciation and amortization		(169,016,305	)		(163,597,407	)
Impairment		(18,475,881	)		(18,833,491	)
Net book value	$	94,828,982		$	95,114,504

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. 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 $26,162,718 and $27,432,351 as at June 30, 2018 and December 31, 2017, respectively.

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.

During the three-month period ended June 30, 2017, depreciation and amortization expense totaled $5,294,777, of which $5,001,792 and $292,985 were recorded as cost of net revenue and administrative expenses, respectively. During the six-month period ended June 30, 2017, depreciation and amortization expense totaled $10,658,819, of which $10,074,234 and $584,585 were recorded as cost of net revenue and administrative expenses respectively.

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6. PROPERTY, PLANT AND EQUIPMENT UNDER CAPITAL LEASES, NET

6 Months Ended

Jun. 30, 2018

Leases [Abstract]

6. PROPERTY, PLANT AND EQUIPMENT UNDER CAPITAL LEASES, NET

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

	June 30, 2018			December 31,   2017
At cost:
Buildings	$	124,375		$	125,939
Plant and machinery		2,285,465			2,314,196
Total		2,409,840			2,440,135
Less: Accumulated depreciation and amortization		(2,015,660	)		(1,947,897	)
Net book value	$	394,180		$	492,238

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, 2018, depreciation and amortization expense totaled $69,115 and $138,397, respectively, which was recorded in direct labor and factory overheads incurred during plant shutdown.

During the three and six months period ended June 30, 2017, depreciation and amortization expense totaled $75,413 and $150,470, respectively, which was recorded as cost of net revenue.

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7. ACCOUNTS PAYABLE AND ACCRUED EXPENSES

6 Months Ended

Jun. 30, 2018

Payables and Accruals [Abstract]

7. ACCOUNTS PAYABLE AND ACCRUED EXPENSES

Accounts payable and accrued expenses consist of the following:

	June 30,		December 31,
	2018		2017
Salary payable	$	252,261	$	393,617
Social security insurance contribution payable		133,692		135,203
Other payables		388,181		503,263
Total	$	774,134	$	1,032,083

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8. RELATED PARTY TRANSACTIONS

6 Months Ended

Jun. 30, 2018

Related Party Transactions [Abstract]

8. RELATED PARTY TRANSACTIONS

During the three-month and six-month periods ended June 30, 2018, the Company borrowed $66,000 and $251,912, respectively, 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 amounts due to Jiaxing Lighting were unsecured, interest free and repayable on demand and were fully settled in the three-month period ended June 30, 2018. There was no balance owing to Jiaxing Lighting as of June 30, 2018.

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 $99,200 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, 2018 was approximately $24,500 and $49,000.

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9. TAXES PAYABLE

6 Months Ended

Jun. 30, 2018

Income Tax Disclosure [Abstract]

9. TAXES PAYABLE

Taxes payable consists of the following:

	June 30,		December 31,
	2018 “Restated”		2017
Natural resource tax	$	—	$	156,147
Land use tax payable		1,616,741		810,841
Other tax payables		—		74,604
Total current taxes payable	$	1,616,741	$	1,041,592

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10. CAPITAL LEASE OBLIGATIONS

6 Months Ended

Jun. 30, 2018

Leases [Abstract]

10. CAPITAL LEASE OBLIGATIONS

The components of capital lease obligations are as follows:

	Imputed		June 30,			December 31,
	Interest rate		2018			2017
Total capital lease obligations		6.7%	$	2,275,391		$	2,507,201
Less: Current portion				(128,575	)		(203,206	)
Capital lease obligations, net of current portion			$	2,146,816		$	2,303,995

Interest expenses from capital lease obligations amounted to $43,055 and $41,375 for the three-month period ended June 30, 2018 and 2017, respectively, which were charged to the condensed consolidated statement of income (loss). Interest expenses from capital lease obligations amounted to $86,214 and $83,128 for the six-month period ended June 30, 2018 and 2017, respectively, which were charged to the condensed consolidated statement of income (loss).

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11. EQUITY

6 Months Ended

Jun. 30, 2018

Equity [Abstract]

11. EQUITY

(a) Authorized shares

During the annual general meeting held on June 18, 2013, the shareholders of the Company approved the amendment to the Certificate of Incorporation to decrease the number of the authorized shares of the Company’s common stock to 80,000,000. The Company filed an amended and restated Certificate of Incorporation with the Secretary of the State of Delaware to decrease the number of authorized shares of the Company’s common stock. Accordingly, 80,000,000 is disclosed as the authorized shares of the Company’s common stock in the consolidated balance sheets as of June 30, 2018 and December 31, 2017.

(b) Retained Earnings - Appropriated

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:

Statutory Common Reserve Funds

SCHC, SYCI and DCHC are required each year to transfer at least 10% of the profit after tax as reported under the PRC statutory financial statements to the Statutory Common Reserve 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, 2018 for SCHC, SYCI and DCHC is 46%, 14% and 0% of its registered capital respectively.

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12. STOCK-BASED COMPENSATION

6 Months Ended

Jun. 30, 2018

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

12. STOCK-BASED COMPENSATION

Pursuant to the Company’s Amended and Restated 2007 Equity Incentive Plan approved in 2011(“Plan”), the aggregate 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, 2018, the number of shares of the Company’s common stock available for issuance under the Plan is 6,739,989.

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.

During the six months ended June 30, 2018, there were no options issued to employees or non-employees.

The following table summarizes all Company stock option transactions between January 1, 2018 and June 30, 2018.

	Number of Option Outstanding and exercisable			Weighted- Average Exercise price of Option		Range of Exercise Price per Common Share
Balance, January 1, 2018		808,500		$	1.61		$1.44 - $4.80
Granted and vested during the period Ended June 30, 2018		—			—		—
Expired during the period ended June 30, 2018		(25,000	)	$	2.31		$2.07-2.55
Balance, June 30, 2018		783,500		$	1.58		$1.44 - $4.80

	Stock Options Exercisable and Outstanding
			Weighted Average
			Remaining
	Outstanding at June 30, 2018	Range of Exercise Prices	Contractual Life  (Years)
Exercisable and outstanding	783,500	$1.44 - $4.80	2.70

The aggregate intrinsic value of options outstanding and exercisable as of June 30, 2018 was $0.

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13. INCOME TAXES

6 Months Ended

Jun. 30, 2018

Income Tax Disclosure [Abstract]

13. INCOME TAXES

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

(a)          United States (“US”)

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, 2018 and 2017, 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 federal 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 carryovers 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.  

(b)           British Virgin Islands (“BVI”)

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, 2018 and 2017.

(c)           Hong Kong

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, 2018 and 2017.  The applicable statutory tax rates for the three-month and six-month periods ended June 30, 2018 and 2017 are 16.5%. There is no dividend withholding tax in Hong Kong.

(d)           PRC

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 [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, 2018 and December 31, 2017, the accumulated distributable earnings under the Generally Accepted Accounting Principles (GAAP”) of PRC of the FIE of the Company that are subject to WHT are $285,284,985 and $282,660,981, 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, 2018 and December 31, 2017, 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, 2018 and December 31, 2017, the unrecognized WHT are $13,234,848 and $14,133,049, 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 2014 are 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 2011 through 2017, HKJI did not report any taxable income. It did not file any income tax returns during these years except for 2014. 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 are currently subject to examination.

