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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
| For the quarterly period ended September 30, 2021
| 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, China |  | 262700
(Address of principal executive offices) |  | (Zip Code)

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

Securities registered pursuant to Section 12(b) of the Act:

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

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 ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

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 ☐ | Accelerated filer ☐
Non-accelerated Filer ☐ | Smaller reporting company ☒
| Emerging Growth Company ☐

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 ☐ No ☒

As of November 13, 2021, the registrant had outstanding 10,469,477 shares of common stock.

Table of Contents

Part I – Financial Information |
Item 1. Financial Statements | 1
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations | 17
Item 3. Quantitative and Qualitative Disclosures about Market Risk | 28
Item 4. Controls and Procedures | 29
Part II – Other Information |
Item 1. Legal Proceedings | 29
Item 1A. Risk Factors | 30
Item 2. Unregistered Sale of Equity Securities and Use of Proceeds | 30
Item 3. Defaults Upon Senior Securities | 30
Item 4. Mine Safety Disclosures | 30
Item 5. Other Information | 30
Item 6. Exhibits | 30
Signatures | 31

Table of Contents

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

GULF RESOURCES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Expressed in U.S. dollars)

|  | September 30, 2021 Unaudited |  | December 31, 2020 Audited
Current Assets |  |  |  |  |  |  |  |
Cash |  | $ | 98,880,826 |  |  | $ | 94,222,538 |
Accounts receivable |  |  | 13,433,116 |  |  |  | 6,521,798 |
Inventories, net |  |  | 489,502 |  |  |  | 419,609 |
Prepayments and deposits |  |  | 5,116,702 |  |  |  | 6,146,461 |
Other receivable |  |  | 559 |  |  |  | 559 |
Total Current Assets |  |  | 117,920,705 |  |  |  | 107,310,965 |
Non-Current Assets |  |  |  |  |  |  |  |
Property, plant and equipment, net |  |  | 150,414,047 |  |  |  | 148,947,689 |
Finance lease right-of use assets |  |  | 183,118 |  |  |  | 186,272 |
Operating lease right-of –use assets |  |  | 8,328,584 |  |  |  | 8,868,661 |
Prepaid land leases, net of current portion |  |  | 10,194,743 |  |  |  | 10,134,004 |
Deferred tax assets |  |  | 17,397,924 |  |  |  | 18,590,227 |
Total non-current assets |  |  | 186,518,416 |  |  |  | 186,726,853 |
Total Assets |  | $ | 304,439,121 |  |  | $ | 294,037,818 |
Liabilities and Stockholders’ Equity |  |  |  |  |  |  |  |
Current Liabilities |  |  |  |  |  |  |  |
Accounts , other payable and accrued expenses |  | $ | 10,227,804 |  |  | $ | 5,081,701 |
Taxes payable-current |  |  | 2,223,200 |  |  |  | 1,326,179 |
Finance lease liability, current portion |  |  | 191,719 |  |  |  | 217,070 |
Operating lease liabilities, current portion |  |  | 474,695 |  |  |  | 477,350 |
Total Current Liabilities |  |  | 13,117,418 |  |  |  | 7,102,300 |
Non-Current Liabilities |  |  |  |  |  |  |  |
Finance lease liability, net of current portion |  |  | 1,740,499 |  |  |  | 1,888,903 |
Operating lease liabilities, net of current portion |  |  | 7,357,483 |  |  |  | 8,022,342 |
Total Non-Current Liabilities |  |  | 9,097,982 |  |  |  | 9,911,245 |
Total Liabilities |  | $ | 22,215,400 |  |  | $ | 17,013,545 |
Commitment and Loss Contingencies |  |  |  |  |  |  |  |
Stockholders’ Equity |  |  |  |  |  |  |  |
PREFERRED STOCK; $0.001 par value; 1,000,000 shares authorized; none outstanding |  | $ | — |  |  | $ | — |
COMMON STOCK; $0.0005 par value; 80,000,000 shares authorized; 10,515,307 and 10,043,307 shares issued; 10,469,477 and 9,997,477 shares outstanding as of September 30, 2021 and December 31, 2020, respectively |  |  | 24,375 |  |  |  | 24,139 |
Treasury stock; 45,830 and 45,830 shares as of September 30, 2021 and December 31, 2020 at cost |  |  | (510,329 | ) |  |  | (510,329 | )
Additional paid-in capital |  |  | 100,569,160 |  |  |  | 97,435,316 |
Retained earnings unappropriated |  |  | 151,576,627 |  |  |  | 151,388,356 |
Retained earnings appropriated |  |  | 24,233,544 |  |  |  | 24,233,544 |
Accumulated other comprehensive loss |  |  | 6,330,344 |  |  |  | 4,453,247 |
Total Stockholders’ Equity |  |  | 282,223,721 |  |  |  | 277,024,273 |
Total Liabilities and Stockholders’ Equity |  | $ | 304,439,121 |  |  | $ | 294,037,818 |

See accompanying notes to the condensed consolidated financial statements.

1

Table of Contents

GULF RESOURCES, INC.

AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF LOSS AND COMPREHENSIVE LOSS

(Expressed in U.S. dollars)

(UNAUDITED)

|  | Three-Month Period Ended September 30, |  | Nine -Month Period Ended September 30,
|  | 2021 |  | 2020 |  | 2021 |  | 2020
NET REVENUE |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Net revenue |  | $ | 17,753,669 |  |  | $ | 10,482,185 |  |  | $ | 34,160,920 |  |  | $ | 16,399,338 |
OPERATING INCOME (EXPENSE) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cost of net revenue |  |  | (8,197,697 | ) |  |  | (6,750,055 | ) |  |  | (19,294,860 | ) |  |  | (12,694,271 | )
Sales, marketing and other operating expenses |  |  | (19,035 | ) |  |  | (15,785 | ) |  |  | (44,205 | ) |  |  | (28,866 | )
Direct labor and factory overheads incurred during plant shutdown |  |  | (1,229,058 | ) |  |  | (1,538,193 | ) |  |  | (5,237,258 | ) |  |  | (6,886,215 | )
General and administrative expenses |  |  | (1,209,818 | ) |  |  | (4,911,970 | ) |  |  | (8,150,769 | ) |  |  | (7,297,010 | )
Other operating income (loss) |  |  | (86 | ) |  |  | — |  |  |  | (86 | ) |  |  | (15,775 | )
Total operating expense |  |  | (10,655,694 | ) |  |  | (13,216,003 | ) |  |  | (32,727,178 | ) |  |  | (26,922,137 | )
INCOME(LOSS) FROM OPERATIONS |  |  | 7,097,975 |  |  |  | (2,733,818 | ) |  |  | 1,433,742 |  |  |  | (10,522,799 | )
OTHER INCOME (EXPENSE) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest expense |  |  | (32,420 | ) |  |  | (32,257 | ) |  |  | (108,650 | ) |  |  | (102,573 | )
Interest income |  |  | 73,707 |  |  |  | 70,819 |  |  |  | 221,597 |  |  |  | 216,662 |
Other (income) expenses |  |  | 4,636 |  |  |  | — |  |  |  | 4,636 |  |  |  | — |
INCOME(LOSS) BEFORE TAXES |  |  | 7,143,898 |  |  |  | (2,695,256 | ) |  |  | 1,551,325 |  |  |  | (10,408,710 | )
INCOME TAX BENEFIT |  |  | (1,750,283 | ) |  |  | (217,325 | ) |  |  | (1,363,054 | ) |  |  | 1,711,751 |
NET INCOME(LOSS) |  | $ | 5,393,615 |  |  | $ | (2,912,581 | ) |  | $ | 188,271 |  |  | $ | (8,696,959 | )
COMPREHENSIVE LOSS: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
NET INCOME(LOSS) |  | $ | 5,393,615 |  |  | $ | (2,912,581 | ) |  | $ | 188,271 |  |  | $ | (8,696,959 | )
OTHER COMPREHENSIVE LOSS |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
- Foreign currency translation adjustments |  |  | (1,272,449 | ) |  |  | 11,120,339 |  |  |  | 1,877,097 |  |  |  | 6,826,849 |
COMPREHENSIVE INCOME(LOSS) |  | $ | 4,121,166 |  |  | $ | 8,207,758 |  |  | $ | 2,065,368 |  |  | $ | (1,870,110 | )
INCOME(LOSS) PER SHARE: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
BASIC AND DILUTED |  | $ | 0.52 |  |  | $ | (0.30 | ) |  | $ | 0.02 |  |  | $ | (0.91 | )
WEIGHTED AVERAGE NUMBER OF SHARES: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
BASIC AND DILUTED |  |  | 10,469,477 |  |  |  | 9,566,333 |  |  |  | 10,469,477 |  |  |  | 9,533,729 |

See accompanying notes to the condensed consolidated financial statements.

2

Table of Contents

GULF RESOURCES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
NINE-MONTH PERIOD ENDED SEPTEMBER 30, 2021
(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 |  | Income(loss) |  | Total
|  |  |  |  |  |  |  | Common Stock |  | Treasury Stock |  | Additional Paid-In Capital |  | Retained Earnings Unappropriated |  |  |  | Accumulated Other Comprehensive Income(Loss) |  |
BALANCE AT JUNE 30, 2021 (Unaudited) |  |  | 10,515,307 |  |  |  | 10,469,477 |  |  |  | 45,830 |  |  | $ | 24,375 |  |  | $ | (510,329 | ) |  | $ | 100,569,160 |  |  | $ | 146,183,012 |  |  | $ | 24,233,544 |  |  | $ | 7,602,793 |  |  | $ | 278,102,555 |
Restricted shares |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Translation adjustment |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (1,272,449 | ) |  |  | (1,272,449 | )
Net income for three-month period ended September 30, 2021 |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 5,393,615 |  |  |  | — |  |  |  | — |  |  |  | 5,393,615 |
BALANCE AT SEPTEMBER 30, 2021 (Unaudited) |  |  | 10,515,307 |  |  |  | 10,469,477 |  |  |  | 45,830 |  |  | $ | 24,375 |  |  | $ | (510,329 | ) |  | $ | 100,569,160 |  |  | $ | 151,576,627 |  |  | $ | 24,233,544 |  |  | $ | 6,330,344 |  |  | $ | 282,223,721 |

|  | 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 |  | Income(loss) |  | Total
BALANCE AT JUNE 30, 2020 (Unaudited) |  |  | 9,563,257 |  |  |  | 9,517,427 |  |  |  | 45,830 |  |  | $ | 23,904 |  |  | $ | (510,329 | ) |  | $ | 95,043,388 |  |  | $ | 154,024,022 |  |  | $ | 24,233,544 |  |  | $ | (19,785,297 | ) |  | $ | 253,029,232 |
Restricted shares issued for services |  |  | 480,050 |  |  |  | 480,050 |  |  |  |  |  |  |  | 235 |  |  |  |  |  |  |  | 2,350,015 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 2,350,250 |
Translation adjustment |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 11,120,339 |  |  |  | 11,120,339 |
Net loss for three-month period ended September 30, 2020 |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (2,912,581 | ) |  |  | — |  |  |  | — |  |  |  | (2,912,581 | )
BALANCE AT SEPTEMBER 30, 2020 (Unaudited) |  |  | 10,043,307 |  |  |  | 9,997,477 |  |  |  | 45,830 |  |  | $ | 24,139 |  |  | $ | (510,329 | ) |  | $ | 97,393,403 |  |  | $ | 151,111,441 |  |  | $ | 24,233,544 |  |  | $ | (8,664,958 | ) |  | $ | 263,587,240 |

