GULF RESOURCES, INC. 10-Q

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 Nevada holding company which conducts operations through our wholly-owned China-based subsidiaries. Our business is conducted and reported in four segments, namely, bromine, crude salt, chemical products and natural gas. Through our wholly-owned subsidiary, SCHC we produce and trade bromine; and through our wholly-owned subsidiary, SHSI, we manufacture and sell crude salt. We are one of the largest producers of bromine in China, as measured by production output. Elemental bromine is used to manufacture a wide variety of bromine compounds used in industry and agriculture. Bromine also is used to form intermediary chemical compounds such as Tetramethylbenzidine. Bromine is commonly used in brominated flame retardants, fumigants, water purification compounds, dyes, medicines and disinfectants. Crude salt is the principal material in alkali production as well as chlorine alkali production and is widely used in the chemical, food and beverage, and other industries. Through our wholly-owned subsidiary, SYCI, we manufacture and sell chemical products used in oil and gas field exploration, oil and gas distribution, oil field drilling, papermaking chemical agents, inorganic chemicals and materials that are used for human and animal antibiotics. Our wholly-owned subsidiary, DCHC, was established to explore and develop natural gas and brine resources (including bromine and crude salt) in Sichuan Province, China. As disclosed in the Company’s Current Report on Form 8-K filed on September 8, 2017, the Company received, on September 1, 2017, letters from the Yangkou County, Shouguang City government addressed to each of its subsidiaries, SCHC and SYCI, which stated that in an effort to improve the safety and environmental protection management level of chemical enterprises, the plants are requested to immediately stop production and perform rectification and improvements in accordance with the country’s new safety and environmental protection requirements. In the Company’s press release of August 11, 2017 and on its conference call of August 14, 2017, the Company addressed concerns that increased government enforcement of stringent environmental rules that were adopted in early 2017 to insure corporations bring their facilities up to necessary standards so that pollution and other negative environmental issues are limited and remediated, could have an impact on our business in both the short and long-term. The Company also expressed that although it believed its facilities were fully compliant at the time, the Company did not know how its facilities would fare under the new rules. Teams of inspectors from the government were sent to many provinces to inspect all mining and manufacturing facilities. The local government requested that facilities be closed, so that the facilities could undergo the inspection and analysis in the most efficient manner by inspectors’ team. As a result, our facilities were closed on September 1, 2017. The Company believes that this is another step by the government to improve the environment. It further believes the goal of the government is not to close all plants, but rather to codify the regulations related to project approval, land use, planning approval and environmental protection assessment approval so that illegal plants are not able to open in the future and so that plants close to population centers do not cause serious environmental damage. In addition, the Company believes that the Shandong provincial government wants to assure that each of its regional and county governments has applied the Notice in a consistent manner. The Shouguang City Bromine Association, on behalf of all the bromine plants in Shouguang, started discussions with the local government agencies. The local governmental agencies confirmed the facts that their initial requirements for the bromine industry did not include the project approval, the planning approval and the land use rights approval and that those three additional approvals were new requirements of the provincial government. The Company understood from the local government that it has been coordinating with several government agencies to solve these three outstanding approval issues in a timely manner and that all the affected bromine plants will not be allowed to commence production prior to obtaining those approvals. In February 2019, the Company received a notification from the local government of Yangkou County that its Factory No. 1, No.4, No. 7 and No. 9 have passed inspection and were allowed to resume operations. In April 2019, Factory No. 1 and No. 7 resumed operations. 