The components of the provision for income tax expense (benefit) from continuing operations are:

	Three-Month Period Ended June  30,					Six-Month Period Ended June 30,
	2018			2017		2018			2017
Current taxes – PRC	$	—		$	4,821,450	$	—		$	7,643,276
Deferred taxes – PRC		(1,883,241	)		—		(3,076,987	)		—
	$	(1,883,241	)	$	4,821,450	$	(3,076,987	)	$	7,643,276

The effective income tax rate differ 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,
Reconciliations	2018			2017			2018			2017
Statutory income tax rate		25	%		25	%		25	%		25	%
Non-deductible expense		(1	%)		1	%		(4	%)		1	%
Non-taxable items		5	%		—			1	%		—
Change in valuation allowance		(1	%)		—			(1	%)		—
Effective tax rate		28	%		26	%		21	%		26	%

Significant components of the Company’s deferred tax assets and liabilities at June 30, 2018 and December 31, 2017 are as follows:

	June 30,			December 31,
	2018 (Restated)			2017
Deferred tax liabilities	$	—		$	—
Deferred tax assets:
Allowance for obsolete and slow-moving inventories	$	—		$	10,980
Impairment on property, plant and equipment		3,706,211			4,610,228
Exploration costs		1,881,693			1,905,347
Compensation costs of unexercised stock options		94,287			98,092
PRC tax losses		3,820,948			—
US federal net operating loss		59,400			—
Total deferred tax assets		9,562,539			6,624,647
Valuation allowance		(153,687	)		(98,092	)
Net deferred tax asset	$	9,408,852		$	6,526,555

The increase in valuation allowance for each of the three-month periods ended June 30, 2018 and 2017 is $28,499 and $32,600, respectively.

The increase in valuation allowance for the six-month period ended June 30, 2018 and 2017 is $55,595 and $73,400.

There were no unrecognized tax benefits and accrual for uncertain tax positions as of June 30, 2018 and December 31, 2017.

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14. BUSINESS SEGMENTS

6 Months Ended

Jun. 30, 2018

Segment Reporting [Abstract]

14. BUSINESS SEGMENTS

The Company has four reportable segments:  bromine, crude salt, chemical products and natural gas. The reportable segments are consistent with how management views the markets served by the Company and the financial information that is reviewed by its chief operating decision maker.

An operating segment’s performance is primarily evaluated based on segment operating income (loss), 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 (loss), 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, 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 taxes(benefit)		(5,577,272	)		(1,731,592	)		(727,595	)		(45,295	)		(8,081,754	)		1,250,147		(6,831,607	)
Income taxes expense (benefit)		(1,579,514	)		(240,367	)		(63,360	)		—			(1,883,241	)		—		(1,883,241	)
Income (loss) from operations after income taxes(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

Three-Month Period Ended June 30, 2017	Bromine*		Crude  Salt*		Chemical   Products		Natural Gas			Segment   Total		Corporate			Total
Net revenue (external customers)	$	18,423,133	$	2,521,883	$	26,586,973	$	—		$	47,531,989	$	—		$	47,531,989
Net revenue (intersegment)		2,910,743		—		—		—			2,910,743		—			2,910,743
Income(loss) from operations before income taxes		9,740,981		1,051,202		8,318,480		(33,529	)		19,077,134		(594,662	)		18,482,472
Income taxes		2,464,085		245,164		2,112,201		—			4,821,450		—			4,821,450
Income (loss) from operations after income taxes		7,276,896		806,038		6,206,279		(33,529	)		14,255,684		(594,662	)		13,661,022
Total assets		162,696,276		32,749,355		207,885,555		1,819,284			405,150,470		114,373			405,264,843
Depreciation and amortization		3,794,600		624,226		951,364		—			5,370,190		—			5,370,190
Goodwill		—		—		28,332,661		—			28,332,661		—			28,332,661

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 taxes (benefit)		(11,167,828	)		(2,539,475	)		(1,402,366	)		(80,950	)		(15,190,619	)		62,032		(15,128,587	)
Income taxes expense (benefit)		(2,970,666	)		(442,338	)		336,017			—			(3,076,987	)		—		(3,076,987	)
Income (loss) from operations after income taxes(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

Six-Month Period Ended June 30, 2017	Bromine*		Crude  Salt*		Chemical  Products		Natural Gas			Segment  Total		Corporate			Total
Net revenue (external customers)	$	32,345,527	$	4,335,661	$	43,639,294	$	—		$	80,320,482	$	—		$	80,320,482
Net revenue (intersegment)		5,089,236		—		—		—			5,089,236		—			5,089,236
Income(loss) from operations before income taxes		15,012,915		1,937,089		13,264,657		(57,287	)		30,157,374		(861,905	)		29,295,469
Income taxes		3,794,188		468,746		3,380,342		—			7,643,276		—			7,643,276
Income (loss) from operations after income taxes		11,218,727		1,468,343		9,884,315		(57,287	)		22,514,098		(861,905	)		21,652,193
Total assets		162,696,276		32,749,355		207,885,555		1,819,284			405,150,470		114,373			405,264,843
Depreciation and amortization		7,793,181		1,078,673		1,937,435		—			10,809,289		—			10,809,289
Goodwill		—		—		28,332,661		—			28,332,661		—			28,332,661

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

	Three-Month Period Ended June 30,						Six-Month Period Ended June 30,
Reconciliations	2018			2017			2018			2017
Total segment operating income (loss)	$	(8,081,754	)	$	19,077,134		$	(15,190,619	)	$	30,157,374
Corporate costs		(153,791	)		(128,007	)		(283,054	)		(257,995	)
Unrealized gain/(loss) on translation of intercompany balance		1,403,938			(466,655	)		345,086			(603,910	)
Income (loss) from operations		(6,831,607	)		18,482,472			(15,128,587	)		29,295,469
Other income, net of expense		135,493			90,656			261,627			174,605
Income (loss) before income taxes	$	(6,696,114	)	$	18,573,128		$	(14,866,960	)	$	29,470,074

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

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	$ —	$ 534	$ 155	$  689	30.6%
2	Shandong Brother Technology Limited, Kuerle Xingdong Trading Limited	$ —	$ 670	$ —	$  670	29.8%
3	Shouguang Weidong Chemical Company Limited	$ —	$ 435	$ —	$  435	19.3%

The following table shows the major customer(s) (10% or more) for the six-month period ended June 30, 2017.

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	$ 5,705	$ 1,251	$ 2,768	$  9,724	12.1%

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15. CUSTOMER CONCENTRATION

6 Months Ended

Jun. 30, 2018

Risks and Uncertainties [Abstract]

15. CUSTOMER CONCENTRATION

During the six-month period ended June 30, 2018, the Company sold 89% of its products to its top five customers, respectively. As of June 30, 2018, amounts due from these customers were $4,650,250. During the six-month period ended June 30, 2017, the Company sold 35.0% of its products to its top five customers. As of June 30, 2017, amounts due from these customers were $38,735,709. This concentration makes the Company vulnerable to a near-term severe impact, should the relationships be terminated.

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16. MAJOR SUPPLIERS

6 Months Ended

Jun. 30, 2018

Notes to Financial Statements

16. MAJOR SUPPLIERS

During the six-month period ended June 30, 2018, the Company did not purchase any raw materials. During the six-month period ended June 30, 2017, the Company purchased 67.5% of its raw materials from its top five suppliers.  As of June 30, 2017, amounts due to those suppliers were $6,833,430.

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17. FAIR VALUE OF FINANCIAL INSTRUMENTS

6 Months Ended

Jun. 30, 2018

Fair Value Disclosures [Abstract]

17. FAIR VALUE OF FINANCIAL INSTRUMENTS

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, 2018 and December 31, 2017.

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18. COMMITMENTS

6 Months Ended

Jun. 30, 2018

Commitments and Contingencies Disclosure [Abstract]

18. COMMITMENTS

As of June 30, 2018, the Company has leased real property adjacent to Factory No. 1, with the related production facility, channels and ducts, other production equipment and the buildings located on the property, under a capital lease. The future minimum lease payments required under the capital lease, together with the present value of such payments, are included in the table shown below.

The Company has leased ten parcels of land under non-cancelable operating leases, with fixed rentals and expire through December 2021, December 2023, December 2030, December 2031, December 2032, April 2038, December 2040, February 2059, August 2059 and June 2060, respectively.