|  | 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 |  | Income(loss) |  | Total
BALANCE AT DECEMBER 31, 2020 (Audited) |  |  | 10,043,307 |  |  |  | 9,997,477 |  |  |  | 45,830 |  |  | $ | 24,139 |  |  | $ | (510,329 | ) |  | $ | 97,435,316 |  |  | $ | 151,388,356 |  |  | $ | 24,233,544 |  |  | $ | 4,453,247 |  |  | $ | 277,024,273 |
Restricted shares |  |  | 472,000 |  |  |  | 472,000 |  |  |  | — |  |  |  | 236 |  |  |  | — |  |  |  | 3,133,844 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 3,134,080 |
Translation adjustment |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 1,877,097 |  |  |  | 1,877,097 |
Net income for nine-month period ended September 30, 2021 |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 188,271 |  |  |  | — |  |  |  | — |  |  |  | 188,271 |
BALANCE AT SEPTEMBER 30, 2021 (Unaudited) |  |  | 10,515,307 |  |  |  | 10,469,477 |  |  |  | 45,830 |  |  | $ | 24,375 |  |  | $ | (510,329 | ) |  | $ | 100,569,160 |  |  | $ | 151,576,627 |  |  | $ | 24,233,544 |  |  | $ | 6,330,344 |  |  | $ | 282,223,721 |

|  | 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 |  | Income(loss) |  | Total
BALANCE AT DECEMBER 31, 2019 (Audited) |  |  | 9,563,257 |  |  |  | 9,517,427 |  |  |  | 45,830 |  |  | $ | 23,904 |  |  | $ | (510,329 | ) |  | $ | 95,043,388 |  |  | $ | 159,808,400 |  |  | $ | 24,233,544 |  |  | $ | (15,491,807 | ) |  | $ | 263,107,100 |
Restricted shares issued for services |  |  | 480,050 |  |  |  | 480,050 |  |  |  |  |  |  |  | 235 |  |  |  |  |  |  |  | 2,350,015 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 2,350,250 |
Translation adjustment |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 6,826,849 |  |  |  | 6,826,849 |
Net loss for nine-month period ended September 30, 2020 |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (8,696,959 | ) |  |  | — |  |  |  | — |  |  |  | (8,696,959 | )
BALANCE AT SEPTEMBER 30, 2020 (Unaudited) |  |  | 10,043,307 |  |  |  | 9,997,477 |  |  |  | 45,830 |  |  | $ | 24,139 |  |  | $ | (510,329 | ) |  | $ | 97,393,403 |  |  | $ | 151,111,441 |  |  | $ | 24,233,544 |  |  | $ | (8,664,958 | ) |  | $ | 263,587,240 |

See accompanying notes to the condensed consolidated financial statements.

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Table of Contents

GULF RESOURCES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Expressed in U.S. dollars)
(UNAUDITED)

|  | Nine-Month Period Ended September 30,
|  | 2021 |  | 2020
CASH FLOWS FROM OPERATING ACTIVITIES |  |  |  |
Net income(loss) |  | $ | 188,271 |  |  | $ | (8,696,959 | )
Adjustments to reconcile net loss to net cash provided by (used in) operating activities: |  |  |  |  |  |  |  |
Interest on finance lease obligation |  |  | 103,212 |  |  |  | 102,220 |
Depreciation and amortization |  |  | 12,316,639 |  |  |  | 11,907,702 |
Unrealized exchange gain on translation of inter-company balances |  |  | 283,287 |  |  |  | 648,331 |
Deferred tax asset |  |  | 1,363,055 |  |  |  | (1,712,229 | )
Common stock issued for services |  |  | 3,134,080 |  |  |  | 2,350,250 |
Issuance of stock options to employee |  |  | — |  |  |  | — |
Changes in assets and liabilities: |  |  |  |  |  |  |  |
Accounts receivable |  |  | (6,890,373 | ) |  |  | (2,273,999 | )
Inventories |  |  | (67,328 | ) |  |  | 300,136 |
Prepayments and deposits |  |  | (2,744,904 | ) |  |  | 36,012 |
Other receivables |  |  | — |  |  |  | — |
Accounts and Other payable and accrued expenses |  |  | 2,598,030 |  |  |  | 371,284 |
Retention payable |  |  | — |  |  |  | — |
Taxes payable |  |  | 905,230 |  |  |  | 716,371 |
Prepaid land leases |  |  | — |  |  |  | (372,259 | )
Operating lease |  |  | (126,655 | ) |  |  | (118,850 | )
Net cash provided by (used in) by operating activities |  |  | 11,062,544 |  |  |  | 3,258,010 |
CASH FLOWS USED IN INVESTING ACTIVITIES |  |  |  |  |  |  |  |
Purchase of property, plant and equipment |  |  | (8,560,152 | ) |  |  | (9,860,142 | )
Net cash used in investing activities |  |  | (8,560,152 | ) |  |  | (9,860,142 | )
CASH FLOWS USED IN FINANCING ACTIVITIES |  |  |  |  |  |  |  |
Repayment of finance lease obligation |  |  | (290,597 | ) |  |  | (264,976 | )
Net cash used in financing activities |  |  | (290,597 | ) |  |  | (264,976 | )
EFFECTS OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS |  |  | 2,446,493 |  |  |  | 2,188,934 |
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS |  |  | 4,658,288 |  |  |  | (4,678,174 | )
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD |  |  | 94,222,538 |  |  |  | 100,301,986 |
CASH AND CASH EQUIVALENTS - END OF PERIOD |  | $ | 98,880,826 |  |  | $ | 95,623,812 |
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION |  |  |  |  |  |  |  |
Cash paid during the periods for: |  |  |  |  |  |  |  |
Income taxes |  | $ | — |  |  | $ | — |
Operating right-of-use assets obtained in exchange for lease obligations |  | $ | — |  |  | $ | — |
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES |  |  |  |  |  |  |  |

See accompanying notes to the condensed consolidated financial statements.

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Table of Contents

GULF RESOURCES, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2021

(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 nine months ended September 30, 2021 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 Annual Report on Form 10-K for the fiscal year ended December 31, 2020. 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 Business

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

On March 11, 2020, the World Health Organization (WHO) officially declared COVID-19 a pandemic. The duration and intensity of the impact of the COVID-19 and resulting disruption to the Company’s operations and financial position is uncertain. While our operations are currently not materially affected, it is unknown whether or how they may be affected if such a pandemic persists for an extended period. While not yet quantifiable, the Company believes this situation did not have a material adverse impact on its operating results in the first quarter of 2021 and will continue to assess the financial impact. The virus outbreak slightly delayed the commencement of the operations for Factory No.1, No.4, No.7, No.9, and it may also delay the approval for the remaining three factories include No.2, No.8 and No.10. It is, however, still unclear how the pandemic will evolve going forward, and we cannot assure you whether the COVID-19 pandemic will bring about significant negative impact on our business operations, financial condition and operating results, including but not limited to negative impact to our total revenues.

(i) Bromine and Crude Salt Segments

In February 2019, the Company received a notification from the local government of Yangkou County that its Factory No. 1, No. 4, No. 7 and No. 9 passed inspection and could resume operations. In April 2019, Factory No.1 and Factory No.7 resumed operation.

On November 25, 2019, the government of Shouguang City issued a notice ordering all bromine facilities in Shouguang City, including the Company’s bromine facilities, including Factory No.1 and Factory No. 7, to temporarily stop production from December 16, 2019 to February 10, 2020. Subsequently, due to the coronavirus outbreak in China, the local government ordered those bromine facilities to postpone the commencement of production. Subsequently, the Company received an approval dated February 27, 2020 issued by the local governmental authority which allowed the Company to resume production after the winter temporary closure. Further, the Company received another approval from the Shouguang Yangkou People’s Government dated March 5, 2020 allowing the Company to resume production at its bromine factories No.1, No. 4, No.7 and No. 9 in order to meet the needs of bromide products for epidemic prevention and control (the “March 2020 Approval”). The Company’s Factories No. 1 and No. 7 commenced trial production in mid-March 2020 and commercial production on April 3, 2020 and its Factories No. 4 and No. 9 commenced commercial production on May 6, 2020.

Pursuant to the notification issued on November 24, 2020 from the government of Shouguang City, all bromine facilities in Shouguang City had to be temporarily closed from December 25, 2020 until February 19, 2021 8:00 AM China Time. To comply with such notification, the Company temporarily stopped production at its bromine facilities in factory No. 1, No. 4, No. 7 and No. 9 during the aforesaid period and commenced production as scheduled on February 19, 2021.

(ii) Chemical Segment

On November 24, 2017, the Company received a letter from the Government of Yangkou County, Shouguang City notifying the Company to relocate its two chemical production plants located in the second living area of the Qinghe Oil Extraction to the Bohai Marine Fine Chemical Industrial Park (“Bohai Park”). This is because the two plants are located in a residential area and their production activities will impact the living environment of the residents. This is as a result of the country’s effort to improve the development of the chemical industry, manage safe production and curb environmental pollution accidents effectively, and ensure the quality of the living environment of residents. All chemical enterprises which do not comply with the requirements of the safety and environmental protection regulations will be ordered to shut down.

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

The Company believes this relocation process will cost approximately $64 million in total. The Company incurred relocation costs comprising prepaid land lease, professional fees related to the design of the new chemical factory, and progress payment and deposit for the construction of the new factory building in the amount of $43,566,920 and $33,496,295, which were recorded in the prepaid land leases and property, plant and equipment in the consolidated balance sheets as of September 30, 2021 and December 31, 2020.

(iii) Natural Gas Segment

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

(c) Allowance for Doubtful Accounts

As of September 30, 2021 and December 31, 2020, there were no allowances for doubtful accounts. No allowances for doubtful accounts were charged to the condensed consolidated statements of loss for the three-month and nine-month periods ended September 30, 2021 and 2020.

(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 $98,880,826 and $94,222,538 with these institutions as of September 30, 2021 and December 31, 2020, respectively. The Company has not experienced any losses in such accounts in the PRC.

5

Table of Contents

GULF RESOURCES, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2021

(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 property, plant and equipment. Costs incurred are capitalized and transferred to property, plant and equipment upon completion and depreciation will commence when the completed assets are placed in service.

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

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

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

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

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

(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 loss on an accrual basis when they are due. The Company’s contributions totaled $186,074 and $52,325 for the three-month period ended September 30, 2021 and 2020, respectively, and totaled $653,664 and $236,271 for the nine-month period ended September 30, 2021 and 2020, 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. Revenue from contracts with customers is disaggregated in Note 14.

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GULF RESOURCES, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2021

(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 nine months period ended September 30, 2021 and 2020, 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 0 and 36,443 shares for the three-month period ended September 30, 2021 and 2020, respectively, and amounted to 20,901 and 74,864 shares for the nine-month period ended September 30, 2021 and 2020, 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.

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GULF RESOURCES, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2021

(Expressed in U.S. dollars)

(UNAUDITED)

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

(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 loss. The statement of loss and comprehensive loss is translated at average rate during the reporting period. Gains or losses resulting from transactions in currencies other than the functional currencies are recognized in net loss for the reporting periods as part of general and administrative expense. The statement of cash flows is translated at average rate during the reporting period, with the exception of the consideration paid for the acquisition of business which is translated at historical rates.

(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) Inventories.

Inventories are stated at the lower of cost, determined on a first-in first-out cost basis, or net realizable value. Costs of work-in-progress and finished goods comprise direct materials, direct labor and an attributable portion of manufacturing overhead. Net realizable value is based on estimated selling price less costs to complete and selling expenses.

(m) Leases

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

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

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

(n) Stock-based Compensation

Stock-based awards issued to employees are recorded at their fair values estimated at grant date using the Black-Scholes model and the portion that is ultimately expected to vest is recognized as compensation cost over the requisite service period. Consistent with the accounting requirement for employee stock-based awards, nonemployee stock-based awards are measured at the grant-date fair value of the equity instruments that the Company is obligated to issue when the good has been delivered or the service has been rendered and any other conditions necessary to earn the right to benefit from the instruments have been satisfied.

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

(o) Loss Contingencies

The Company accrues for loss contingencies relating to legal matters, including litigation defense costs, claims and other contingent matters, including liquidated damage liabilities, when such liabilities become probable and could be reasonably estimable. Such estimates may be based on advice from third parties or on management’s judgment, as appropriate. Revisions to accruals are reflected in earnings (loss) in the period in which different facts or information become known or circumstances change that affect the Company’s previous assumptions with respect to the likelihood or amount of loss. Amounts paid upon the ultimate resolution of such liabilities may be materially different from previous estimates.

(p) Income Tax

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

(q) New Accounting Pronouncements

Recent accounting pronouncements adopted

There were no recent accounting pronouncements adopted during the nine months ended September 30, 2021.