17 Table of Contents 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 resume production at all four bromine factories. On December 27, 2021, the Company announced that the government of Shouguang City ordered the closing of all bromine facilities during the period from December 28, 2021 to February 21, 2022. The Company reopened its four operating bromine and crude salt facilities as planned on February 21, 2022. The Company is still waiting for governmental approval for factories No. 2 and No.10. To its knowledge, the government is currently completing its planning process for all mining areas including that for prevention of flood. As a result, the Company may be required to make some modifications to our current wells and aqueducts prior to commencement of operations of these factories to satisfy the local government's requirements. On November 24, 2017, Gulf Resources received a letter from the People’s Government of Yangkou County, Shouguang City notifying the Company that due to the new standards and regulations relating to safety production and environmental pollution, from certain local governmental departments, such as the municipal environmental protection department, the security supervision department and the fire department, its chemical enterprises would have to be relocated to a new industrial park called Bohai Marine Fine Chemical Industry Park. Although our chemical companies were in compliance with regulations, they were also close to a residential area. As a result, the government determined the Company should relocate to the Bohai park. Chemical companies that were not asked to move into the park have been closed. Since the closure of our factories, the Company has secured from the government the land use rights for its chemical plant. On January 6, 2020, the Company received the environmental protection approval by the government of Shouguang City, Shandong Province for the proposed Yuxin Chemical factory. The Company began the construction on its new chemical facilities located at Bohai Marine Fine Chemical Industrial Park in June 2020. The completion of construction has been delayed due to COVID-19 related restrictions, supply chain disruption and electric restrictions. On February 22, 2022, the Company announced that while the Company did not receive a formal notice from the government regarding the electricity needed for its Yuxin Chemical factory, discussions with the government have convinced management that the electricity restrictions are being eased. Accordingly, the Company has contacted its suppliers and will have the remainder of the equipment produced and delivered, so the Company can complete installation. Because of supply chain issues, largely related to COVID 19, the delivery of some of the equipment has been delayed. At this time, the Company cannot estimate when construction will be completed. In January 2017, the Company completed the first brine water and natural gas well field construction in Daying located in Sichuan Province and commenced trial production in January 2019. On May 29, 2019, the Company received a verbal notice from the government of Tianbao Town ,Daying County, Sichuan Province, whereby the Company is required to obtain project approval for its well located in Daying, including the natural gas and brine water project, and approvals for safety production inspection, environmental protection assessment, as well as related land issues. Until these approvals have been received, the Company has temporarily halted trial production at its natural gas well in Daying. In compliance with the Chinese government new policies, the Company is also required to obtain exploration and mining licenses for both bromine and natural gas. Pursuant to the Opinions of the Ministry of Natural Resources on Several Issues in Promoting the Reform of Mineral Resources Management (Trial) promulgated by the Ministry of Natural Resources of PRC on January 9, 2020, which came into effect on May 1, 2020, privately owned enterprises are allowed to participate in the natural gas production. The Company plans to proceed with its applications for the natural gas and brine project approvals with related government departments after the governmental planning has been finalized and the land and resource planning for Sichuan Province has been approved. As a result of our acquisitions of SCHC and SYCI, our historical consolidated financial statements and the information presented below reflects the accounts of SCHC, SYCI , SHSI and DCHC, the consolidated financial statements and the information presented below as of and for the period ended September 30, 2022. The following discussion should be read in conjunction with our consolidated financial statements and notes thereto appearing elsewhere in this report. On January 28, 2020 we completed a 1-for-5 reverse stock split of our common stock, such that for each five shares outstanding prior to the stock split there was one share outstanding after the reverse stock split. All shares of common stock referenced in this report have been adjusted to reflect the stock split figures. 18 Table of Contents 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, SHSI and DCHC. The following discussion should be read in conjunction with our condensed consolidated financial statements and notes thereto appearing elsewhere in this report. 