The following table sets forth the Company’s contractual obligations as of June 30, 2018:

	Capital Lease Obligations			Operating Lease Obligations		Property Management Fees		Capital Expenditure
Payable within:
the next 12 months	$	283,690		$	1,008,208	$	94,291	$	39,822
the next 13 to 24 months		283,690			1,032,548		94,291		—
the next 25 to 36 months		283,690			1,054,710		94,291		—
the next 37 to 48 months		283,690			911,914		94,291		—
the next 49 to 60 months		283,690			927,797		94,291		—
thereafter		1,985,828			15,688,637		—		—
Total	$	3,404,278		$	20,623,814	$	471,455	$	39,822
Less: Amount representing interest		(1,128,887	)
Present value of net minimum lease payments	$	2,275,391

Rental expenses related to operating leases of the Company amounted to $283,051 and $256,447, which were charged to the condensed consolidated statements of income (loss) for the three months ended June 30, 2018 and 2017, respectively. Rental expenses related to operating leases of the Company amounted to $564,664 and $511,566, which were charged to the condensed consolidated statements of income (loss) for the six months ended June 30, 2018 and 2017, respectively.

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1. BASIS OF PRESENTATION AND CONSOLIDATION (Policies)

6 Months Ended

Jun. 30, 2018

Accounting Policies [Abstract]

Basis of Presentation and Consolidation

The accompanying condensed financial statements have been prepared by Gulf Resources, 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, 2018 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 2017 Form 10-K/A (Amendment No. 2). 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.

Nature of the Business

The Company manufactures and trades bromine and crude salt through its wholly-owned subsidiary, Shouguang City Haoyuan Chemical Company Limited ("SCHC") and manufactures chemical products for use in the oil industry, pesticides, paper manufacturing industry and for human and animal antibiotics through its wholly-owned subsidiary, Shouguang Yuxin Chemical Industry Co., Limited ("SYCI") in the People’s Republic of China (“PRC”). DCHC was established to further explore and develop natural gas and brine resources (including bromine and crude salt) in the PRC. DCHC’s business was not fully operational as of June 30, 2018.

On September 1, 2017, the Company received notification from the Government of Yangkou County, Shouguang City of PRC that production at all its 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.

The Company has been working 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. SCHC is currently under rectification process. The Company believes this rectification process will cost approximately $35 million. In addition to the $35 million, the Company expects to spend an additional $40 million in 2018 to carry out enhancement projects for its extraction wells. The Company incurred rectification and improvements in the amount of $27,048,794 and $17,938,652 as of June 30, 2018 and December 31, 2017.

Originally, six 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. Subsequently, 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. As of current date, the Company has not received any official approval from the government.

Four of the remaining bromine and crude salt factories have a slightly more complex issue that needs to be resolved. All bromine factories now require paired crude salt pans to prevent the halogen water resulting from the production process from flowing into the sea. Four of these bromine factories do not have a designated crude salt pan where the wastewater could be channeled. The Company has four alternatives for these four factories which do not have paired crude salt pans: 1. It can form partnerships with adjacent bromine facilities that do have crude salt pans. The nature of these partnerships could take many forms. At present, the Company is communicating with a third party about the waste water discharge of the Factory No 10. If an agreement is reached, the Company will invest RMB7 million to build a new aqueduct and discharge the waste water to the designated place for treatment by the designated party. 2. The Company could petition the government for a zoning change so that additional land for salt pans could be obtained. The Company believes this might be difficult but is worth pursuing; 3. The Company could negotiate a different method of dealing with this issue; or, 4. These factories could conceivably be forced to close. At the present time, the Company is also working with the government on these issues and has not reached any final solution yet.

Subsequently 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 Weifang 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 approval procedures, planning approval procedures, land use rights approval procedures and environmental protection assessment procedures. The Company believes that the government will not grant approval to the Company to allow 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. We understood from the local government that it has been coordinating with several government agencies to solve these three outstanding approval issues in a timely manner and that all the affected bromine plants are not allowed to commence production prior to obtaining those approvals.

The Company is not certain how long the temporary delay will be due to the issuance and implement of the Notice. 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.

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 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. The Company believes this relocation process will cost approximately $60 million in total. The Company incurred relocation cost in the amount of $10,925,081 and $9,732,118 as of June 30, 2018 and December 31, 2017 and estimated that the new factory will be fully operational by the beginning of 2020.

The Company does not anticipate that the Company’s new chemical factory will 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 Marine Fine Chemical Industry Park and presented a completed construction design draft and other related documents to the local authorities for approval. The Company expected to receive feedback from the local authorities. However, the Company does believe there could be a delay for the approval process given the ongoing rectification and approvals process for the Company’s other plants.

In January 2017, the Company completed the first brine water and natural gas well field construction in Sichuan Province and announced the commencement of trial production. The Company has been working with Xinan Shiyou Daxue (Southwest Petroleum University) and developed a solution to DHCH’s technical drilling problem. In resolving the problem, the Company purchased customized equipment for its natural gas project. The installation of such equipment, including providing piping and electricity, was completed in July 2018. The Company is preparing to test the equipment and anticipates to begin the trial production in September 2018.

Allowance for Doubtful Accounts

As of June 30, 2018 and December 31, 2017, allowances for doubtful accounts were nil. No allowances for doubtful accounts were charged to the condensed consolidated statements of income (loss) for the three-month and six-month periods ended June 30, 2018 and 2017.

Concentration of Credit Risk

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 $215,975,864 and $208,906,759 with these institutions as of June 30, 2018 and December 31, 2017, 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. Approximately 0% and 13% of the balances of accounts receivable as of June 30, 2018 and December 31, 2017, respectively, are outstanding for less than three months. All outstanding receivables as of June 30, 2018 and December 31, 2017 are within the credit terms. For the balances of accounts receivable aged more than 90 days and all accounts receivable as of June 30, 2018, approximately 28% were collected in July 2018. 

The rate of collection in July 2018 for accounts receivable aged more than 90 days as of June 30, 2018 was analyzed as follows:

Accounts Receivable Aging	Percent Collected
90-120 days	0%
121-150 days	0%
151-180 days	0%
181-210 days	16%
211-240 days	100%

Property, Plant and Equipment

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 plant, machinery and equipment. Costs incurred are capitalized and transferred to property and equipment upon completion.

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

	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

Property, plant and equipment under the capital 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 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.

Retirement Benefits

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 income (loss) on an accrual basis when they are due. The Company’s contributions totaled $301,657 and $257,660 for the three-month period ended June 30, 2018 and 2017, respectively, and totaled $604,075 and $512,876 for the six-month period ended June 30, 2018 and 2017, respectively.

Revenue Recognition

Net revenue is net of discount and value added tax and comprises the sale of bromine, crude salt and chemical products. Revenue is recognized 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.

Recoverability of Long-lived Assets

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, 2018 and 2017, the Company determined that there were no events or circumstances indicating possible impairment of its long-lived assets.

Basic and Diluted Net Income per Share of Common Stock

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 89,684 and 39,155 shares for the three-month period ended June 30, 2018 and 2017, respectively, and amounted to 82,649 and 32,077 shares for the six-month period ended June 30, 2018 and 2017, 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.

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

	Three-Month Period Ended June  30,					Six-Month Period Ended June 30,
	2018			2017		2018			2017
Numerator
Net income/(loss)	$	(4,812,873	)	$	13,751,678	$	(11,789,973	)	$	21,826,798
Denominator
Basic: Weighted-average common shares outstanding during the period		46,803,791			46,793,791		46,803,791			46,793,791
Add: Dilutive effect of stock options		—			3,057		11,298			6,754
Diluted		46,803,791			46,796,848		46,815,089			46,800,545
Net income/(loss) per share
Basic	$	(0.10	)	$	0.29	$	(0.25	)	$	0.47
Diluted	$	(0.10	)	$	0.29	$	(0.25	)	$	0.47

Reporting Currency and Translation

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 income (loss). The statement of income (loss) and comprehensive income (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 income (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.