Recently Issued Accounting Pronouncements Not Yet Adopted

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

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GULF RESOURCES, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2021

(Expressed in U.S. dollars)

(UNAUDITED)

NOTE 2 – INVENTORIES

Inventories consist of:

Inventories - Schedule of Inventories, Current

|  | September 30, 2021 |  | December 31, 2020
Raw materials |  | $ | 70,698 |  |  | $ | 21,484 |
Finished goods |  |  | 418,804 |  |  |  | 398,125 |
Inventory, net |  | $ | 489,502 |  |  | $ | 419,609 |

There was no allowance for slow-moving inventories as of September 30, 2021 and 2020.

NOTE 3 – PREPAID LAND LEASES

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

In December 2017, the Company paid a one lump sum upfront amount of $9,805,249 for a 50-year lease of a parcel of land at Bohai Marine Fine Chemical Industrial Park (“Bohai”) for the new chemical factory under construction. There is no purchase option at the end of the lease term. This was classified as an operating lease prior to and as of January 1, 2019. The land use certificate was issued on October 25, 2019. The lease term expires on August 12, 2069. The amount paid was recorded as prepaid land leases, net of current portion in the consolidated balance sheet as of September 30 2021 and December 31, 2020. As of September 30, 2021, the prepaid land lease increased to $10,194,743 due to an additional amount paid for stamp duty and related land use rights fees. Amortization of this prepaid land lease will commence when the chemical factory is built and placed in service.

In June 2021, the civil works had basically been completed for its new chemical factory. But due to the recent supply chain issues as well as the electric restrictions , the delivery of some equipment ,the installation, timing of testing and beginning trial production at the chemical factory will be delayed. At this time, the Company is not in a position to determine the extent of the delays, but it will keep shareholders advised.

9

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GULF RESOURCES, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2021

(Expressed in U.S. dollars)

(UNAUDITED)

NOTE 4 – PROPERTY, PLANT AND EQUIPMENT, NET

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

Property, Plant and Equipment, Net - Schedule of Property, Plant and Equipment

|  | September 30, 2021 |  | December 31, 2020
At cost: |  |  |  |  |  |  |  |
Mineral rights |  | $ | 2,973,716 |  |  | $ | 2,955,780 |
Buildings |  |  | 34,075,173 |  |  |  | 64,024,667 |
Plant and machinery |  |  | 236,574,630 |  |  |  | 258,400,710 |
Motor vehicles |  |  | 137,196 |  |  |  | 6,553 |
Furniture, fixtures and office equipment |  |  | 2,452,098 |  |  |  | 3,318,564 |
Construction in process |  |  | 24,696,439 |  |  |  | 12,095,565 |
Total |  |  | 300,909,252 |  |  |  | 340,801,839 |
Less: Accumulated depreciation and amortization |  |  | (150,495,205 | ) |  |  | (173,212,554 | )
Impairment |  |  | — |  |  |  | (18,641,596 | )
Net book value |  | $ | 150,414,047 |  |  | $ | 148,947,689 |

The Company has certain buildings and salt pans erected on parcels of land located in Shouguang, PRC, and such parcels of land are collectively owned by local townships or the government authority. The Company has not been able to obtain property ownership certificates over these buildings and salt pans. The aggregate carrying values of these properties situated on parcels of the land are $18,061,432 and $19,302,600 as at September 30, 2021 and December 31, 2020, respectively.

During the three-month period ended September 30, 2021, depreciation and amortization expense totaled $4,090,343 of which $730,729, $167,761 and $3,191,853 were recorded in direct labor and factory overheads incurred during plant shutdown, administrative expenses and cost of net revenue. During the same period in 2020, depreciation and amortization expense totaled $4,347,139 of which $1,025,344, $203,149 and $3,118,646 were recorded in direct labor and factory overheads incurred during plant shutdown, administrative expenses and cost of net revenue.

During the nine-month period ended September 30, 2021,depreciation and amortization expense totaled $12,312,345 of which $3,305,955, $494,862 and $8,511,528 were recorded in direct labor and factory overheads incurred during plant shutdown, administrative expenses and cost of net revenue. During the same period of 2020,depreciation and amortization expense totaled $11,903,728 of which $4,771,228, $602,968 and $6,529,532 were recorded in direct labor and factory overheads incurred during plant shutdown, administrative expenses and cost of net revenue.

NOTE 5 –FINANCE LEASE RIGHT-OF-USE ASSETS

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

Finance Lease Right-Of-Use Assets - Schedule of Property, Plant and Equipment Under Finance Leases

|  | September 30, 2021 |  | December 31, 2020
At cost: |  |  |  |  |  |  |  |
Buildings Buildings |  | $ | 126,885 |  |  | $ | 126,120 |
Plant and machinery Plant and Machinery |  |  | 2,321,184 |  |  |  | 2,307,184 |
Total |  |  | 2,448,069 |  |  |  | 2,433,304 |
Less: Accumulated depreciation and amortization |  |  | (2,264,951 | ) |  |  | (2,247,032 | )
Net book value |  | $ | 183,118 |  |  | $ | 186,272 |

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 nine months period ended September 30, 2021, depreciation and amortization expense totaled $1,431 and $4,293, respectively, which was recorded in direct labor and factory overheads incurred during plant shutdown.

During the three and nine months period ended September 30, 2020, depreciation and amortization expense totaled $1,339 and $3,974, respectively, which was recorded in direct labor and factory overheads incurred during plant shutdown.

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GULF RESOURCES, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2021

(Expressed in U.S. dollars)

(UNAUDITED)

NOTE 6 – OPERATING LEASE RIGHT–OF USE ASSETS

As of September 30, 2021, the total operating lease ROU assets was $8,328,584. The total operating lease cost for the three-month period ended September 30, 2021 and 2020 was $240,699 and $211,242.

The total operating lease cost for the nine-month period ended September 30, 2021 and 2020 was $721,994 and $647,351.

The Company has the rights to use certain parcels of land located in Shouguang, the PRC, through lease agreements signed with local townships or the government authority (See Note 3). For parcels of land that are collectively owned by local townships, the Company cannot obtain land use rights certificates. The parcels of land of which the Company cannot obtain land use rights certificates covers a total of approximately 38.6 square kilometers of aggregate carrying value of $7,973,128 as at September 30, 2021.

NOTE 7 – ACCOUNTS PAYABLE, OTHER PAYABLE AND ACCRUED EXPENSES

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

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

|  | September 30, |  | December 31,
|  | 2021 |  | 2020
Accounts payable |  | $ | 653,102 |  |  | $ | 479,958 |
Salary payable |  |  | 241,983 |  |  |  | 320,549 |
Social security insurance contribution payable |  |  | — |  |  |  | 49,167 |
Other payable-related party (see Note 8) |  |  | 72,148 |  |  |  | 95,616 |
Deposit on subscription of a subsidiary’s share |  |  | — |  |  |  | 153,260 |
Accrued expense-construction |  |  | 6,511,439 |  |  |  | 3,537,644 |
Accrued expense-others |  |  | 2,749,132 |  |  |  | 445,507 |
Total |  | $ | 10,227,804 |  |  | $ | 5,081,701 |

NOTE 8– RELATED PARTY TRANSACTIONS

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 $96,194 for five years from January 1, 2018 to December 31, 2022. The expense associated with this agreement for the three and nine months ended September 30, 2021 was approximately $24,048 and $71,926. The expense associated with this agreement for the three and nine months ended September 30, 2020 was approximately $22,902 and $66,945.

NOTE 9– TAXES PAYABLE

|  | September 30, |  | December 31,
|  | 2021 |  | 2020
Land use tax payable |  | $ | 838,634 |  |  | $ | 833,576 |
Value added tax and other taxes payable |  |  | 1,384,566 |  |  |  | 492,603 |
Land use tax payable |  | $ | 2,223,200 |  |  | $ | 1,326,179 |

NOTE 10 –LEASE LIABILITIES-FINANCE AND OPERATING LEASE

The components of finance lease liabilities were as follows:

Lease Liabilities-Finance and Operating Lease - Schedule of Finance Leased Liabilities

|  | Imputed |  | September 30, |  | December 31,
|  | Interest rate |  | 2021 |  | 2020
Total finance lease liability |  |  | 6.7% |  |  | $ | 1,932,218 |  |  | $ | 2,105,973 |
Less: Current portion |  |  |  |  |  |  | (191,719 | ) |  |  | (217,070 | )
Finance lease liability, net of current portion |  |  |  |  |  | $ | 1,740,499 |  |  | $ | 1,888,903 |

Interest expenses from capital lease obligations amounted to $32,015 and $32,211 for the three-month period ended September 30, 2021 and 2020, respectively, which were charged to the condensed consolidated statement of income (loss). Interest expenses from capital lease obligations amounted to $103,212 and $102,220 for the nine-month period ended September 30, 2021 and 2020, respectively, which were charged to the condensed consolidated statement of income (loss). The remaining finance lease term at September 30, 2021 was 10 years.

The components of operating lease liabilities as follows:

Lease Liabilities-Finance and Operating Lease - Schedule of Operating Leased Liabilities

|  | Imputed |  | September 30, |  | December 31,
|  | Interest rate |  | 2021 |  | 2020
Total Operating lease liabilities |  |  | 4.89% |  |  | $ | 7,832,178 |  |  | $ | 8,499,692 |
Less: Current portion |  |  |  |  |  |  | (474,695 | ) |  |  | (477,350 | )
Operating lease liabilities, net of current portion |  |  |  |  |  | $ | 7,357,483 |  |  | $ | 8,022,342 |

The weighted average remaining operating lease term at September 30, 2021 was 21 years and the weighted average discounts rate was 4.89%. Lease payments for the three-month period ended September 30, 2021 and 2020, respectively, were $68,467 and $60,987. Lease payments for the nine-month period ended September 30, 2021 and 2020, respectively, were $848,660 and $765,288.

Maturities of lease liabilities were as follows:

Lease Liabilities-Finance and Operating Leases - Schedule of Financing and Operating Lease Maturities

|  | Financial lease |  | Operating Lease
Payable within: |  |  |  |  |  |  |  |
the next 12 months |  | $ | 289,415 |  |  | $ | 685,533 |
the next 13 to 24 months |  |  | 289,415 |  |  |  | 692,907 |
the next 25 to 36 months |  |  | 289,415 |  |  |  | 690,537 |
the next 37 to 48 months |  |  | 289,415 |  |  |  | 698,400 |
the next 49 to 60 months |  |  | 289,415 |  |  |  | 703,031 |
thereafter |  |  | 1,157,658 |  |  |  | 10,906,847 |
Total |  |  | 2,604,733 |  |  |  | 14,377,255 |
Less: Amount representing interest |  |  | (672,515 | ) |  |  | (6,545,077 | )
Present value of net minimum lease payments |  | $ | 1,932,218 |  |  | $ | 7,832,178 |

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GULF RESOURCES, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2021

(Expressed in U.S. dollars)

(UNAUDITED)

NOTE 11 ––EQUITY

Restricted Shares

A restricted stock award (“RSA”) is an award of common shares that is subject to certain restrictions during a specified period. Restricted stock awards are independent of option grants and are generally subject to forfeiture if employment terminates prior to the release of the restrictions. The grantee cannot transfer the shares before the restricted shares vest. Shares of nonvested restricted stock have the same voting rights as common stock, are entitled to receive dividends and other distributions thereon and are considered to be currently issued and outstanding. The Company expenses the cost of the restricted stock awards, which is determined to be the fair market value of the shares at the date of grant, straight-line over the period during which the restrictions lapse. For these purposes, the fair market value of the restricted stock is determined based on the closing price of the Company's common stock on the grant date.

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 September 30, 2021 for SCHC, SYCI and DCHC is 16%, 14% and 0% of its registered capital respectively.