19 Table of Contents RESULTS OF OPERATIONS The following table presents certain information derived from the condensed consolidated statements of operations, cash flows and stockholders equity for the three-month and nine-month periods ended September 30, 2022 and 2021. Comparison of the Three-Month Period Ended September 30, 2022 and 2021 Three-Month Period Ended September 30, 2022 Three-Month Period Ended September 30, 2021 Percent Change Increase/ (Decrease) Net revenue $ 22,862,795 $ 17,753,669 　 29% Cost of net revenue (8,405,694 ) (8,197,697) 　 3% Gross profit 14,457,101 9,555,972 　 51% Sales, marketing and other operating expenses (19,681) (19,035) 3% Direct labor and factory overheads incurred during plant shutdown (1,910,318) (1,229,058) 55% General and administrative expenses (584,473) (1,209,818) (52% ) Other operating income(loss) (37) (86) (57% ) Income(Loss) from operations 11,942,592 7,097,975 　 68% Other income 35,755 45,923 　 (22% ) Income(Loss) before taxes 11,978,347 7,143,898 　 68% Income tax benefit (3,010,967) (1,750,283) 　 72% Net income(loss) $ 8,967,380 $ 5,393,615 　 66% 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, 2022 as compared to the same period in 2021: Net Revenue by Segment Three-Month Period Ended Three-Month Period Ended Percent Change Increase September 30, 2022 September 30, 2021 of Net Revenue Segment % of total % of total Bromine $ 19,845,773 86% $ 14,913,004 84% 33% Crude Salt 2,934,707 13% 2,840,665 16% 3% Chemical Products - - - - Natural Gas 82,315- 1% - - 100% Total sales $ 22,862,795 100% $ 17,753,669 100% 29% Bromine and crude salt segments Three-Month Period Ended Percentage Change product sold in tonnes September 30, 2022 September 30, 2021 Increase (Decrease) Bromine 2,655 2,511 6% Crude Salt 81,810 79,820 3% Bromine segment For the three-month periods ended September 30, 2022 and 2021, the net revenue for the bromine segment was $19,845,773 and $14,913,004, respectively. The increase of net revenue of bromine was mainly due to the 6% increase in tonnes sold and a 26% increase in average selling price of bromine. The average selling price of bromine in the second quarter was $7,474 compared to $5,938 of the third quarter previous year. Crude salt segment For the three-month periods ended September 30, 2022 and 2021, the net revenue for the crude salt was $2,934,707 and $2,840,665, respectively. The increase of net revenue of crude salt was mainly due to the 3% increase in tonnes sold. Chemical products segment For the three-month periods ended September 30, 2022 and 2021, the net revenue for the chemical products segment was $0 due to the closure of our chemical factories since September 1, 2017. 20 Table of Contents Natural gas segment The average selling price of bromine in t he third qu arter was $7,474 compared to $5,938 of the third quarter previous year. 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, 2022 September 30, 2021 Net Revenue Segment % of total % of total Bromine $ 7,362,103 87.58 % $ 6,599,977 81 % 16 % Crude Salt 1,043,260 12.41 % 1,597,720 19 % (35 %) Chemical Products — — — — — Natural Gas 331 0.01 % — — 100 % Total $ 8,405,694 100 % $ 8,197,697 100 % 3 % 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, 2021 31,506 32% Three-month period ended September 30, 2022 31,506 34% Variance of the three-month period ended September 30, 2022 and 2021 - 2% (i) Utilization ratio is calculated based on the annualized actual production volume in tonnes for the periods divided by the annual production capacity in tonnes of all the seven factories including those that have not commenced operations. Our utilization ratio was 34% for the three-month period ended September 30, 2022 compared to 32% recorded for the three-month period ended September 30, 2021. Bromine segment For the three-month period ended September 30, 2022, the bromine segment had a net cost of revenue of $7,362,103. The $762,126 increase in cost of net revenue for the bromine segment was primarily due to an increase in manufacturing unit overhead, which was mainly due to the split between the bromine and crude salt businesses in May 2022. For the three-month period ended September 30, 2021 the cost of net revenue for the bromine segment was $6,599,977. Crude salt segment For the three-month period ended September 30, 2022 the cost of net revenue for the crude salt segment was $1,043,260. The lower cost was mainly due to the split between the bromine and crude salt businesses in may 2022 For the three-month period ended September 30, 2021 the cost of net revenue for the crude salt segment was $1,597,720. Chemical products segment Cost of net revenue for our chemical products segment for the three-month period ended September 30, 2022 and 2021 was $0. Natural gas segment Cost of net revenue for our natural gas segment for the three-month period ended September 30, 2022 and 2021 was $331 and 0. 