Foreign Operations

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 Costs

Exploration costs, which included the cost of researching appropriate places to drill wells and the cost of well drilling in search of potential natural brine or other resources, are charged to the income (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 to 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.

Goodwill

Goodwill represents the excess of the purchase price over the net of the fair value of the identifiable tangible and intangible assets acquired and the fair value of liabilities assumed in business acquisitions. Goodwill impairment is assessed based on qualitative factors to determine whether it is more likely than not that the fair value of a reporting entity is less than its carrying amount, including goodwill. If the Company determines that it is more likely than not that the fair value of a reporting entity is less than its carrying amount, the two-step goodwill impairment test will be performed. The Company performs its impairment assessment annually and between annual tests in certain circumstances and determined that the two-step goodwill impairment test is not required to be carried out as of June 30, 2018.

New Accounting Pronouncements

Recently Adopted Accounting Pronouncements

In May 2014 and April 2016, the FASB issued ASU No. 2014-09 and ASU No. 2016-10, Revenue from Contracts with Customers (Topic 606). The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In August 2015, FASB issued ASU 2015-14, which deferred the effective date of Update 2014-09 to annual reporting periods beginning after December 15, 2017. The Company adopted this Update as of January 1, 2018. This adoption did not have a material impact on the Company’s condensed consolidated financial statements as of and for the three and six months ended June 30, 2018 as the amount and timing of all the Company’s revenue will continue to be recognized at a point in time. As required by the Update, the Company disclosed its revenues from contracts with customers into disaggregated categories in Note 14.

In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230), Classification of Certain Cash Receipts and Cash Payments. The Update addresses eight specific changes to how cash receipts and cash payments are presented and classified in the statement of cash flows. The amendments in this Update are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted. An entity that elects early adoption must adopt all of the amendments in the same period. The amendments in this Update should be applied using a retrospective transition method to each period presented. If it is impracticable to apply the amendments retrospectively for some of the issues, the amendments for those issues would be applied prospectively as of the earliest date practicable. The Company adopted this Update as of January 1, 2018 with no material impact on the condensed consolidated financial statements as of and for the three and six months ended June 30, 2018.

In May 2017, the FASB issued ASU No. 2017-09, Compensation – Stock Compensation (Topic 718), Scope of Modification Accounting. The amendments in this Update provide guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting. The amendments in this Update are effective for all entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. The amendments in this Update should be applied prospectively to an award modified on or after the adoption date. The Company adopted this Update as of January 1, 2018 with no material impact on the condensed consolidated financial statements as of and for the three and six months ended June 30, 2018.

Recently Issued Accounting Pronouncements Not Yet Adopted

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 leases. For public business entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company is currently evaluating the effect of this on the consolidated financial statements and related disclosure.

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. The Company is currently evaluating the effect of this on the consolidated financial statements and related disclosure.

In January 2017, the FASB issued ASU No. 2017-04, Intangibles – Goodwill and Other (Topic 350), Simplifying the Test for Goodwill Impairment. To simplify the subsequent measurement of goodwill, the Board eliminated Step 2 from the goodwill impairment test. Instead, under the amendments in this Update, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. A public business entity that is a U.S. Securities and Exchange Commission (SEC) filer should adopt the amendments in this Update for its annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. The Company is currently evaluating effect of this on the consolidated financial statements and related disclosure.

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, Top 718 applied only to share-based transactions to employees. Consistent with the accounting requirements for employee share-based payment awards, nonemployee share-based payment awards within the scope of Topic 718 are measured at grant-date fair value of the equity instruments that an entity 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 in the Update are effective for public business entities form fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. Early adoption is permitted, but no earlier than an entity’s adoption date of Topic 606. This is not expected to have a material effect on the Company’s consolidated financial statements.

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1. BASIS OF PRESENTATION AND CONSOLIDATION (Tables)

6 Months Ended

Jun. 30, 2018

Accounting Policies [Abstract]

Rate of collection for accounts receivable

Accounts Receivable Aging	Percent Collected
90-120 days	0%
121-150 days	0%
151-180 days	0%
181-210 days	16%
211-240 days	100%

Schedule of property plant and equipment useful life

	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

Schedule of earnings per share

	Three-Month Period Ended June  30,					Six-Month Period Ended June 30,
	2018			2017		2018			2017
Numerator
Net income/(loss)	$	(4,812,873	)	$	13,751,678	$	(11,789,973	)	$	21,826,798
Denominator
Basic: Weighted-average common shares outstanding during the period		46,803,791			46,793,791		46,803,791			46,793,791
Add: Dilutive effect of stock options		—			3,057		11,298			6,754
Diluted		46,803,791			46,796,848		46,815,089			46,800,545
Net income/(loss) per share
Basic	$	(0.10	)	$	0.29	$	(0.25	)	$	0.47
Diluted	$	(0.10	)	$	0.29	$	(0.25	)	$	0.47

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2. RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS (Tables)

6 Months Ended

Jun. 30, 2018

Restatement Of Previously Issued Financial Statements Tables Abstract

Restatement

	As Reported		Correction			As Restated
Taxes  payable-current	$	2,049,741	$	(433,000	)	$	1,616,741
Total  CurrentLiabilities		3,595,755		(433,000	)		3,162,755
Taxes  payable-non-current		4,969,000		(4,969,000	)		—
Total  non-Current Liabilities		7,115,816		(4,969,000	)		2,146,816
Total Liabilities		10,711,571		(5,402,000	)		5,309,571
Retained earnings unappropriated		238,380,458		5,402,000			243,782,458
Total Stockholders’ Equity	$	360,132,158	$	5,402,000		$	365,534,158

	Retained earnings unappropriated		Total
Balance at June 30, 2018 as reported	$	238,380,458	$	360,132,158
Correction	$	5,402,000	$	5,402,000
Balance at June 30, 2018 as restated	$	243,782,458	$	365,534,158

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3. INVENTORIES (Tables)

6 Months Ended

Jun. 30, 2018

Inventory Disclosure [Abstract]

Inventories

	June 30, 2018		December 31, 2017
Raw materials	$	14,414	$	396,482
Finished goods		166,680		844,224
Allowance for obsolete and slow-moving inventory		—		(43,921	)
	$	181,094	$	1,196,785

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5. PROPERTY, PLANT AND EQUIPMENT, NET (Tables)

6 Months Ended

Jun. 30, 2018

Property, Plant and Equipment [Abstract]

Property, plant and equipment

	June 30, 2018			December 31, 2017
At cost:
Mineral rights	$	4,653,325			4,711,822
Buildings		66,907,410			67,748,512
Plant and machinery		205,294,156			200,742,652
Motor vehicles		8,683			8,792
Furniture, fixtures and office equipment		4,099,059			4,150,588
Construction in process		1,358,535			183,036
Total		282,321,168			277,545,402
Less: Accumulated depreciation and amortization		(169,016,305	)		(163,597,407	)
Impairment		(18,475,881	)		(18,833,491	)
Net book value	$	94,828,982		$	95,114,504

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6. PROPERTY, PLANT AND EQUIPMENT UNDER CAPITAL LEASES, NET (Tables)

6 Months Ended

Jun. 30, 2018

Property Plant And Equipment Under Capital Leases Net

Property, plant and equipment under capital leases

	June 30, 2018			December 31,   2017
At cost:
Buildings	$	124,375		$	125,939
Plant and machinery		2,285,465			2,314,196
Total		2,409,840			2,440,135
Less: Accumulated depreciation and amortization		(2,015,660	)		(1,947,897	)
Net book value	$	394,180		$	492,238