NOTE 12 – STOCK-BASED COMPENSATION

Pursuant to the Company’s 2019 Omnibus Equity Incentive Plan adopted and approved in 2019 (“ 2019 Plan”), awards under the 2019 Plan is limited in the aggregate to 2,068,398 shares of our common stock, inclusive of the awards that were previously issued and outstanding under the Company’s 2007 Equity Incentive Plan, as amended (the “2007 Plan”). Upon adoption and approval of the 2019 Plan, the 2007 Plan was frozen, no new awards will be granted under the 2007 Plan, and outstanding awards under the 2007 Plan will continue to be governed by the terms and condition of the 2007 Plan and applicable award agreement. As of September 30, 2021, the number of shares of the Company’s common stock available for grant of stock options and issuance under the 2019 Plan is 159,248 shares.

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

For the three months ended September 30, 2021 and 2020, total compensation costs for options issued recorded in the consolidated statement of loss were $0.

During the three and nine months ended September 30, 2021, there were no options granted to employees or non-employees.

The following table summarizes all Company stock option transactions between January 1, 2021 and September 30, 2021.

Stock-Based Compensation - Schedule of Stock Option Activity

|  | Number of Option and Warrants Outstanding and exercisable |  | Weighted- Average Exercise price of Option and Warrants |  | Range of Exercise Price per Common Share
Balance, January 1, 2021 |  |  | 121,600 |  |  |  | $7.09 |  |  |  | $3.57 - $7.27 |
Exercised during the period |  |  | — |  |  |  | — |  |  |  | — |
Expired during the period |  |  | (115,600 | ) |  |  | — |  |  |  | $7.27 |
Balance, September 30, 2021 |  |  | 6,000 |  |  |  | $3.57 |  |  |  | $3.57 |

Stock Options and Warrants Outstanding and Exercisable
|  |  |  |  |  |  |  |  |  |  | Weighted Average |
|  |  |  |  |  |  |  |  |  |  | Remaining |
|  |  | Outstanding at September 30, 2021 |  |  |  | Range of Exercise Prices |  |  |  | Contractual Life (Years) |
Outstanding and exercisable |  |  | 6,000 |  |  |  | $3.57 |  |  |  | 0.17 |

The aggregate intrinsic value of options outstanding and exercisable as of September 30, 2021 was $4,710.

During the three and nine months ended September 30, 2021 and 2020, there were no options exercised.

12

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GULF RESOURCES, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2021

(Expressed in U.S. dollars)

(UNAUDITED)

NOTE 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”)

United States

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 nine-month periods ended September 30, 2021 and 2020, and management believes that its earnings are permanently invested in the PRC.

(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 nine-month periods ended September 30, 2021 and 2020.

(c) Hong Kong

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 nine-month periods ended September 30, 2021 and 2020. The applicable statutory tax rates for the three-month and nine-month periods ended September 30, 2021 and 2020 are 16.5%. There is no dividend withholding tax in Hong Kong.

(d) PRC

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 Cai Shui [2008] Circular 1 (“Circular 1”). According to Article 4 of Circular 1, distributions of accumulated profits earned by a FIE prior to January 1, 2008 to foreign investor(s) in 2008 will be exempted from withholding tax (“WHT”) while distribution of the profit earned by an FIE after January 1, 2008 to its foreign investor(s) shall be subject to WHT at 5% effective tax rate.

As of September 30, 2021 and December 31, 2020, the accumulated distributable earnings under the Generally Accepted Accounting Principles (GAAP”) of PRC that are subject to WHT are $129,102,421 and $126,643,733, 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 September 30, 2021 and December 31, 2020, 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 September 30, 2021 and December 31, 2020, the unrecognized WHT are $5,404,946 and $5,288,346, 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 2016 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 2012 through 2019, HKJI did not report any taxable income. It did not file any income tax returns during these years except for 2014 and 2018. For companies which do not have taxable income, IRD typically issues notification to companies requiring them to file income tax returns once in every four years. The tax returns for 2014 and 2018 have been examined, and there is no Hong Kong Profits Tax was charged.

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

Income Taxes - Schedule of Components of Income Tax Expense Benefit

|  | Three-Month Period Ended September 30, |  | Nine-Month Period Ended September 30,
|  | 2021 |  | 2020 |  | 2021 |  | 2020
Current taxes – PRC |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |
Deferred taxes |  |  | (1,750,283 | ) |  |  | 484,792 |  |  |  | (1,363,054 | ) |  |  | 2,196,079 |
Change in valuation allowance |  |  | — |  |  |  | (702,117 | ) |  |  | — |  |  |  | (484,328 | )
Tax Expense Benefit |  | $ | (1,750,283 | ) |  | $ | (217,325 | ) |  | $ | (1,363,054 | ) |  | $ | 1,711,751 |

Significant components of the Company’s deferred tax assets and liabilities at September 30, 2021 and December 31, 2020 are as follows:

Income Taxes - Schedule of Deferred Tax Assets and Liabilities

|  | September 30, |  | December 31,
|  | 2021 |  | 2020
Deferred tax liabilities |  | $ | — |  |  | $ | — |
Deferred tax assets: |  |  |  |  |  |  |  |
Impairment on property, plant and equipment |  |  | — |  |  |  | 2,907,548 |
Impairment on prepaid land lease |  |  | 877,244 |  |  |  | 883,884 |
Exploration costs |  |  | 1,919,666 |  |  |  | 1,908,087 |
Compensation costs of unexercised stock options |  |  | 1,614 |  |  |  | 74,883 |
Miscellaneous |  |  | (77,241 | ) |  |  | — |
PRC tax losses |  |  | 23,352,679 |  |  |  | 21,643,028 |
US federal net operating loss |  |  | 1,267,960 |  |  |  | 1,045,503 |
Total deferred tax assets |  |  | 27,341,922 |  |  |  | 28,462,933 |
Valuation allowance |  |  | (9,943,998 | ) |  |  | (9,872,706 | )
Net deferred tax asset |  | $ | 17,397,924 |  |  | $ | 18,590,227 |

The increase in valuation allowance for the three-month period ended September 30, 2021 is $13,366.

The increase in valuation allowance for the three-month period ended September 30, 2020 is $971,844.

The increase in valuation allowance for the nine-month period ended September 30, 2021 is $71,292.

The increase in valuation allowance for the nine-month period ended September 30, 2020 is $782,697.

There were no unrecognized tax benefits and accrual for uncertain tax positions as of September 30, 2021 and December 31, 2020 and no amounts accrued for penalties and interest for the three and nine months ended September 30, 2021 and 2020.

13

Table of Contents

GULF RESOURCES, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2021

(Expressed in U.S. dollars)

(UNAUDITED)

NOTE 14 – BUSINESS SEGMENTS

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

Three-Month Period Ended September 30, 2021 |  | Bromine* |  | Crude Salt* |  | Chemical Products |  | Natural Gas |  | Segment Total |  | Corporate |  | Total
Net revenue (external customers) |  | $ | 14,913,004 |  |  | $ | 2,840,665 |  |  | $ | — |  |  | $ | — |  |  | $ | 17,753,669 |  |  | $ | — |  |  | $ | 17,753,669 |
Net revenue (intersegment) |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Income(loss) from operations before income tax benefit (expense) |  |  | 6,909,542 |  |  |  | 561,373 |  |  |  | (535,047 | ) |  |  | (49,295 | ) |  |  | 6,886,573 |  |  |  | 211,402 |  |  |  | 7,097,975 |
Income tax benefit(expense) |  |  | (1,730,425 | ) |  |  | (140,590 | ) |  |  | 120,732 |  |  |  | — |  |  |  | (1,750,283 | ) |  |  | — |  |  |  | (1,750,283 | )
Income (loss) from operations after income tax benefit (expense) |  |  | 5,179,117 |  |  |  | 420,783 |  |  |  | (414,315 | ) |  |  | (49,295 | ) |  |  | 5,136,290 |  |  |  | 211,402 |  |  |  | 5,347,692 |
Total assets |  |  | 144,690,423 |  |  |  | 33,983,687 |  |  |  | 123,734,291 |  |  |  | 1,641,720 |  |  |  | 304,050,121 |  |  |  | 389,000 |  |  |  | 304,439,121 |
Depreciation and amortization |  |  | 2,652,509 |  |  |  | 1,354,811 |  |  |  | 72,939 |  |  |  | 11,516 |  |  |  | 4,091,775 |  |  |  | — |  |  |  | 4,091,775 |
Capital expenditures |  |  | 188,529 |  |  |  | — |  |  |  | 2,565,188 |  |  |  | — |  |  |  |  |  |  |  | — |  |  |  | 2,753,717 |

Three-Month Period Ended September 30, 2020 |  | Bromine* |  | Crude Salt* |  | Chemical Products |  | Natural Gas |  | Segment Total |  | Corporate |  | Total
Net revenue (external customers) |  | $ | 9,181,747 |  |  | $ | 1,300,438 |  |  | $ | — |  |  | $ | — |  |  | $ | 10,482,185 |  |  | $ | — |  |  | $ | 10,482,185 |
Net revenue (intersegment) |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Income(loss) from operations before income tax benefit (expense) |  |  | 1,962,262 |  |  |  | (484,278 | ) |  |  | (673,377 | ) |  |  | (48,550 | ) |  |  | 756,057 |  |  |  | (3,489,875 | ) |  |  | (2,733,818 | )
Income tax benefit (expense) |  |  | (490,553 | ) |  |  | 121,066 |  |  |  | 152,162 |  |  |  | — |  |  |  | (217,325 | ) |  |  | — |  |  |  | (217,325 | )
Income (loss) from operations after income tax benefit (expense) |  |  | 1,471,709 |  |  |  | (363,212 | ) |  |  | (521,215 | ) |  |  | (48,550 | ) |  |  | 538,732 |  |  |  | (3,489,875 | ) |  |  | (2,951,143 | )
Total assets |  |  | 127,506,049 |  |  |  | 34,760,524 |  |  |  | 114,000,520 |  |  |  | 1,612,833 |  |  |  | 277,879,926 |  |  |  | 16,697 |  |  |  | 277,896,623 |
Depreciation and amortization |  |  | 3,299,845 |  |  |  | 898,783 |  |  |  | 114,466 |  |  |  | 35,383 |  |  |  | 4,348,477 |  |  |  | — |  |  |  | 4,348,477 |
Capital expenditures |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |

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

14

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GULF RESOURCES, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2021

(Expressed in U.S. dollars)

(UNAUDITED)

NOTE 14 – BUSINESS SEGMENTS – Continued

Nine-Month Period Ended September 30, 2021 |  | Bromine* |  | Crude Salt* |  | Chemical Products |  | Natural Gas |  | Segment Total |  | Corporate |  | Total
Net revenue (external customers) |  | $ | 29,749,432 |  |  | $ | 4,411,488 |  |  | $ | — |  |  | $ | — |  |  | $ | 34,160,920 |  |  | $ | — |  |  | $ | 34,160,920 |
Net revenue (intersegment) |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Income(loss) from operations before income tax benefit (expense) |  |  | 8,312,210 |  |  |  | (1,026,647 | ) |  |  | (2,022,828 | ) |  |  | (166,932 | ) |  |  | 5,095,803 |  |  |  | (3,662,061 | ) |  |  | 1,433,742 |
Income tax benefit(expense) |  |  | (2,084,253 | ) |  |  | 256,876 |  |  |  | 464,323 |  |  |  | — |  |  |  | (1,363,054 | ) |  |  | — |  |  |  | (1,363,054 | )
Income (loss) from operations after income tax benefit (expense) |  |  | 6,227,957 |  |  |  | (769,771 | ) |  |  | (1,558,505 | ) |  |  | (166,932 | ) |  |  | 3,732,749 |  |  |  | (3,662,061 | ) |  |  | 70,688 |
Total assets |  |  | 144,690,423 |  |  |  | 33,983,687 |  |  |  | 123,734,291 |  |  |  | 1,641,720 |  |  |  | 304,050,121 |  |  |  | 389,000 |  |  |  | 304,439,121 |
Depreciation and amortization |  |  | 8,183,640 |  |  |  | 3,835,533 |  |  |  | 210,420 |  |  |  | 87,046 |  |  |  | 12,316,639 |  |  |  | — |  |  |  | 12,316,639 |
Capital expenditures |  |  | 188,529 |  |  |  | — |  |  |  | 8,371,623 |  |  |  | — |  |  |  | 8,560,152 |  |  |  | — |  |  |  | 8,560,152 |