21 Table of Contents Gross Profit. Gross profit was $14,457,101, or 63%, of net revenue for three-month period ended September 30, 2022, representing an increase of $4,901,129, as compared to a gross profit of $9,555,972, or 54%, of net revenue for the same period in 2021. Gross Profit (Loss) by Segment % Point Change Three-Month Period Ended Three-Month Period Ended of Gross September 30, 2022 September 30, 2021 Profit Margin Segment Gross Profit Margin Gross Profit Margin Bromine $ 12,483,670 63 % $ 8,313,027 56 % 7 % Crude Salt 1,891,447 64 % 1,242,945 44 % 20 % Chemical Products — — — — — Natural Gas 81,984 100 % — — 100 % Total Gross Profit $ 14,457,101 63 % $ 9,555,972 54 % 9 % Bromine segment For the three-month period ended September 30, 2022, the gross profit margin for our bromine segment was 63%. This 7% increase was due to the increase in the selling price and volume of bromine sold in the third quarter of 2022. For the three-month period ended September 30, 2021, the gross profit margin for our bromine segment was 56%. Crude salt segment For the three-month period ended September 30, 2022, the gross profit margin for our crude salt segment was 64%. The increase of net revenue of crude salt were mainly due to the 3% increase in tonnes sold and the reallocation of costs. For the three-month period ended September 30, 2021, the gross profit margin for our crude salt segment was 44% Direct labor and factory overheads incurred during plant shutdown The direct labor and factory overhead costs (including depreciation of plant and machinery) in the amount of $1,910,318 and $1,229,058 incurred for the three-month period end September 30, 2022 and 2021, respectively, were that of the factories that have not resumed operations in the three-month periods ended September 30, 2022 and 2021. On September 1, 2017, the Company received notification from the government of Yangkou County, Shouguang City of PRC that stated that production at all its bromine and crude salt and chemical factories should be halted with immediate effect in order for the Company to perform rectification and improvement in accordance with the county’s new safety and environmental protection requirements. On November 24, 2017, the Company received a letter from the Government of Yangkou County, Shouguang City notifying the Company to relocate its two chemical production plants located in the second living area of the Qinghe Oil Extraction Plant to Bohai Park. As a result, direct labor and factory overhead costs (including depreciation of plant and machinery) in the amount of $1,910,318 and $1,229,058 incurred for the three-month periods ended September 30, 2022 and 2021, respectively, of factories that have not resumed production were presented as part of the operating expense. Income (loss) from Operations income from operations was $11,942,592 for the three-month period ended September 30, 2022, compared to loss of $7,097,975 in the same period in 2021. Loss from Operations by Segment Three-Month Period Ended September 30, 2022 Three-Month Period Ended September 30, 2021 Segment: % of total % of total Bromine $ 10,552,343 87.94 % $ 6,909,542 100 % Crude Salt 1,876,161 15.63 % 561,373 8 % Chemical Products (447,960 ) 0.16 % (535,047 ) (7 %) Natural Gas 19,500 (3.73 %) (49,295 ) (1 %) Income(loss) from operations before corporate costs 12,000,044 100 % 6,886,573 100 % Corporate costs (50,505 ) (99,461 ) Unrealized gain (loss) on translation of Intercompany balance (6,947 ) 310,863 Income (loss) from operations $ 11,942,592 $ 7,097,975 22 Table of Contents Bromine segment Income from operations from our bromine segment was $10,552,343 for the three-month period ended September 30, 2022, compared to income from operations of $6,909,542 in the same period in 2021.The increase of net revenue of crude salt was mainly due to the 6% increase in tonnes sold and a 26% increase in average selling price of bromine partially offset by a change in allocation of costs between bromine and crude salt Crude salt segment Income from operations from our crude salt segment was $1,876,161 for the three-month period ended September 30, 2022, compared to income from operations of $561,373 in the same period in 2021. This increase in income from operation was due to a 3% increase in tonnes sold as well as a change in allocation of costs between bromine and crude salt. Chemical products segment Loss from operations from our chemical products segment was $447,960 for the three-month period ended September 30, 2022, compared to loss from operations of $535,047 in the same period in 2021. Natural gas segment Income from operations from our natural gas segment was $19,500 for the three -month period ended September 30, 2022, compared to a loss of $49,295in the same period in 2021. Other Income, Net Other income, net of $35,755 represented bank interest income, net of capital lease interest expense for the three -month period ended September 30, 2022, an decrease of $10,168 as compared to the same period in 2021. Net Income (loss) Net income was $8,967,380 for the three-month period ended September 30, 2021, compared to a net income of $5,393,615 in the same period in 2021. Net Income Per Share For the three months ended September 30, 2022, net income per share was $0.86 compared to an income of $0.52 in the period ending September 30, 2021. There were 10,471,924 shares outstanding compared to 10,469,477 shares. Foreign Currency Translation Adjustment For the three months ending September 30, 2022, the Company had a negative foreign currency translation adjustment of $ 15,930,276 versus a positive adjustment of $1,272,449 in the previous year. This adjustment impacts all balance sheet translations into U.S. dollars. Comparison of the Nine-Month Period Ended September 30, 2022 and 2021 Nine-Month Period Ended September 30, 2022 Nine-Month Period Ended September 30, 2021 Percent Change Increase/ (Decrease) Net revenue $ 47,505,246 $ 34,160,920 　 39 % Cost of net revenue (21,056,782 ) (19,294,860 ) 　 9 % Gross profit 26,448,464 14,866,060 　 78 % Sales, marketing and other operating expenses (47,086 ) (44,205 ) 7 % Direct labor and factory overheads incurred during plant shutdown (6,022,206 ) (5,237,258 ) 15 % Other operating loss (8,441 ) (86 ) 971 % General and administrative expenses (3,384,063 ) (8,150,769 ) (59 %) Income(Loss) from operations 16,986,668 1,433,742 　 1085 % Other income 118,843 117,583 　 1 % Income(Loss) before taxes 17,105,511 1,551,325 　 1003 % Income tax benefit (expense) (4,356,283 ) (1,363,054 ) 　 220 % Net income(loss) $ 12,749,228 $ 188,271 　 6672 % 23 Table of Contents 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, 2022 as compared to the same period in 2021: Net Revenue by Segment Nine-Month Period Ended Nine-Month Period Ended Percent Increase September 30, 2022 September 30, 2021 of Net Revenue Segment % of total % of total Bromine $ 41,865,598 88 % $ 29,749,432 87 % 41 % Crude Salt 5,506,655 11 % 4,411,488 13 % 25 % Chemical Products — — — Natural Gas 132,993 1 % — 100 % Total sales $ 47,505,246 100 % $ 34,160,920 100 % 39 % Bromine and crude salt segments Nine-Month Period Ended Percentage Change product sold in tonnes September 30, 2022 September 30, 2021 Increase Bromine (excluding volume sold to SYCI) 5,456 5,271 3.5 % Crude Salt 144,750 143,360 1 % Bromine segment Net revenue from our bromine segment increased to $41,865,598 for the nine-month period ended September 30, 2022 compared to $29,749,432 for the same period in 2021 respectively, due to the higher selling price and selling quantity. Crude salt segment Net revenue from our crude salt segment increased to $5,506,655 for the nine-month period ended September 30, 2022 compared $4,411,488 for the same period in 2021, respectively, due to the higher selling price and selling quantity. Chemical products segment For the nine-month period ended September 30, 2022 and 2021, the net revenue for the chemical products segment was $0 due to the closure of our chemical factories since September 1, 2017. Natural gas segment For the nine-month period ended September 30, 2022 and 2021, the net revenue for the natural gas was $132,993 and $0. Cost of Net Revenue Cost of Net Revenue by Segment % Change Nine-Month Period Ended Nine-Month Period Ended of Cost of September 30, 2022 September 30, 2021 Net Revenue Segment % of total % of total Bromine $ 18,148,260 86 % $ 15,971,475 83 % 14 % Crude Salt 2,908,108 14 % 3,323,385 17 % (13 %) Chemical Products — — — — — Natural Gas 414 — — — 100 % Total $ 21,056,782 100 % $ 19,294,860 100 % 9 % Cost of net revenue reflects mainly the raw materials consumed-direct salaries and benefits of staff engaged in the production process, electricity, depreciation and amortization of manufacturing plant and machinery and other manufacturing costs. Bromine production capacity and utilization of our factories The table below represents the annual capacity and utilization ratios for all of our bromine producing properties: Annual Production Capacity (in tonnes) Utilization Ratio (i) Nine-month period ended September 30, 2021 31,506 23% Nine-month period ended September 30, 2022 31,506 23% Variance of the nine-month period ended September 30, 2022 and 2021 - 0 % 24 Table of Contents Bromine segment For the nine-month period ended September 30, 2022 the cost of net revenue for the bromine segment was $18,148,260. $2,176,785 of this increase was mainly due to the new allocation of costs between bromine and crude salt since the creation of SHSI in since May 2022. For the nine-month period ended September 30, 2021 the cost of net revenue for the bromine segment was $15,971,475. Crude salt segment For the nine-month period ended September 30, 2022 the cost of net revenue for the crude salt segment was $2,908,108. The cost of net revenue for our crude salt segment for the nine-month period ended September 