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7. ACCOUNTS PAYABLE AND ACCRUED EXPENSE (Tables)

6 Months Ended

Jun. 30, 2018

Payables and Accruals [Abstract]

Accounts payable and accrued expenses

	June 30,		December 31,
	2018		2017
Salary payable	$	252,261	$	393,617
Social security insurance contribution payable		133,692		135,203
Other payables		388,181		503,263
Total	$	774,134	$	1,032,083

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9. TAXES PAYABLE (Tables)

6 Months Ended

Jun. 30, 2018

Income Tax Disclosure [Abstract]

Schedule of Taxes payable

	June 30,		December 31,
	2018 “Restated”		2017
Natural resource tax	$	—	$	156,147
Land use tax payable		1,616,741		810,841
Other tax payables		—		74,604
Total current taxes payable	$	1,616,741	$	1,041,592

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10. CAPITAL LEASE OBLIGATIONS (Tables)

6 Months Ended

Jun. 30, 2018

Leases [Abstract]

Capital lease obligations

	Imputed		June 30,			December 31,
	Interest rate		2018			2017
Total capital lease obligations		6.7%	$	2,275,391		$	2,507,201
Less: Current portion				(128,575	)		(203,206	)
Capital lease obligations, net of current portion			$	2,146,816		$	2,303,995

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12. STOCK-BASED COMPENSATION (Tables)

6 Months Ended

Jun. 30, 2018

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Schedule of stock option transactions

	Number of Option Outstanding and exercisable			Weighted- Average Exercise price of Option		Range of Exercise Price per Common Share
Balance, January 1, 2018		808,500		$	1.61		$1.44 - $4.80
Granted and vested during the period Ended June 30, 2018		—			—		—
Expired during the period ended June 30, 2018		(25,000	)	$	2.31		$2.07-2.55
Balance, June 30, 2018		783,500		$	1.58		$1.44 - $4.80

Schedule Stock and Warrants Options Outstanding

	Stock Options Exercisable and Outstanding
			Weighted Average
			Remaining
	Outstanding at June 30, 2018	Range of Exercise Prices	Contractual Life  (Years)
Exercisable and outstanding	783,500	$1.44 - $4.80	2.70

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13. INCOME TAXES (Tables)

6 Months Ended

Jun. 30, 2018

Income Tax Disclosure [Abstract]

Schedule of components of the provision for income taxes

	Three-Month Period Ended June  30,					Six-Month Period Ended June 30,
	2018			2017		2018			2017
Current taxes – PRC	$	—		$	4,821,450	$	—		$	7,643,276
Deferred taxes – PRC		(1,883,241	)		—		(3,076,987	)		—
	$	(1,883,241	)	$	4,821,450	$	(3,076,987	)	$	7,643,276

Schedule of income tax expenses reconciliation

	Three-Month Period Ended June 30,						Six-Month Period Ended June 30,
Reconciliations	2018			2017			2018			2017
Statutory income tax rate		25	%		25	%		25	%		25	%
Non-deductible expense		(1	%)		1	%		(4	%)		1	%
Non-taxable items		5	%		—			1	%		—
Change in valuation allowance		(1	%)		—			(1	%)		—
Effective tax rate		28	%		26	%		21	%		26	%

Schedule of deferred tax assets and liabilities

	June 30,			December 31,
	2018 (Restated)			2017
Deferred tax liabilities	$	—		$	—
Deferred tax assets:
Allowance for obsolete and slow-moving inventories	$	—		$	10,980
Impairment on property, plant and equipment		3,706,211			4,610,228
Exploration costs		1,881,693			1,905,347
Compensation costs of unexercised stock options		94,287			98,092
PRC tax losses		3,820,948			—
US federal net operating loss		59,400			—
Total deferred tax assets		9,562,539			6,624,647
Valuation allowance		(153,687	)		(98,092	)
Net deferred tax asset	$	9,408,852		$	6,526,555

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14. BUSINESS SEGMENTS (Tables)

6 Months Ended

Jun. 30, 2018

Segment Reporting [Abstract]

Schedule of segment operating income

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 taxes(benefit)		(5,577,272	)		(1,731,592	)		(727,595	)		(45,295	)		(8,081,754	)		1,250,147		(6,831,607	)
Income taxes expense (benefit)		(1,579,514	)		(240,367	)		(63,360	)		—			(1,883,241	)		—		(1,883,241	)
Income (loss) from operations after income taxes(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

Three-Month Period Ended June 30, 2017	Bromine*		Crude  Salt*		Chemical   Products		Natural Gas			Segment   Total		Corporate			Total
Net revenue (external customers)	$	18,423,133	$	2,521,883	$	26,586,973	$	—		$	47,531,989	$	—		$	47,531,989
Net revenue (intersegment)		2,910,743		—		—		—			2,910,743		—			2,910,743
Income(loss) from operations before income taxes		9,740,981		1,051,202		8,318,480		(33,529	)		19,077,134		(594,662	)		18,482,472
Income taxes		2,464,085		245,164		2,112,201		—			4,821,450		—			4,821,450
Income (loss) from operations after income taxes		7,276,896		806,038		6,206,279		(33,529	)		14,255,684		(594,662	)		13,661,022
Total assets		162,696,276		32,749,355		207,885,555		1,819,284			405,150,470		114,373			405,264,843
Depreciation and amortization		3,794,600		624,226		951,364		—			5,370,190		—			5,370,190
Goodwill		—		—		28,332,661		—			28,332,661		—			28,332,661

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 taxes (benefit)		(11,167,828	)		(2,539,475	)		(1,402,366	)		(80,950	)		(15,190,619	)		62,032		(15,128,587	)
Income taxes expense (benefit)		(2,970,666	)		(442,338	)		336,017			—			(3,076,987	)		—		(3,076,987	)
Income (loss) from operations after income taxes(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

Six-Month Period Ended June 30, 2017	Bromine*		Crude  Salt*		Chemical  Products		Natural Gas			Segment  Total		Corporate			Total
Net revenue (external customers)	$	32,345,527	$	4,335,661	$	43,639,294	$	—		$	80,320,482	$	—		$	80,320,482
Net revenue (intersegment)		5,089,236		—		—		—			5,089,236		—			5,089,236
Income(loss) from operations before income taxes		15,012,915		1,937,089		13,264,657		(57,287	)		30,157,374		(861,905	)		29,295,469
Income taxes		3,794,188		468,746		3,380,342		—			7,643,276		—			7,643,276
Income (loss) from operations after income taxes		11,218,727		1,468,343		9,884,315		(57,287	)		22,514,098		(861,905	)		21,652,193
Total assets		162,696,276		32,749,355		207,885,555		1,819,284			405,150,470		114,373			405,264,843
Depreciation and amortization		7,793,181		1,078,673		1,937,435		—			10,809,289		—			10,809,289
Goodwill		—		—		28,332,661		—			28,332,661		—			28,332,661

Schedule of segment costs

	Three-Month Period Ended June 30,						Six-Month Period Ended June 30,
Reconciliations	2018			2017			2018			2017
Total segment operating income (loss)	$	(8,081,754	)	$	19,077,134		$	(15,190,619	)	$	30,157,374
Corporate costs		(153,791	)		(128,007	)		(283,054	)		(257,995	)
Unrealized gain/(loss) on translation of intercompany balance		1,403,938			(466,655	)		345,086			(603,910	)
Income (loss) from operations		(6,831,607	)		18,482,472			(15,128,587	)		29,295,469
Other income, net of expense		135,493			90,656			261,627			174,605
Income (loss) before income taxes	$	(6,696,114	)	$	18,573,128		$	(14,866,960	)	$	29,470,074

Schedule of major customers

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	$ —	$ 534	$ 155	$  689	30.6%
2	Shandong Brother Technology Limited, Kuerle Xingdong Trading Limited	$ —	$ 670	$ —	$  670	29.8%
3	Shouguang Weidong Chemical Company Limited	$ —	$ 435	$ —	$  435	19.3%