Nine-Month Period Ended September 30, 2020 |  | Bromine* |  | Crude Salt* |  | Chemical Products |  | Natural Gas |  | Segment Total |  | Corporate |  | Total
Net revenue (external customers) |  | $ | 14,131,610 |  |  | $ | 2,267,728 |  |  | $ | — |  |  | $ | — |  |  | $ | 16,399,338 |  |  | $ | — |  |  | $ | 16,399,338 |
Net revenue (intersegment) |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Loss from operations before income tax benefit (expense) |  |  | (2,383,260 | ) |  |  | (2,609,332 | ) |  |  | (2,038,938 | ) |  |  | (150,666 | ) |  |  | (7,182,196 | ) |  |  | (3,340,603 | ) |  |  | (10,522,799 | )
Income tax benefit (expense) |  |  | 577,593 |  |  |  | 672,311 |  |  |  | 461,847 |  |  |  | — |  |  |  | 1,711,751 |  |  |  | — |  |  |  | 1,711,751 |
Loss from operations after income tax benefit (expense) |  |  | (1,805,667 | ) |  |  | (1,937,021 | ) |  |  | (1,577,091 | ) |  |  | (150,666 | ) |  |  | (5,470,445 | ) |  |  | (3,340,603 | ) |  |  | (8,811,048 | )
Total assets |  |  | 127,506,049 |  |  |  | 34,760,524 |  |  |  | 114,000,520 |  |  |  | 1,612,833 |  |  |  | 277,879,926 |  |  |  | 16,697 |  |  |  | 277,896,623 |
Depreciation and amortization |  |  | 8,536,625 |  |  |  | 2,926,228 |  |  |  | 339,747 |  |  |  | 105,102 |  |  |  | 11,907,702 |  |  |  | — |  |  |  | 11,907,702 |
Capital expenditures |  |  | 3,157,669 |  |  |  | 646,752 |  |  |  | 6,055,721 |  |  |  | — |  |  |  | 9,860,142 |  |  |  | — |  |  |  | 9,860,142 |

* 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.

15

Table of Contents

GULF RESOURCES, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2021

(Expressed in U.S. dollars)

(UNAUDITED)

NOTE 14 – BUSINESS SEGMENTS – Continued

|  | Three-Month Period Ended September 30, |  | Nine-Month Period Ended September 30,
Reconciliations |  | 2021 |  | 2020 |  | 2021 |  | 2020
Total segment operating income (loss) |  | $ | 6,886,573 |  |  | $ | 756,057 |  |  | $ | 5,095,803 |  |  | $ | (7,182,196 | )
Corporate costs |  |  | (99,461 | ) |  |  | (2,459,213 | ) |  |  | (3,378,774 | ) |  |  | (2,692,272 |
Unrealized gain (loss) on translation of intercompany balance |  |  | 310,863 |  |  |  | (1,030,662 | ) |  |  | (283,287 | ) |  |  | (648,331 | )
Loss from operations |  |  | 7,097,975 |  |  |  | (2,733,818 | ) |  |  | 1,433,742 |  |  |  | (10,522,799 | )
Other income, net of expense |  |  | 45,923 |  |  |  | 38,562 |  |  |  | 117,583 |  |  |  | 114,089 |
Loss before taxes |  | $ | 7,143,898 |  |  | $ | (2,695,256 | ) |  | $ | 1,551,325 |  |  | $ | (10,408,710 | )

The following table shows the major customer(s) (10% or more) for the three-month period ended September 30, 2021.

Business Segments - Schedule of Revenue by 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 |  | $ | 3,233 |  |  | $ | 1,010 |  |  | $ | — |  |  | $ | 4,243 |  |  |  | 23.9 | %
2 |  | Shouguang Weidong Chemical Company Limited |  | $ | 2,801 |  |  | $ | 783 |  |  | $ | — |  |  | $ | 3,584 |  |  |  | 20.2 | %
3 |  | Shandong Brother Technology Limited |  | $ | 2,757 |  |  | $ | 1,048 |  |  | $ | — |  |  | $ | 3,805 |  |  |  | 21.4 | %

The following table shows the major customer(s) (10% or more) for the nine-month period ended September 30, 2021.

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 |  | $ | 5,881 |  |  | $ | 1,599 |  |  | $ | — |  |  | $ | 7,480 |  |  |  | 21.9 | %
2 |  | Shouguang Weidong Chemical Company Limited |  | $ | 4,726 |  |  | $ | 1,281 |  |  | $ | — |  |  | $ | 6,007 |  |  |  | 17.6 | %
3 |  | Shandong Brother Technology Limited |  | $ | 4,587 |  |  | $ | 1,533 |  |  | $ | — |  |  | $ | 6,120 |  |  |  | 17.9 | %

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

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 |  | $ | 1,911 |  |  | $ | 464 |  |  | $ | — |  |  | $ | 2,375 |  |  |  | 22.7 | %
2 |  | Shandong Brother Technology Limited |  | $ | 1,197 |  |  | $ | 452 |  |  | $ | — |  |  | $ | 1,649 |  |  |  | 15.7 | %
3 |  | Shouguang Weidong Chemical Company Limited |  | $ | 1,266 |  |  | $ | 383 |  |  | $ | — |  |  | $ | 1,649 |  |  |  | 15.7 | %
4 |  | Dongying Bomeite Chemical Company Limited |  | $ | 1,082 |  |  | $ | — |  |  | $ | — |  |  | $ | 1,082 |  |  |  | 10.3 | %
5 |  | Shandong Shouguang Shenrunfa Ocean Chemical Company Limited |  | $ | 1,174 |  |  | $ | — |  |  | $ | — |  |  | $ | 1,174 |  |  |  | 11.2 | %

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

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 |  | $ | 2,790 |  |  | $ | 785 |  |  | $ | — |  |  | $ | 3,575 |  |  |  | 21.8 | %
2 |  | Shandong Brother Technology Limited |  | $ | 1,806 |  |  | $ | 752 |  |  | $ | — |  |  | $ | 2,558 |  |  |  | 15.6 | %
3 |  | Shouguang Weidong Chemical Company Limited |  | $ | 2,313 |  |  | $ | 634 |  |  | $ | — |  |  | $ | 2,947 |  |  |  | 18 | %
4 |  | Dongying Bomeite Chemical Company Limited |  | $ | 1,689 |  |  | $ | — |  |  | $ | — |  |  | $ | 1,689 |  |  |  | 10.3 | %
5 |  | Shandong Shouguang Shenrunfa Ocean Chemical Company Limited |  | $ | 1,942 |  |  | $ | — |  |  | $ | — |  |  | $ | 1,942 |  |  |  | 11.8 | %

NOTE 15– CUSTOMER CONCENTRATION

Customer

During the nine-month period ended September 30, 2021, the Company sold 76.9% of its products to its top five customers. As of September 30, 2021, amounts due from these customers were $11,280,670.

During the nine-month period ended September 30, 2020, the Company sold 78.1% of its products to its top five customers. As of September 30, 2020, amounts due from these customers were $5,869,884.

NOTE 16– MAJOR SUPPLIERS

During the nine-month period ended September 30, 2021 the Company purchased 100% of its raw materials from its top five suppliers. As of September 30, 2021, amounts due to those suppliers were $653,102.

During the nine-month period ended September 30, 2020 the Company purchased 100% of its raw materials from its top five suppliers. As of September 30, 2020, amounts due to those suppliers were $610,816.

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 September 30, 2021 and December 31, 2020.

NOTE 18 – CAPITAL COMMITMENT AND OTHER SERVICE CONTRACTUAL OBLIGATIONS

The following table sets forth the Company’s contractual obligations as of September 30, 2021:

Capital Commitment and Other Service Contractual Obligations - Schedule of Contractual Obligations

|  | Property Management Fees |  | Capital Expenditure
Payable within: |  |  |  |  |  |  |  |
the next 12 months |  | $ | 96,194 |  |  | $ | 10,303,032 |
the next 13 to 24 months |  |  | 96,194 |  |  |  | 758,319 |
the next 25 to 36 months |  |  | — |  |  |  | — |
Total |  | $ | 192,388 |  |  | $ | 11,061,351 |

NOTE 19 –LOSS CONTINGENCIES

Settled Litigation

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

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

The Company is in the process of resolving the issues in connection with SCHC’s land use and planning diligently. The Company has been in discussions closely with the local government authorities with the help from Shouguang City Bromine Association to seek reliefs and, based on verbal confirmation by local government authorities, believes the administrative penalties imposed by the Bureau according to the Written Decisions are being re-assessed by local government authorities and may be revoked. Pursuant to a Written Application dated October 28, 2019 addressed to the Court by the Bureau, the Bureau withdrew its application for the enforcement proceedings regarding the administrative penalty imposed on Factory No. 7, Factory No. 8 and Factory No.10. Pursuant to a written decisions of administrative ruling captioned (2019) Lu 0783 Xing Shen No. 389 Zhi Yi, dated November 25, 2020, the Court orders to terminate the enforcement of the case captioned (2019) Lu 0783 Xing Shen No. 389. Production of Factory No. 7 was allowed to resume in April 2019. The Company received a notification from the Shouguang City Government in February 2019 informing the Company that Factory No. 1, No.4, No. 7 and No. 9 have passed inspection and were approved to resume operation.

In addition, on August 28, 2019, the People’s Government of Shandong Province, issued a regulation titled “Investment Project Management Requirements of Chemical Companies in Shandong Province” permitting the construction of facilities on existing sites or infrastructure of bromine manufacturing and other chemical industry-related types of projects (clause 11 of section 3). The Company believes that the goal of the government is to standardize and regulate the industry and not to demolish the facilities or penalize the manufacturers. As of the date of this report, the Company has not been notified by the local government that it will take any measure to enforce the administrative penalties. Based on information known to date, the Company believes that it is remote that the Written Decisions or Court Rulings will be enforced within the expected timeframe and a material penalty or costs and expenses against the Company will result. However, there can be no assurance that there will not be any further enforcement action, the occurrence of which may result in further liabilities, penalties and operational disruption.

In view of the above facts and circumstances, the Company believes that it is not necessary to accrue for any estimated losses or impairment as of September 30, 2021.

NOTE 20 - SUBSEQUENT EVENT

On October 20,2021 , the company updated investors on the impact of issues in the world and Chinese economy on its business operations.

Bromine prices have risen substantially throughout the world and even more substantially in China. In the world market, shipping issues have disrupted delivery. As a result, China has been unable to import its normal share of bromine.

With the shortage in supply and demand, prices of bromine have soared to the highest levels ever recorded.

Since the raw material price increases are lower than the bromine price increase, we believe this type of pricing should be good for our Fourth Quarter 2021 profitability.

The Company has no idea how long the current shortages will last, however, we will keep shareholders informed of any changes we have seen.

The world and Chinese economies have been impacted by supply chain issues in many industries including the energy industry. Shipping shortages have disrupted delivery of many products throughout the world. China has also been impacted by shortages of energy. For example, in some regions of China, the government have restricted electrical usage, including Shouguang City. And some businesses under construction have been restricted from electrical usage in Shouguang City.

The supply chain issues as well as the electric restrictions have delayed the production and delivery of some equipment to the Company‘s new chemical factory. In addition, the Company’s new Yuxin chemical factory has also been restricted from the electrical usage. This means the installation, timing of testing and beginning trial production at the chemical factory will be delayed. At this time, the Company is not in a position to determine the extent of the delays, but it will keep shareholders advised.

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

Cautionary Note Regarding Forward-Looking Statements

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

Overview

We are a holding company which conducts operations through our wholly-owned China-based subsidiaries. Our business is conducted and reported in four segments, namely, bromine, crude salt, chemical products and natural gas.

Through our wholly-owned subsidiary, SCHC, we produce and trade bromine and crude salt. We are one of the largest producers of bromine in China, as measured by production output. Elemental bromine is used to manufacture a wide variety of bromine compounds used in industry and agriculture. Bromine also is used to form intermediary chemical compounds such as Tetramethylbenzidine. Bromine is commonly used in brominated flame retardants, fumigants, water purification compounds, dyes, medicines and disinfectants. Crude salt is the principal material in alkali production as well as chlorine alkali production and is widely used in the chemical, food and beverage, and other industries. SCHC is also planning to be involved in activities related to seawater desalination, seawater desalination technology research and service and to handle the import and export of goods and technologies within the scope permitted by the state.