30, 2021 was $3,323,385. The reason for the decrease is that there is that with the creation of SHSI, some costs formerly allocated to crude sale were allocated to bromine. Natural gas segment Cost of net revenue for our natural gas segment for the nine-month period ended September 30, 2022 and 2021 was $414 and $0. Gross Profit. Gross profit was $26,448,464, or 56%, of net revenue for nine-month period ended September 30, 2022 compared to $14,866,060, or 44%, of net revenue for the same period in 2021. Gross Profit (Loss) by Segment % Point Change Nine-Month Period Ended Nine-Month Period Ended of Gross September 30, 2022 September 30, 2021 Profit Margin Segment Gross Profit (loss) Margin Gross Profit Margin Bromine $ 23,717,338 57 % $ 13,777,957 46 % 11 % Crude Salt 2,598,547 47 % 1,088,103 25 % 22 % Chemical Products — — — — — Natural Gas 132,579 99.7 % — — 99.7 % Total Gross Profit $ 26,448,464 56 % $ 14,866,060 44 % 12 % Bromine segment For the nine-month period ended September 30, 2022, the gross profit margin for our bromine segment was 57%. This 11% increase was due to the higher selling price and selling quantity. For the nine-month period ended September 30, 2021, the gross profit margin for our bromine segment was 46%. Crude salt segment For the nine-month period ended September 30, 2022, the gross profit margin for our crude salt segment was 47%. The increase of net revenue of crude salt was mainly due to the 24% increase in average selling price of crude salt as well as the change in accounting related to the creation of SHSI, For the nine-month period ended September 30, 2021 the gross profit margin for our crude salt segment was 25%. Chemical products segment For the nine-month period ended September 30, 2022, the gross profit margin for our chemical segment was 0% due to the closure of our plant.. As a result of the closure, there were no chemical products for sale for the nine-month period ended September 30, 2022. Direct labor and factory overheads incurred during plant shutdown The direct labor and factory overhead costs (including depreciation of plant and machinery) in the amount of $6,022,206 and $5,237,258 incurred for the nine-month period end September 30, 2022 and 2021, respectively, were for factories that have not resumed production in the nine-month periods ended September 30, 2022 and 2021. 25 Table of Contents General and Administrative Expenses. General and administrative expenses were $3,384,063 for the nine-month period ended September 30, 2022, a decrease of $4,766,706 (or 59%) as compared to $8,150,769 for the same period in 2021, the major reason for this was due to the cost of approximately $3.1 million for stock grants in the second quarter of year 2021 . Income (Loss) from Operations. Income from operations was $16,986,668 for the nine-month period ended September 30, 2022, compared to an income of $1,433,742 in the same period in 2021. Income(Loss) from Operations by Segment Nine-Month Period Ended September 30, 2022 Nine-Month Period Ended September 30, 2021 Segment: % of total % of total Bromine $ 17,226,718 100% $ 8,312,210 163% Crude Salt 1,497,208 8.7% (1,026,647 ) (20%) Chemical Products (1,436,443 ) (8.34%) (2,022,828 ) (40%) Natural Gas (68,938 ) (0.36%) (166,932 ) (3%) Income (Loss) from operations before corporate costs 17,218,545 100% 5,095,803 100% Corporate costs (186,682 ) (3,378,774 ) Unrealized gain on translation of intercompany balance (45,195 ) (283,287 ) Income (Loss) from operations before taxes $ 16,986,668 $ 1,433,742 Bromine segment Income from operations from our bromine segment was $17,226,718 for the nine-month period ended September 30, 2022, compared to an income of $8,312,210 in the same period in 2021. The increase in income was primarily due to a 36% increase in average selling price partially offset by additional cost allocations from the new divisional structure. Crude salt segment Income from operations from our crude salt segment was $1,497,208 for the nine-month period ended September 30, 2022, compared to a loss of $1,026,647 in the same period in 2021. The reason for this was due to cost allocations from the new divisional structure. Chemical products segment Loss from operations from our chemical products segment was $1,436,443 for the nine-month period ended September 30, 2022, compared to a loss of $2,022,828 in the same period in 2021. Natural gas segment Loss from operations from our natural gas segment was $68,938 for the nine-month period ended September 30, 2022, compared to a loss of $166,932 in the same period in 2021. Other Income, Net. Other income, net of $118,843 represented bank interest income, net of capital lease interest expense for the nine -month period ended September 30, 2022, an increase of $1,260 (or approximately 1%) as compared to the same period in 2021. Net Income (Loss). Net income was $12,749,228 for the nine-month period ended September 30, 2022, compared to a net income of $188,271 in the same period in 2021. Net Income Per Share For the nine months ended September 30, 2022, net income per share was $1.22 compared to a income of $0.02 in the period ending September 30, 2021. There were 10,471,924 shares outstanding compared to 10,469,477 shares. Foreign Currency Translation Adjustment For the nine months ending September 30, 2022, the Company had a negative foreign currency translation adjustment of $30,774,686 versus a positive adjustment of $1,877,097 in the previous year. This adjustment impacts all balance sheet translations into U.S. dollars. 