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	$ 5,705	$ 1,251	$ 2,768	$  9,724	12.1%

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18. COMMITMENTS (Tables)

6 Months Ended

Jun. 30, 2018

Commitments and Contingencies Disclosure [Abstract]

Schedule of contractual obligations

	Capital Lease Obligations			Operating Lease Obligations		Property Management Fees		Capital Expenditure
Payable within:
the next 12 months	$	283,690		$	1,008,208	$	94,291	$	39,822
the next 13 to 24 months		283,690			1,032,548		94,291		—
the next 25 to 36 months		283,690			1,054,710		94,291		—
the next 37 to 48 months		283,690			911,914		94,291		—
the next 49 to 60 months		283,690			927,797		94,291		—
thereafter		1,985,828			15,688,637		—		—
Total	$	3,404,278		$	20,623,814	$	471,455	$	39,822
Less: Amount representing interest		(1,128,887	)
Present value of net minimum lease payments	$	2,275,391

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1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details)	Jun. 30, 2018
90-120 days
Accounts receivable collection	0.00%
121-150 days
Accounts receivable collection	0.00%
151-180 days
Accounts receivable collection	0.00%
181-210 days
Accounts receivable collection	16.00%
211-240 days
Accounts receivable collection	100.00%

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1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details 1)	6 Months Ended
	Jun. 30, 2018
Building [Member] | Minimum [Member]
Property, Plant and Equipment [Line Items]
Property, plant and equipment, useful life	8 years
Building [Member] | Maximum [Member]
Property, Plant and Equipment [Line Items]
Property, plant and equipment, useful life	20 years
Plant And Machinery [Member] | Minimum [Member]
Property, Plant and Equipment [Line Items]
Property, plant and equipment, useful life	3 years
Plant And Machinery [Member] | Maximum [Member]
Property, Plant and Equipment [Line Items]
Property, plant and equipment, useful life	8 years
Vehicles [Member]
Property, Plant and Equipment [Line Items]
Property, plant and equipment, useful life	5 years
Furniture, Fixtures And Equipment [Member] | Minimum [Member]
Property, Plant and Equipment [Line Items]
Property, plant and equipment, useful life	3 years
Furniture, Fixtures And Equipment [Member] | Maximum [Member]
Property, Plant and Equipment [Line Items]
Property, plant and equipment, useful life	8 years

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1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details 2) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
Numerator
Net income/(loss)	$ (4,812,873)	$ 13,751,678	$ (11,789,973)	$ 21,826,798
Denominator
Basic: Weighted-average common shares outstanding during the period	46,803,791	46,793,791	46,803,791	46,793,791
Add: Dilutive effect of stock options	0	3,057	11,298	6,754
Diluted	46,803,791	46,796,848	46,815,089	46,800,545
Net income per share
Basic	$ (0.10)	$ 0.29	$ (0.25)	$ 0.47
Diluted	$ (0.10)	$ 0.29	$ (0.25)	$ 0.47

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1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details Narrative) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017	Dec. 31, 2017
Basis Of Presentation And Summary Of Significant Accounting Policies
Allowances for doubtful accounts	$ 0		$ 0		$ 0
Contributions to the retirement plan	$ 301,657	$ 257,660	$ 604,075	$ 512,876
Anti-dilutive common stock equivalents which were excluded	89,684	39,155	82,649	32,077

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2. RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS (Details) - USD ($)	Jun. 30, 2018	Dec. 31, 2017
Taxes payable-current	$ 1,616,741	$ 1,041,592
Total Current Liabilities	3,162,755	3,233,232
Taxes payable-non-current	0	0
Total Non-Current Liabilities	2,146,816	2,303,995
Total Liabilities	5,309,571	5,537,227
Retained earnings unappropriated	243,782,458	255,572,431
Total Stockholders Equity	365,534,158	$ 381,962,196
As Reported
Taxes payable-current	2,049,741
Total Current Liabilities	3,595,755
Taxes payable-non-current	4,969,000
Total Non-Current Liabilities	7,115,816
Total Liabilities	10,711,571
Retained earnings unappropriated	238,380,458
Total Stockholders Equity	360,132,158
Correction
Taxes payable-current	(433,000)
Total Current Liabilities	(433,000)
Taxes payable-non-current	(4,969,000)
Total Non-Current Liabilities	(4,969,000)
Total Liabilities	(5,402,000)
Retained earnings unappropriated	5,402,000
Total Stockholders Equity	$ 5,402,000

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2. RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS (Details 1) - USD ($)	Jun. 30, 2018	Dec. 31, 2017
Balance	$ 365,534,158	$ 381,962,196
As Reported
Balance	360,132,158
Correction
Balance	5,402,000
Retained Earnings
Balance	243,782,458	$ 255,572,431
Retained Earnings | As Reported
Balance	238,380,458
Retained Earnings | Correction
Balance	$ 5,402,000

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3. INVENTORIES (Details) - USD ($)	Jun. 30, 2018	Dec. 31, 2017
Inventory Disclosure [Abstract]
Raw materials	$ 14,414	$ 396,482
Finished goods	166,680	844,224
Allowance for obsolete and slow-moving inventory	0	(43,921)
Inventories	$ 181,094	$ 1,196,785

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4. PREPAID LAND LEASE (Details Narrative) - USD ($)	3 Months Ended		6 Months Ended		12 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017	Dec. 31, 2017
Prepaid Land Lease
Amortization of prepaid land lease	$ 150,579	$ 126,846	$ 294,676	$ 234,307
Parcels of land of which the Company could not obtain land use rights certificates					Approximately 54.97 square kilometers of aggregate carrying value of $645,761

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5. PROPERTY, PLANT AND EQUIPMENT, NET (Details) - USD ($)	6 Months Ended	12 Months Ended
	Jun. 30, 2018	Dec. 31, 2017
Property, Plant and Equipment [Abstract]
Mineral rights	$ 4,653,325	$ 4,711,822
Buildings	66,907,410	67,748,512
Plant and machinery	205,294,156	200,742,652
Motor vehicles	8,683	8,792
Furniture, fixtures and office equipment	4,099,059	4,150,588
Construction in progress	1,358,535	183,036
Total	282,321,168	277,545,402
Less: Accumulated depreciation and amortization	(169,016,305)	(163,597,407)
Impairment	(18,475,881)	(18,833,491)
Net book value	$ 94,828,982	$ 95,114,504

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5. PROPERTY, PLANT AND EQUIPMENT, NET (Details Narrative) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017	Dec. 31, 2017
Land	$ 26,162,718		$ 26,162,718		$ 27,432,351
Sales and administrative expenses [Member]
Depreciation and amortization expense	4,684,870	$ 5,294,777	9,373,118	$ 10,658,819
Direct labor and factory overheads incurred during plant shutdown	4,420,180		8,857,147
Cost of net revenue		5,001,792		10,074,234
Cost of administrative expenses	$ 262,689	$ 292,985	$ 515,971	$ 584,585

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6. PROPERTY, PLANT AND EQUIPMENT UNDER CAPITAL LEASES, NET (Details) - USD ($)	Jun. 30, 2018	Dec. 31, 2017
At cost:	$ 2,409,840	$ 2,440,135
Less: accumulated depreciation and amortization	(2,015,660)	(1,947,897)
Net book value	394,180	492,238
Building [Member]
At cost:	124,375	125,939
Plant and machinery
At cost:	$ 2,285,465	$ 2,314,196

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6. PROPERTY, PLANT AND EQUIPMENT UNDER CAPITAL LEASES, NET (Details Narrative) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
Property Plant And Equipment Under Capital Leases Net Details Narrative Abstract
Depreciation and amortization expense	$ 69,115	$ 75,413	$ 138,397	$ 150,470