Through our wholly-owned subsidiary, SYCI, we manufacture and sell chemical products used in oil and gas field exploration, oil and gas distribution, oil field drilling, papermaking chemical agents, inorganic chemicals and materials that are used for human and animal antibiotics.

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

As disclosed in the Company’s Current Report on Form 8-K filed on September 8, 2017, the Company received, on September 1, 2017, letters from the Yangkou County, Shouguang City government addressed to each of its subsidiaries, SCHC and SYCI, which stated that in an effort to improve the safety and environmental protection management level of chemical enterprises, the plants are requested to immediately stop production and perform rectification and improvements in accordance with the country’s new safety and environmental protection requirements. In the Company’s press release of August 11, 2017 and on its conference call of August 14, 2017, the Company addressed concerns that increased government enforcement of stringent environmental rules that were adopted in early 2017 to insure corporations bring their facilities up to necessary standards so that pollution and other negative environmental issues are limited and remediated, could have an impact on our business in both the short and long-term. The Company also expressed that although it believed its facilities were fully compliant at the time, the Company did not know how its facilities would fare under the new rules and that the Company expected to have a full understanding of the implications within the next two months. Teams of inspectors from the government were sent to many provinces to inspect all mining and manufacturing facilities. The local government requested that facilities be closed, so that the facilities can undergo the inspection and analysis in the most efficient manner by inspectors’ team. As a result, our facilities were closed on September 1, 2017.

The Company believes that this is another step by the government to improve the environment. It further believes the goal of the government is not to close all plants, but rather to codify the regulations related to project approval, land use, planning approval and environmental protection assessment approval so that illegal plants are not able to open in the future and so that plants close to population centers do not cause serious environmental damage. In addition, the Company believes that the Shandong provincial government wants to assure that each of its regional and county governments has applied the Notice in a consistent manner.

The Shouguang City Bromine Association, on behalf of all the bromine plants in Shouguang, has started discussions with the local government agencies. The local governmental agencies confirmed the facts that their initial requirements for the bromine industry did not include the project approval, the planning approval and the land use rights approval and that those three additional approvals were new requirements of the provincial government. The Company 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.

In February 2019, the Company received a notification from the local government of Yangkou County that its Factory No. 1, No.4, No. 7 and No. 9 have passed inspection and can resume operations. In April 2019, Factory No. 1 and No. 7 resumed operations.

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On February 28, 2020, the Company announced that it received an approval from the government to resume bromine production after winter temporary closure. Subsequently, it received another approval from the Shouguang Yangkou People’s Government dated on March 5, 2020 to resume production at its bromine factories No.1, No. 4, No.7 and No. 9 in order to meet the needs of bromide products for epidemic prevention and control. With these two approvals, the Company was allowed to take the steps to resume production at all four bromine factories.

The Company is still waiting for governmental approval for factories No.2, No.8, and No.10. To its knowledge, the government is currently completing its planning process for all mining areas due to the requirements for co-production of bromine and salt , and including that for prevention of flood. At this time, the Company is not in a position to determine the approval time until government complete its planning, but it will keep shareholders advised.

On November 24, 2017, the Company received a letter from the People’s Government of Yangkou County, Shouguang City notifying the Company that due to the new standards and regulations relating to safety production and environmental pollution, from certain local governmental departments, such as the municipal environmental protection department, the security supervision department and the fire department, its chemical plants would have to be relocated to a new industrial park called Bohai Marine Fine Chemical Industry Park. Chemical companies that were not being asked to move into the park will be permanently closed. Although our chemical plants were in compliance with regulations, they were also close to a residential area. As a result, the government determined we should relocate to the Bohai park. Since our chemical factories closed, the Company has secured from the government the land use rights for its chemical plants located at the Bohai Park and presented a completed construction design draft and other related documents to the local authorities for approval. On January 6, 2020, the Company received the environmental protection approval by the government of Shouguang City, Shandong Province for the proposed Yuxin Chemical factory. The Company began the construction on its new chemical facilities located at Bohai Marine Fine Chemical Industrial Park in June 2020 and basically completed the civil works by end of June 2021. Due to the recent supply chain issues as well as the electric restrictions in China, the delivery of some equipment, the equipment installation and testing and beginning trial production at the chemical factory will be delayed. At this time, the Company is not in a position to determine the extent of the delays, but it will keep shareholders advised.

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

As a result of our acquisitions of SCHC and SYCI, our historical consolidated financial statements and the information presented below reflects the accounts of SCHC, SYCI and DCHC, the condensed consolidated financial statements and the information presented below as of and for the quarter ended March 31, 2021. The following discussion should be read in conjunction with our condensed consolidated financial statements and notes thereto appearing elsewhere in this report.

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Our current corporate structure chart is set forth in the following diagram:

As a result of our acquisitions of SCHC and SYCI, our historical financial statements and the information presented below reflects the accounts of SCHC, SYCI and DCHC. The following discussion should be read in conjunction with our condensed consolidated financial statements and notes thereto appearing elsewhere in this report.

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RESULTS OF OPERATIONS

The following table presents certain information derived from the condensed consolidated statements of operations, cash flows and stockholders equity for the three-month and nine-month periods ended September 30, 2021 and 2020.

Comparison of the Three-Month Period Ended September 30, 2021 and 2020

| Three-Month Period Ended September 30, 2021 |  | Three-Month Period Ended September 30, 2020 |  | Percent Change Increase/ (Decrease)
Net revenue | $ | 17,753,669 |  |  | $ | 10,482,185 |  |  |  | 69% |
Cost of net revenue |  | (8,197,697) |  |  |  | (6,750,055) |  |  |  | 21% |
Gross profit |  | 9,555,972 |  |  |  | 3,732,130 |  |  |  | 156% |
Sales, marketing and other operating expenses |  | (19,035) |  |  |  | (15,785) |  |  |  | 21% |
Direct labor and factory overheads incurred during plant shutdown |  | (1,229,058) |  |  |  | (1,538,193) |  |  |  | (20%) |
General and administrative expenses |  | (1,209,818) |  |  |  | (4,911,970) |  |  |  | (75% | )
Other operating income(loss) |  | (86) |  |  |  | - |  |  |  | 100% |
Income(Loss) from operations |  | 7,097,975 |  |  |  | (2,733,818) |  |  |  | 360% |
Other income |  | 45,923 |  |  |  | 38,562 |  |  |  | 19% |
Income(Loss) before taxes |  | 7,143,898 |  |  |  | (2,695,256) |  |  |  | 365% |
Income tax benefit |  | (1,750,283) |  |  |  | (217,325) |  |  |  | 705% |
Net income(loss) | $ | 5,393,615 |  |  | $ | (2,912,581) |  |  |  | 285% |

Net revenue. The table below shows the changes in net revenue in the respective segment of the Company for the three-month period ended September 30, 2021 as compared to the same period in 2020:

|  | Net Revenue by Segment |  |
|  | Three-Month Period Ended |  | Three-Month Period Ended |  | Percent Change Increase
|  | September 30, 2021 |  | September 30, 2020 |  | of Net Revenue
Segment |  |  |  | % of total |  |  |  | % of total |  |
Bromine |  | $ | 14,913,004 |  |  |  | 84 | % |  | $ | 9,181,747 |  |  |  | 87.59 | % |  |  | 62 | %
Crude Salt |  |  | 2,840,665 |  |  |  | 16 | % |  |  | 1,300,438 |  |  |  | 12.41 | % |  |  | 118 | %
Chemical Products |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  |  |
Natural Gas |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  |  |
Total sales |  | $ | 17,753,669 |  |  |  | 100 | % |  | $ | 10,482,185 |  |  |  | 100 | % |  |  | 69 | %

Bromine and crude salt segments |  | Three-Month Period Ended |  | Percentage Change
product sold in tonnes |  | September 30, 2021 |  | September 30, 2020 |  | Increase (Decrease)
Bromine |  |  | 2,511 |  |  |  | 2,301 |  |  |  | 9 | %
Crude Salt |  |  | 79,820 |  |  |  | 77,854 |  |  |  | 3 | %

Bromine segment

For the three-month periods ended September 30, 2021 and 2020, the net revenue for the bromine segment was $14,913,004 and $9,181,747, respectively, due to an increase in selling prices and volume in the third quarter of 2021.

Crude salt segment

For the three-month periods ended September 30, 2021 and 2020, the net revenue for the crude salt was $2,840,665 and $1,300,438 mainly due to an increase in selling prices.

Chemical products segment

For the three-month periods ended September 30, 2021 and 2020, the net revenue for the chemical products segment was $0 due to the closure of our chemical factories since September 1, 2017. As a result of the closure, there were no chemical products for sale for the three-month period ended September 30, 2021. We are setting up a new factory in Bohai Park.

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Natural gas segment

For the three-month period ended September 30, 2021 and 2020, the net revenue for the natural gas was $0.

Cost of Net Revenue

|  | Cost of Net Revenue by Segment |  | Percent Change
|  | Three-Month Period Ended |  | Three-Month Period Ended |  | of Cost of
|  | September 30, 2021 |  | September 30, 2020 |  | Net Revenue
Segment |  |  |  | % of total |  |  |  | % of total |  |
Bromine |  | $ | 6,599,977 |  |  |  | 81 | % |  | $ | 5,571,400 |  |  |  | 82.5 | % |  |  | 19 | %
Crude Salt |  |  | 1,597,720 |  |  |  | 19 | % |  |  | 1,178,655 |  |  |  | 17.5 | % |  |  | 36 | %
Chemical Products |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Natural Gas |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Total |  | $ | 8,197,697 |  |  |  | 100 | % |  | $ | 6,750,055 |  |  |  | 100 | % |  |  | 21 | %

Cost of net revenue reflects mainly the raw materials consumed, the direct salaries and benefits of staff engaged in the production process, electricity, depreciation and amortization of manufacturing plant and machinery and other manufacturing costs.

Bromine production capacity and utilization of our factories

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

|  | Annual Production Capacity (in tonnes) |  | Utilization Ratio (i)
Three-month period ended September 30, 2020 |  |  | 31,506 |  |  |  | 29 | %
Three-month period ended September 30, 2021 |  |  | 31,506 |  |  |  | 32 | %
Variance of the three-month period ended September 30, 2021 and 2020 |  |  | — |  |  |  | 3 | %

(i) Utilization ratio is calculated based on the annualized actual production volume in tonnes for the periods divided by the annual production capacity in tonnes of all the seven factories including those that have not commenced operations.

Our utilization ratio was 32% for the three-month period ended September 30, 2021 compared to 29% recorded for the three-month period ended September 30, 2020 mainly due to the overall market environment that has been slowly recovering.

Bromine segment

For the three-month period ended September 30, 2021, the bromine segment had a net cost of revenue of $6,599,977, representing an increase of $1,028,577 from the prior year period. The increase of $1,028,577 of cost of revenue was primarily due to an increase in manufacturing unit expenses, which was primarily due to an increase in unit sales during the three months ended 30 September 2021.

For the three-month period ended June 30, 2020 the cost of net revenue for the bromine segment was $5,571,400.

Crude salt segment

For the three-month period ended September 30, 2021 the cost of net revenue for the crude salt segment was $1,597,720.

For the three-month period ended September 30, 2020 the cost of net revenue for the crude salt segment was $1,178,655.

Chemical products segment

Cost of net revenue for our chemical products segment for the three-month period ended September 30, 2021 and 2020 was $0.

Natural gas segment

Cost of net revenue for our natural gas segment for the three-month period ended September 30, 2021 and 2020 was $0.