26 Table of Contents LIQUIDITY AND CAPITAL RESOURCES As of September 30, 2022, cash and cash equivalents were $92,638,278 as compared to $95,767,263 as of December 31, 2021. The components of this decrease of $3,128,985 are reflected below. Statement of Cash Flows Nine-Month Period Ended September 30, 2022 2021 Net cash (used in) provided by operating activities $ 37,101,024 $ 11,062,544 Net cash used in investing activities (33,217,987 ) (8,560,152 ) Net cash used in financing activities (283,915 ) (290,597 ) Effects of exchange rate changes on cash and cash equivalents (6,728,107 ) 2,446,493 Net decrease in cash and cash equivalents $ (3,128,985 ) $ 4,658,288 For the nine-month period ended September 30, 2022, we met our working capital and capital investment requirements by using cash on hand. Net Cash (used in) Provided by Operating Activities During the nine-month period ended September 30, 2022, cash flow provided by operating activities of approximately $37 million was mainly due to a net income of $12.75 million, a decrease in accounts receivable of $3.45 million, an increase in accounts payable of $1.55 million, an decrease in deferred taxes of $3.8 million, and a non-cash adjustment related to depreciation and amortization of property, plant and equipment of $16.3 million, offset by increases in operating leases, and prepayments. During the nine-month period ended September 30, 2021 cash flow provided by operating activities of approximately $11.1 million was mainly due to non-cash adjustments related to depreciation and amortization of property, plant and equipment, and restricted stock expense offset by a net loss of $12.32 million and an increase in accounts receivable of $6.89 million. 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, 2022 and December 31, 2021. September 30, 2022 December 31, 2021 % of total % of total Aged 1-30 days $ 8,258,451 83 % $ 4,097,207 28 % Aged 31-60 days 1,737,200 17 % 5,164,840 36 % Aged 61-90 days — — 5,263,760 36 Aged 91-120 days — — — — Aged 121-150 days — — — — Aged 151-180 days — — — — Aged 181-210 days — — — — Aged 211-240 days — — — — Total $ 9,995,651 100 % $ 14,525,807 100 % The overall accounts receivable balance as of September 30, 2022 decreased by $4,530,156, as compared to those of December 31, 2021. We have policies in place to ensure that sales are made to customers with an appropriate credit history. We perform ongoing credit evaluation on the financial condition of our customers. No allowance for doubtful accounts for the three-month and nine-month periods ended September 30, 2022 is required. Inventory Our inventory consists of the following: September 30, 2022 December 31, 2021 % of total % of total Raw materials $ 22,092 4 % $ 42,553 6 % Finished goods 581,869 96 % 648,558 94 % Total $ 603,961 100 % $ 691,111 100 % The net inventory level as of September 30, 2022 decreased by $87,150, as compared to the net inventory level as of December 31, 2021. 27 Table of Contents Raw materials decreased by $20,461 as of September 30, 2022 as compared to December 31, 2021. Our finished goods decreased by $66,689 as of September 30, 2022 as compared to December 31, 2021. Net Cash Used in Investing Activities For the nine-month period ended September 30, 2022, we used approximately $33.2 million to acquire property, plant and equipment, which mainly includes the cost for bromine wells, aqueducts and the installation of high and low voltage lines for bromine Wells. For the nine-month period ended September 30, 2021, we used approximately $8.56 million to acquire property, plant and equipment. Net Cash Used in Financing Activities For the nine-month period ended September 30, 2022 and 2021, we used $0.3 million to repay finance lease obligations. We 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 $92.64 million at September 30, 2022, all of which is in highly liquid current deposits earning no or little interest. We do not anticipate paying cash dividends in the foreseeable future. We intend to continue to focus our efforts on the activities of SCHC, SYCI, SHSI and DCHC as these segments continue to expand within the Chinese market. We may not be able to identify, successfully integrate 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, 2022 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 2021 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). 28 Table of Contents