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7. ACCOUNTS PAYABLE AND ACCRUED EXPENSE (Details) - USD ($)	Jun. 30, 2018	Dec. 31, 2017
Accounts Payable And Accrued Expense
Salary payable	$ 252,261	$ 393,617
Social security insurance contribution payable	133,692	135,203
Other payables	388,181	503,263
Total	$ 774,134	$ 1,032,083

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8. RELATED PARTY TRANSACTIONS (Details Narrative) - USD ($)	3 Months Ended	6 Months Ended
	Jun. 30, 2018	Jun. 30, 2018
Related Party Transactions
Company borrowed from Jiaxing Lighting Appliance Company Limited	$ 66,000	$ 251,912

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9. TAXES PAYABLE (Details) - USD ($)	Jun. 30, 2018	Dec. 31, 2017
Taxes Payable
Natural resource tax	$ 0	$ 156,147
Land use tax payable	1,616,741	810,841
Other tax payables	0	74,604
Total current taxes payable	$ 1,616,741	$ 1,041,592

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10. CAPITAL LEASE OBLIGATIONS (Details) - USD ($)	Jun. 30, 2018	Dec. 31, 2017
Capital Lease Obligations
Imputed interest rate on capital lease obligations	6.70%	6.70%
Total capital lease obligations	$ 2,275,391	$ 2,507,201
Less: Current portion	(128,575)	(203,206)
Capital lease obligations, net of current portion	$ 2,146,816	$ 2,303,995

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10. CAPITAL LEASE OBLIGATIONS (Details Narrative) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
Capital Lease Obligations Details Narrative Abstract
Interest expense from capital lease obligations	$ 43,055	$ 41,375	$ 86,214	$ 83,128

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11. EQUITY (Details Narrative)	6 Months Ended
	Jun. 30, 2018
Equity
Statutory Common Reserve Funds Description	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, 2018 for SCHC, SYCI and DCHC is 46%, 14% and 0% of its registered capital respectively.

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12. STOCK-BASED COMPENSATION (Details)	6 Months Ended
	Jun. 30, 2018 $ / shares shares
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of Option and Warrants Outstanding, Beginning balance | shares	808,500
Number of Option and Warrants Granted and Vested | shares	0
Number of Option and Warrants Expired | shares	(25,000)
Number of Option and Warrants Outstanding, Ending Balance | shares	783,500
Weighted- Average Exercise price of Option and Warrants, Beginning balance | $ / shares	$ 1.61
Weighted- Average Exercise price of Option and Warrants, Granted and vested during the period | $ / shares	0.00
Weighted- Average Exercise price of Option and Warrants, Expired | $ / shares	2.31
Weighted- Average Exercise price of Option and Warrants, Ending Balance | $ / shares	$ 1.58
Range of Exercise Price per Common Share, Granted and Vested	0.00
Minimum [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Range of Exercise Price per Common Share, Beginning Balance	1.44
Range of Exercise Price per Common Share, Expired	2.07
Range of Exercise Price per Common Share, Ending Balance	1.44
Maximum [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Range of Exercise Price per Common Share, Beginning Balance	4.80
Range of Exercise Price per Common Share, Expired	2.55
Range of Exercise Price per Common Share, Ending Balance	4.80

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12. STOCK-BASED COMPENSATION (Details 1) - $ / shares	6 Months Ended
	Jun. 30, 2018	Dec. 31, 2017
Share-based Compensation [Abstract]
Outstanding	783,500	808,500
Range of Exercise Prices, Lower Limit	$ 1.44
Range of Exercise Prices, Upper Limit	$ 4.80
Weighted Average Remaining Contractual Life (Years)	2 years 8 months 12 days

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12. STOCK-BASED COMPENSATION (Details Narrative)	6 Months Ended
	Jun. 30, 2018 USD ($) shares
Stock-based Compensation
Common stock available for issuance | shares	6,739,989
Aggregate intrinsic value of options outstanding and exercisable | $	$ 0

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13. INCOME TAXES (Details) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
Income Tax Disclosure [Abstract]
Current taxes - PRC	$ 0	$ 4,821,450	$ 0	$ 7,643,276
Deferred taxes - PRC	(1,883,241)	0	(3,076,987)	0
Income taxes	$ (1,883,241)	$ 4,821,450	$ (3,076,987)	$ 7,643,276

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13. INCOME TAXES (Details 1)	3 Months Ended		6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
Income Tax Disclosure [Abstract]
Statutory income tax rate	25.00%	25.00%	25.00%	25.00%
Non-deductible expense and change in valuation allowance	(1.00%)	1.00%	(4.00%)	1.00%
Non-taxable items	5.00%	0.00%	1.00%	0.00%
Change in valuation allowance - US federal net operating loss	(1.00%)	0.00%	(1.00%)	0.00%
Effective tax rate	28.00%	26.00%	21.00%	26.00%

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13. INCOME TAXES (Details 2) - USD ($)	Jun. 30, 2018	Dec. 31, 2017
Income Tax Disclosure [Abstract]
Deferred tax liabilities	$ 0	$ 0
Deferred tax assets:
Allowance for obsolete and slow-moving inventories	0	10,980
Impairment on property, plant and equipment	3,706,211	4,610,228
Exploration costs	1,881,693	1,905,347
Compensation costs of unexercised stock options	94,287	98,092
PRC tax losses	3,820,948	0
US federal net operating loss	7,138,700	7,080,000
Total deferred tax assets	16,641,839	13,704,647
Valuation allowance	(7,232,987)	(7,178,092)
Net deferred tax asset	$ 9,408,852	$ 6,526,555