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Gross Profit. Gross profit was $9,555,972, or 54%, of net revenue for three-month period ended September 30, 2021, representing an increase of $5,823,842, as compared to a gross profit of $3,732,130, or 36%, of net revenue for the same period in 2020.

|  | Gross Profit (Loss) by Segment |  | % Point Change
|  | Three-Month Period Ended |  | Three-Month Period Ended |  | of Gross
|  | Septembe 30, 2021 |  | Septembe 30, 2020 |  | Profit Margin
Segment |  |  |  | Gross Profit Margin |  |  |  | Gross Profit Margin |  |
Bromine |  | $ | 8,313,027 |  |  |  | 56 | % |  | $ | 3,610,347 |  |  |  | 39 | % |  |  | 17 | %
Crude Salt |  |  | 1,242,945 |  |  |  | 44 | % |  |  | 121,783 |  |  |  | 9 | % |  |  | 35 | %
Chemical Products |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  |  |
Natural Gas |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Total Gross Profit |  | $ | 9,555,972 |  |  |  | 54 | % |  | $ | 3,732,130 |  |  |  | 36 | % |  |  | 15 | %

Bromine segment

For the three-month period ended September 30, 2021, the gross profit margin for our bromine segment was 56%. This 17% increase was due to the increase in the selling price and volume of bromine sold in the second quarter of 2021.

For the three-month period ended September 30, 2020, the gross profit margin for our bromine segment was 39%.

Crude salt segment

For the three-month period ended September 30, 2021, the gross profit margin for our crude salt segment was 44%.

For the three-month period ended September 30, 2020, the gross profit margin for our crude salt segment was 9%

Direct labor and factory overheads incurred during plant shutdown The direct labor and factory overhead costs (including depreciation of plant and machinery) in the amount of $1,229,058 and $1,538,193 incurred for the three-month period end September 30, 2021 and 2020, respectively, were that of the factories that have not resumed operations in the three-month periods ended September 30, 2021 and 2020.

General and Administrative Expenses. General and administrative expenses were $1,209,818 for the three-month period ended September 30, 2021, a decrease of $3,702,152 as compared to $4,911,970 for the same period in 2020.

Income (loss) from Operations income from operations was $7,097,975 for the three-month period ended September 30, 2021, compared to loss of $2,733,818 in the same period in 2020.

|  | Loss from Operations by Segment
|  | Three-Month Period Ended September 30, 2021 |  | Three-Month Period Ended September 30, 2020
Segment: |  |  |  | % of total |  |  |  | % of total
Bromine |  | $ | 6,909,542 |  |  |  | 100 | % |  | $ | 1,962,262 |  |  |  | 259 | %
Crude Salt |  |  | 561,373 |  |  |  | 8 | % |  |  | (484,278 | ) |  |  | (64 | %)
Chemical Products |  |  | (535,047 | ) |  |  | (7 | %) |  |  | (673,377 | ) |  |  | (89 | %)
Natural Gas |  |  | (49,295 | ) |  |  | (1 | %) |  |  | (48,550 | ) |  |  | (6 | %)
Income(loss) from operations before corporate costs |  |  | 6,886,573 |  |  |  | 100 | % |  |  | 756,057 |  |  |  | 100 | %
Corporate costs |  |  | (99,461 | ) |  |  |  |  |  |  | (2,459,213 | ) |  |  |  |
Unrealized gain (loss) on translation of Intercompany balance |  |  | 310,863 |  |  |  |  |  |  |  | (1,030,662 | ) |  |  |  |
Income (loss) from operations |  | $ | 7,097,975 |  |  |  |  |  |  | $ | (2,733,818 | ) |  |  |  |

Bromine segment

Income from operations from our bromine segment was $6,909,542 for the three-month period ended September 30, 2021, compared to income from operations of $1,962,262 in the same period in 2020.

Crude salt segment

Income from operations from our crude salt segment was $561,373 for the three-month period ended September 30, 2021, compared to loss from operations of $484,278 in the same period in 2020.

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Chemical products segment

Loss from operations from our chemical products segment was $535,047 for the three-month period ended September 30, 2021, compared to loss from operations of $673,377 in the same period in 2020.

Natural gas segment

Loss from operations from our natural gas segment was $49,295 for the three -month period ended September 30, 2021, compared to a loss of $53,270 48,550in the same period in 2020.

Other Income, Net Other income, net of $45,923 represented bank interest income, net of capital lease interest expense for the three -month period ended September 30, 2021, an increase of $7,361 (or approximately 19%) as compared to the same period in 2020.

Net Income (loss) Net income was $5,393,615 for the three-month period ended September30, 2021, compared to a net loss of $2,912,581 in the same period in 2020.

Effective Tax Rate Our effective income tax benefit rate for the three-month period ended September 30, 2021 and 2020 were 25% and 8% respectively. The effective tax rate for the three-month period ended September 30, 2021 was lower than the PRC statutory income tax rate of 25% mainly due to non-taxable items in connection with the unrealized exchange gain for the Company off set by non-deductible expense.

Comparison of the Nine-Month Period Ended September 30, 2021 and 2020

| Nine-Month Period Ended September 30, 2021 |  | Nine-Month Period Ended September 30, 2020 |  | Percent Change Increase/ (Decrease)
Net revenue | $ | 34,160,920 |  |  | $ | 16,399,338 |  |  |  | 108 | %
Cost of net revenue |  | (19,294,860 | ) |  |  | (12,694,271 | ) |  |  | 52 | %
Gross profit |  | 14,866,060 |  |  |  | 3,705,067 |  |  |  | 301 | %
Sales, marketing and other operating expenses |  | (44,205 | ) |  |  | (28,866 | ) |  |  | 53 | %
Direct labor and factory overheads incurred during plant shutdown |  | (5,237,258 | ) |  |  | (6,886,215 | ) |  |  | (23 | %)
Other operating loss |  | (86 | ) |  |  | (15,776 | ) |  |  | - |
General and administrative expenses |  | (8,150,769 | ) |  |  | (7,297,009 | ) |  |  | 12 | %
Income(Loss) from operations |  | 1,433,742 |  |  |  | (10,522,799 | ) |  |  | 113 | %
Other income |  | 117,583 |  |  |  | 114,089 |  |  |  | 3 | %
Income(Loss) before taxes |  | 1,551,325 |  |  |  | (10,408,710 | ) |  |  | 114 | %
Income tax benefit (expense) |  | (1,363,054 | ) |  |  | 1,711,751 |  |  |  | 180 | %
Net income(loss) | $ | 188,271 |  |  | $ | (8,696,959 | ) |  |  | 102 | %

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Net revenue. The table below shows the changes in net revenue in the respective segment of the Company for the nine-month period ended September 30, 2021 as compared to the same period in 2020:

|  | Net Revenue by Segment |  |
|  | Nine-Month Period Ended |  | Nine-Month Period Ended |  | Percent Increase
|  | September 30, 2021 |  | September 30, 2020 |  | of Net Revenue
Segment |  |  |  | % of total |  |  |  | % of total |  |
Bromine |  | $ | 29,749,432 |  |  |  | 87 | % |  | $ | 14,131,610 |  |  |  | 86.2 | % |  |  | 110 | %
Crude Salt |  |  | 4,411,488 |  |  |  | 13 | % |  |  | 2,267,728 |  |  |  | 13.8 | % |  |  | 95 | %
Chemical Products |  |  | — |  |  |  |  |  |  |  | — |  |  |  |  |  |  |  | — |
Natural Gas |  |  | — |  |  |  |  |  |  |  | — |  |  |  |  |  |  |  | — |
Total sales |  | $ | 34,160,920 |  |  |  | 100 | % |  | $ | 16,399,338 |  |  |  | 100 | % |  |  | 108 | %

Bromine and crude salt segments |  | Nine-Month Period Ended |  | Percentage Change
product sold in tonnes |  | September 30, 2021 |  | September 30, 2020 |  | Increase
Bromine (excluding volume sold to SYCI) |  |  | 5,271 |  |  |  | 3,645 |  |  |  | 45 | %
Crude Salt |  |  | 143,360 |  |  |  | 136,718 |  |  |  | 5 | %

Bromine segment

Net revenue from our bromine segment increased to $29,749,432 for the nine-month period ended September 30, 2021 compared to $14,131,610 for the same period in 2020 respectively, due to the higher selling price and selling quantity.

Crude salt segment

Net revenue from our crude salt segment increased to $4,411,488 for the nine-month period ended September 30, 2021 compared $2,267,728 for the same period in 2020, respectively, due to the higher selling price and selling quantity.

Chemical products segment

For the nine-month period ended September 30, 2021 and 2020, the net revenue for the chemical products segment was $0 due to the closure of our chemical factories since September 1, 2017.

Natural gas segment

For the nine-month period ended September 30, 2021 and 2020, the net revenue for the natural gas was $0.

Cost of Net Revenue

|  | Cost of Net Revenue by Segment |  | % Change
|  | Nine-Month Period Ended |  | Nine-Month Period Ended |  | of Cost of
|  | September 30, 2021 |  | September 30, 2020 |  | Net Revenue
Segment |  |  |  | % of total |  |  |  | % of total |  |
Bromine |  | $ | 15,971,475 |  |  |  | 83 | % |  | $ | 10,450,459 |  |  |  | 82 | % |  |  | 53 | %
Crude Salt |  |  | 3,323,385 |  |  |  | 17 | % |  |  | 2,243,812 |  |  |  | 18 | % |  |  | 48 | %
Chemical Products |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Natural Gas |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Total |  | $ | 19,294,860 |  |  |  | 100 | % |  | $ | 12,694,271 |  |  |  | 100 | % |  |  | 52 | %

Cost of net revenue reflects mainly the raw materials consumed-direct salaries and benefits of staff engaged in the production process, electricity, depreciation and amortization of manufacturing plant and machinery and other manufacturing costs.

For the nine-month period ended September 30, 2021 the cost of net revenue for the bromine segment was $15,971,475, and increase of $5,521,016 or 52.8%. The majority of the increase was due to an increase in volume of 44.6%. while the remainder was due to cost increases.

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Bromine production capacity and utilization of our factories

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

|  | Annual Production Capacity (in tonnes) |  | Utilization Ratio (i)
Nine-month period ended September 30, 2020 |  |  | 31,506 |  |  |  | 23 | %
Nine-month period ended September 30, 2021 |  |  | 31,506 |  |  |  | 23 | %
Variance of the nine-month period ended September 30, 2021 and 2020 |  |  | — |  |  |  | 0 | %

(i) Utilization ratio is calculated based on the annualized actual production volume in tonnes for the periods divided by the annual production capacity in tonnes of all the seven factories including those that have not commenced operations.

Our utilization ratio was 23% for the nine-month period ended September 30, 2021 compared to 23% recorded for the nine-month period ended September 30, 2020.

Bromine segment

For the nine-month period ended September 30, 2021 the cost of net revenue for the bromine segment was $15,971,475. This $5,521,016 increase was primarily attributable to the increase in quantity sold that leads to higher costs.

For the nine-month period ended September 30, 2020 the cost of net revenue for the bromine segment was $10,450,459.

Crude salt segment

For the nine-month period ended September 30, 2021 the cost of net revenue for the crude salt segment was $3,323,385.The cost of net revenue for our crude salt segment for the nine-month period ended September 30, 2020 was $2,243,812.

Natural gas segment

Cost of net revenue for our natural gas segment for the nine-month period ended September 30, 2021 and 2020 was $0.

Gross Profit. Gross profit was $14,866,060, or 44%, of net revenue for nine-month period ended September 30, 2021 compared to $3,705,067, or 23%, of net revenue for the same period in 2020.

|  | Gross Profit (Loss) by Segment |  | % Point Change
|  | Nine-Month Period Ended |  | Nine-Month Period Ended |  | of Gross
|  | September 30, 2021 |  | September 30, 2020 |  | Profit Margin
Segment |  |  |  | Gross Profit (loss) Margin |  |  |  | Gross Profit Margin |  |
Bromine |  | $ | 13,777,957 |  |  |  | 46 | % |  | $ | 3,681,151 |  |  |  | 26 | % |  |  | 20 | %
Crude Salt |  |  | 1,088,103 |  |  |  | 25 | % |  |  | 23,916 |  |  |  | 1 | % |  |  | 24 | %
Chemical Products |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Natural Gas |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Total Gross Profit |  | $ | 14,866,060 |  |  |  | 44 | % |  | $ | 3,705,067 |  |  |  | 23 | % |  |  | 21 | %

Bromine segment

For the nine-month period ended September 30, 2021, the gross profit margin for our bromine segment was 46%. This 20% increase was due to the higher selling price and selling quantity.