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14. BUSINESS SEGMENTS (Details) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
Segment Reporting Information [Line Items]
Net revenue (external customers)	$ 4,594	$ 47,531,989	$ 2,251,861	$ 80,320,482
Net revenue (intersegment)	0	2,910,743	0	5,089,236
Income (loss) from operations before taxes (benefit)	(6,831,607)	18,482,472	(15,128,587)	29,295,469
Income tax expense (benefit)	(1,883,241)	4,821,450	(3,076,987)	7,643,276
Income (loss) from operations after income taxes (benefit)	(4,948,366)	13,661,022	(12,051,600)	21,652,193
Total assets	370,843,729	405,264,843	370,843,729	405,264,843
Depreciation and amortization	4,753,984	5,370,190	9,511,515	10,809,289
Capital expenditures	10,212,011		10,333,721
Goodwill	29,010,218	28,332,661	29,010,218	28,332,661
Bromine Segment [Member]
Segment Reporting Information [Line Items]
Net revenue (external customers)	0	18,423,133	0	32,345,527
Net revenue (intersegment)	0	2,910,743	0	5,089,236
Income (loss) from operations before taxes (benefit)	(5,577,272)	9,740,981	(11,167,828)	15,012,915
Income tax expense (benefit)	(1,579,514)	2,464,085	(2,970,666)	3,794,188
Income (loss) from operations after income taxes (benefit)	(3,997,758)	7,276,896	(8,197,162)	11,218,727
Total assets	138,510,016	162,696,276	138,510,016	162,696,276
Depreciation and amortization	4,018,318	3,794,600	7,738,030	7,793,181
Capital expenditures	7,813,714		7,906,888
Goodwill	0	0	0	0
Crude Salt Segment [Member]
Segment Reporting Information [Line Items]
Net revenue (external customers)	0	2,521,883	1,638,493	4,335,661
Net revenue (intersegment)	0	0	0	0
Income (loss) from operations before taxes (benefit)	(1,731,592)	1,051,202	(2,539,475)	1,937,089
Income tax expense (benefit)	(240,367)	245,164	(442,338)	468,746
Income (loss) from operations after income taxes (benefit)	(1,491,225)	806,038	(2,097,137)	1,468,343
Total assets	47,572,477	32,749,355	47,572,477	32,749,355
Depreciation and amortization	611,499	624,226	1,524,850	1,078,673
Capital expenditures	1,189,075		1,203,254
Goodwill	0	0	0	0
Chemical Products Segment [Member]
Segment Reporting Information [Line Items]
Net revenue (external customers)	4,594	26,586,973	613,368	43,639,294
Net revenue (intersegment)	0	0	0	0
Income (loss) from operations before taxes (benefit)	(727,595)	8,318,480	(1,402,366)	13,264,657
Income tax expense (benefit)	(63,360)	2,112,201	336,017	3,380,342
Income (loss) from operations after income taxes (benefit)	(664,235)	6,206,279	(1,738,383)	9,884,315
Total assets	182,669,040	207,885,555	182,669,040	207,885,555
Depreciation and amortization	124,167	951,364	248,635	1,937,435
Capital expenditures	1,192,963		1,192,963
Goodwill	29,010,218	28,332,661	29,010,218	28,332,661
Natural Gas [Member]
Segment Reporting Information [Line Items]
Net revenue (external customers)	0	0	0	0
Net revenue (intersegment)	0	0	0	0
Income (loss) from operations before taxes (benefit)	(45,295)	(33,529)	(80,950)	(57,287)
Income tax expense (benefit)	0	0	0	0
Income (loss) from operations after income taxes (benefit)	(45,295)	(33,529)	(80,950)	(57,287)
Total assets	2,011,378	1,819,284	2,011,378	1,819,284
Depreciation and amortization	0	0	0	0
Capital expenditures	16,259		30,616
Goodwill	0	0	0	0
Segment Total [Member]
Segment Reporting Information [Line Items]
Net revenue (external customers)	4,594	47,531,989	2,251,861	80,320,482
Net revenue (intersegment)	0	2,910,743	0	5,089,236
Income (loss) from operations before taxes (benefit)	(8,081,754)	19,077,134	(15,190,619)	30,157,374
Income tax expense (benefit)	(1,883,241)	4,821,450	(3,076,987)	7,643,276
Income (loss) from operations after income taxes (benefit)	(6,198,513)	14,255,684	(12,113,632)	22,514,098
Total assets	370,762,911	405,150,470	370,762,911	405,150,470
Depreciation and amortization	4,753,984	5,370,190	9,511,515	10,809,289
Capital expenditures	10,212,011		10,333,721
Goodwill	29,010,218	28,332,661	29,010,218	28,332,661
Corporate [Member]
Segment Reporting Information [Line Items]
Net revenue (external customers)	0	0	0	0
Net revenue (intersegment)	0	0	0	0
Income (loss) from operations before taxes (benefit)	1,250,147	(594,662)	62,032	(861,905)
Income tax expense (benefit)	0	0	0	0
Income (loss) from operations after income taxes (benefit)	1,250,147	(594,662)	62,032	(861,905)
Total assets	80,818	114,373	80,818	114,373
Depreciation and amortization	0	0	0	0
Goodwill	$ 0	$ 0	$ 0	$ 0

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14. BUSINESS SEGMENTS (Details 1) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
Business Segments
Total segment operating income (loss)	$ (8,081,754)	$ 19,077,134	$ (15,190,619)	$ 30,157,374
Corporate costs	(153,791)	(128,007)	(283,054)	(257,995)
Unrealized gain/(loss) on translation of intercompany balance	1,403,938	(466,655)	345,086	(603,910)
Income (loss) from operations	(6,831,607)	18,482,472	(15,128,587)	29,295,469
Other income, net of expense	135,493	90,656	261,627	174,605
Income (loss) before income taxes	$ (6,696,114)	$ 18,573,128	$ (14,866,960)	$ 29,470,074

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14. BUSINESS SEGMENTS (Details 2) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
Revenue, Major Customer [Line Items]
Revenues	$ 4,594	$ 47,531,989	$ 2,251,861	$ 80,320,482
Shandong Morui Chemical Company Limited [Member]
Revenue, Major Customer [Line Items]
Revenues	$ 689,000	$ 9,724,000
Percentage of Total Revenue (%)	30.60%	12.10%
Shandong Morui Chemical Company Limited [Member] | Bromine Segment [Member]
Revenue, Major Customer [Line Items]
Revenues	$ 0	$ 5,705,000
Shandong Morui Chemical Company Limited [Member] | Crude Salt Segment [Member]
Revenue, Major Customer [Line Items]
Revenues	534,000	1,251,000
Shandong Morui Chemical Company Limited [Member] | Chemical Products Segment [Member]
Revenue, Major Customer [Line Items]
Revenues	155,000	$ 2,768,000
Shandong Brother Technology Limited, Kuerle Xingdong Trading Limited
Revenue, Major Customer [Line Items]
Revenues	$ 670,000
Percentage of Total Revenue (%)	29.80%
Shandong Brother Technology Limited, Kuerle Xingdong Trading Limited | Bromine Segment [Member]
Revenue, Major Customer [Line Items]
Revenues	$ 0
Shandong Brother Technology Limited, Kuerle Xingdong Trading Limited | Crude Salt Segment [Member]
Revenue, Major Customer [Line Items]
Revenues	670,000
Shandong Brother Technology Limited, Kuerle Xingdong Trading Limited | Chemical Products Segment [Member]
Revenue, Major Customer [Line Items]
Revenues	0
Shouguang Weidong Chemical Company Limited
Revenue, Major Customer [Line Items]
Revenues	$ 435,000
Percentage of Total Revenue (%)	19.30%
Shouguang Weidong Chemical Company Limited | Bromine Segment [Member]
Revenue, Major Customer [Line Items]
Revenues	$ 0
Shouguang Weidong Chemical Company Limited | Crude Salt Segment [Member]
Revenue, Major Customer [Line Items]
Revenues	435,000
Shouguang Weidong Chemical Company Limited | Chemical Products Segment [Member]
Revenue, Major Customer [Line Items]
Revenues	$ 0

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15. CUSTOMER CONCENTRATION (Details Narrative) - USD ($)	6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017
Amounts due from major customers	$ 4,650,250	$ 38,735,709
Top 5 customers
Percent products sold to top five customers	89.00%	35.00%

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16. MAJOR SUPPLIERS (Details Narrative)	6 Months Ended
	Jun. 30, 2017 USD ($)
Major Suppliers
Top five suppliers percentage raw materials supplied	67.50%
Amount due top five suppliers	$ 6,833,430

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18. COMMITMENTS (Details)	Jun. 30, 2018 USD ($)
Capital Lease Obligations Payable within:
the next 12 months	$ 283,690
the next 13 to 24 months	283,690
the next 25 to 36 months	283,690
the next 37 to 48 months	283,690
the next 49 to 60 months	283,690
thereafter	1,985,828
Total	3,404,278
Less: Amount representing interest	(1,128,887)
Present value of net minimum lease payments	2,275,391
Operating Lease Obligations
the next 12 months	1,008,208
the next 13 to 24 months	1,032,548
the next 25 to 36 months	1,054,710
the next 37 to 48 months	911,914
the next 49 to 60 months	927,797
thereafter	15,688,637
Total	20,623,814
Property Management Fees
the next 12 months	94,291
the next 13 to 24 months	94,291
the next 25 to 36 months	94,291
the next 37 to 48 months	94,291
the next 49 to 60 months	94,291
thereafter	0
Total	471,455
Capital Expenditure
the next 12 months	39,822
the next 13 to 24 months	0
the next 25 to 36 months	0
the next 37 to 48 months	0
the next 49 to 60 months	0
thereafter	0
Total	$ 39,822

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18. COMMITMENTS (Details Narrative) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
Capital Commitment And Operating Lease Commitments Details Narrative Abstract
Rental expenses related to operating leases	$ 283,051	$ 256,447	$ 564,664	$ 511,566