For the nine-month period ended September 30, 2020, the gross profit margin for our bromine segment was 25%.

Crude salt segment

For the nine-month period ended September 30, 2021, the gross profit margin for our crude salt segment was 25%.

For the nine-month period ended September 30, 2020 the gross profit margin for our crude salt segment was 1%.

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Chemical products segment

For the nine-month period ended September 30, 2021, the gross profit margin for our chemical segment was 0% due to the closure of our plant and factories to perform rectification and improvement. As a result of the closure, there were no chemical products for sale for the nine-month period ended September 30, 2021.

Direct labor and factory overheads incurred during plant shutdown The direct labor and factory overhead costs (including depreciation of plant and machinery) in the amount of $5,237,258 and $6,886,215 incurred for the nine-month period end September 30, 2021 and 2020, respectively, were for factories that have not resumed production in the nine-month periods ended September 30, 2021 and 2020.

General and Administrative Expenses. General and administrative expenses were $8,150,769 for the nine-month period ended September 30, 2021, an increase of $853,759 (or 12%) as compared to $7,297,010 for the same period in 2020.

Income (Loss) from Operations. Income from operations was $1,433,742 for the nine-month period ended September 30, 2021, compared to a loss of $10,522,799 in the same period in 2020.

|  | Income(Loss) from Operations by Segment
|  | Nine-Month Period Ended September 30, 2021 |  | Nine-Month Period Ended September 30, 2020
Segment: |  |  |  | % of total |  |  |  | % of total
Bromine |  | $ | 8,312,210 |  |  |  | 163 | % |  | $ | (2,383,260 | ) |  |  | 34 | %
Crude Salt |  |  | (1,026,647 | ) |  |  | (20 | %) |  |  | (2,609,332 | ) |  |  | 36 | %
Chemical Products |  |  | (2,022,828 | ) |  |  | (40 | %) |  |  | (2,038,938 | ) |  |  | 28 | %
Natural Gas |  |  | (166,932 | ) |  |  | (3 | %) |  |  | (150,666 | ) |  |  | 2 | %
Income (Loss) from operations before corporate costs |  |  | 5,095,803 |  |  |  | 100 | % |  |  | (7,182,196 | ) |  |  | 100 | %
Corporate costs |  |  | (3,378,774 | ) |  |  |  |  |  |  | (2,692,271 | ) |  |  |  |
Unrealized gain on translation of intercompany balance |  |  | (283,287 | ) |  |  |  |  |  |  | (648,332 | ) |  |  |  |
Income (Loss) from operations before taxes |  | $ | 1,433,742 |  |  |  |  |  |  | $ | (10,522,799 | ) |  |  |  |

Bromine segment

Income from operations from our bromine segment was $8,312,210 for the nine-month period ended September 30, 2021, compared to a loss of $2,383,260 in the same period in 2020.

Crude salt segment

Loss from operations from our crude salt segment was $1,026,647 for the nine-month period ended September 30, 2021, compared to a loss of $2,609,332 in the same period in 2020.

Chemical products segment

Loss from operations from our chemical products segment was $2,022,828 for the nine-month period ended September 30, 2021, compared to a loss of $2,038,938 in the same period in 2020.

Natural gas segment

Loss from operations from our natural gas segment was $166,932 for the nine-month period ended September 30, 2021, compared to a loss of $150,666 in the same period in 2020.

Other Income, Net. Other income, net of $117,583 represented bank interest income, net of capital lease interest expense for the nine -month period ended September 30, 2021, a decrease of $3,494 (or approximately 3%) as compared to the same period in 2020.

Net Income (Loss). Net income was $188,271 for the nine-month period ended September 30, 2021, compared to a net loss of $8,696,959 in the same period in 2020.

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LIQUIDITY AND CAPITAL RESOURCES

As of September 30, 2021, cash and cash equivalents were $98,880,826 as compared to $94,222,538 as of December 31, 2020. The components of this increase of $4,658,288 are reflected below.

Statement of Cash Flows

|  | Nine-Month Period Ended September 30,
|  | 2021 |  | 2020
Net cash (used in) provided by operating activities |  | $ | 11,062,544 |  |  | $ | 3,258,010 |
Net cash used in investing activities |  |  | (8,560,152 | ) |  |  | (9,860,142 | )
Net cash used in financing activities |  |  | (290,597 | ) |  |  | (264,976 | )
Effects of exchange rate changes on cash and cash equivalents |  |  | 2,446,493 |  |  |  | 2,188,934 | )
Net decrease in cash and cash equivalents |  | $ | 4,658,288 |  |  | $ | (4,678,174 | )

For the nine-month period ended September 30, 2021, we met our working capital and capital investment requirements by using cash on hand.

Net Cash (used in) Provided by Operating Activities

During the nine-month period ended September 30, 2021 cash flow provided by operating activities of approximately $11.1 million was mainly due to non-cash adjustments related to depreciation and amortization of property, plant and equipment, and restricted stock expense offset by a net loss of $12.32 million and an increase in accounts receivable of $6.89 million.

During the nine-month period ended September 30, 2020 cash flow provided by operating activities of approximately $3.26 million was mainly due to non-cash adjustments related to depreciation and amortization of property, plant and equipment, and restricted stock expense offset by a net loss of $8.7 million and an increase in accounts receivable of $2.28 million.

Accounts receivable

Cash collections on our accounts receivable had a major impact on our overall liquidity. The following table presents the aging analysis of our accounts receivable as of September 30, 2021 and December 31, 2020.

|  | September 30, 2021 |  | December 31, 2020
|  |  |  | % of total |  |  |  | % of total
Aged 1-30 days |  | $ | 7,445,943 |  |  |  | 55 | % |  | $ | 3,801,417 |  |  |  | 58 | %
Aged 31-60 days |  |  | 4,352,247 |  |  |  | 32 | % |  |  | 2,720,381 |  |  |  | 42 | %
Aged 61-90 days |  |  | 1,634,926 |  |  |  | 13 | % |  |  | — |  |  |  | — |
Aged 91-120 days |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Aged 121-150 days |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Aged 151-180 days |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Aged 181-210 days |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Aged 211-240 days |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Total |  | $ | 13,433,116 |  |  |  | 100 | % |  | $ | 6,521,798 |  |  |  | 100 | %

The overall accounts receivable balance as of September 30, 2021 increased by $6,911,318, as compared to those of December 31, 2020. We have policies in place to ensure that sales are made to customers with an appropriate credit history. We perform ongoing credit evaluation on the financial condition of our customers. No allowance for doubtful accounts for the three-month and nine-month periods ended September 30, 2021 is required.

Inventory

Our inventory consists of the following:

|  | September 30, 2021 |  | December 31, 2020
|  |  |  | % of total |  |  |  | % of total
Raw materials |  | $ | 70,698 |  |  |  | 14 | % |  | $ | 21,484 |  |  |  | 5 | %
Finished goods |  |  | 418,804 |  |  |  | 86 | % |  |  | 398,125 |  |  |  | 95 | %
Total |  | $ | 489,502 |  |  |  | 100 | % |  | $ | 419,609 |  |  |  | 100 | %

The net inventory level as of September 30, 2021 increased by $69,893 (or 17%), as compared to the net inventory level as of December 31, 2020.

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Raw materials increased by $49,214 as of September 30, 2021 as compared to December 31, 2020.

Our finished goods increased by $20,679 as of September 30, 2021 as compared to December 31, 2020.

Net Cash Used in Investing Activities

For the nine-month period ended September 30, 2021, we used approximately $8.56 million to acquire property, plant and equipment.

For the nine-month period ended September 30, 2020, we used approximately $9.86 million to acquire property, plant and equipment.

Net Cash Used in Financing Activities

For the nine-month period ended September 30, 2021 and 2020, we used $0.3 million to repay finance lease obligation.

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

We had available cash of approximately $98.88 million at September 30, 2021, all which is in highly liquid current deposits which earn no or little interest. We do not anticipate paying cash dividends in the foreseeable future.

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

We may not be able to identify, successfully integrate or profitably manage any businesses or business segment we may acquire, or any expansion of our business. An expansion may involve a number of risks, including possible adverse effects on our operating results, diversion of management’s attention, inability to retain key personnel, risks associated with unanticipated events, risks associated with the COVID-19 pandemic and the financial statement effect of potential impairment of acquired intangible assets, any of which could have a materially adverse effect on our condition and results of operations. In addition, if competition for acquisition candidates or operations were to increase, the cost of acquiring businesses could increase materially. We may effect an acquisition with a target business which may be financially unstable, under-managed, or in its early stages of development or growth. Our inability to implement and manage our expansion strategy successfully may have a material adverse effect on our business and future prospects.

Contractual Obligations and Commitments

We have no significant contractual obligations not fully recorded on our consolidated balance sheets or fully disclosed in the notes to our consolidated financial statements. Additional information regarding our contractual obligations and commitments at September 30, 2021 is provided in the notes to our consolidated financial statements. See “Notes to Condensed Consolidated Financial Statements, Note 17 – Capital Commitment and Operating Lease Commitments”.

Material Off-Balance Sheet Arrangements

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

Critical Accounting Policies and Estimates

Our consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and this requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. We base its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Accordingly, actual results may differ significantly from these estimates under different assumptions or conditions. We have identified the following critical accounting policies and estimates used by us in the preparation of our financial statements: accounts receivable and allowance for doubtful accounts, leases, property, plant and equipment, recoverability of long lived assets, revenue recognition, income taxes, loss contingencies, and stock-based compensation. These policies and estimates are described in the Company’s 2020 Form 10-K.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

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

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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 our disclosure controls and procedures were effective as of the end of the period covered by this Form 10-Q.

(b) Changes in internal controls

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.

PART II—OTHER INFORMATION

Item 1. Legal Proceedings

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

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

The Company is in the process of resolving the issues in connection with SCHC’s land use and planning diligently. The Company has been in discussions regularly with the local government authorities with the help from Shouguang City Bromine Association to seek reliefs and, based on verbal confirmation by local government authorities, believes the administrative penalties imposed by the Bureau according to the Written Decisions are being re-assessed by local government authorities and may be revoked. Pursuant to a Written Application dated October 28, 2019 addressed to the Court by the Bureau, the Bureau withdrew its application for the enforcement proceedings regarding the administrative penalty imposed on Factory No. 7, Factory No. 8 and Factory No.10. Pursuant to a written decisions of administrative ruling captioned (2019) Lu 0783 Xing Shen No. 389 Zhi Yi, dated November 25, 2020, the Court ordered to terminate the enforcement of the case captioned (2019) Lu 0783 Xing Shen No. 389. Production of Factory No. 7 was allowed to resume in April 2019. The Company received a notification from the Shouguang City Government in February 2019 informing the Company that Factory No. 1, No.4, No. 7 and No. 9 have passed inspection and were approved to resume operation.

In addition, on August 28, 2019, the People’s Government of Shandong Province, issued a regulation titled “Investment Project Management Requirements of Chemical Companies in Shandong Province” permitting the construction of facilities on existing sites or infrastructure of bromine manufacturing and other chemical industry-related types of projects (clause 11 of section 3).The Company believes that the goal of the government is to standardize and regulate the industry and not to demolish the facilities or penalize the manufacturers. As of the date of this report, the Company has not been notified by the local government that it will take any measure to enforce the administrative penalties. Based on information known to date, the Company believes that it is remote that the Written Decisions or Court Rulings will be enforced within the expected timeframe and a material penalty or costs and expenses against the Company will result. However, there can be no assurance that there will not be any further enforcement action, the occurrence of which may result in further liabilities, penalties and operational disruption.

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Item 1A. Risk Factors

This information has been omitted based on the Company’s status as a smaller reporting company

Item 2. Unregistered Sale of Equity Securities and Use of Proceeds

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

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 for the quarterly period ended September 30, 2021 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.
104 | Cover Page Interactive Data File – The cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

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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 15, 2021 | By: | /s/ Xiaobin Liu
|  | Xiaobin Liu
|  | Chief Executive Officer
|  | (principal executive officer)
Dated: November 15, 2021 | By: | /s/ Min Li
|  | Min Li
|  | Chief Financial Officer
|  | (principal financial and accounting officer)

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