Gulf Resources, Inc. (Nasdaq:GURE) ("Gulf Resources" or the
"Company"), a leading manufacturer of bromine, crude salt and
specialty chemical products in China, today announced its audited
financial results for 2018 and provided management commentary on
the future plan of the Company.
Financial Results
In 2018, we had net revenues of $2,594,941, a
decline of 98%. We had a write-off of property plant and equipment
of $1,397,313. Our loss on demolition of a factory was $18,644,473.
Our write-off of prepaid land leases was $4,004,788. We incurred
direct labor and factory overhead costs of $21,081,692 as a result
of our plant shutdown. Goodwill Impairment Loss is $27,966,050. Our
loss from operations was $83,552,531. Our net loss was $69,963,986
(or $1.49* per share). Including foreign exchange tax adjustments
of $18,641,006, our compressive loss was $88,604,992.
We generated $17,340,671 from operations. This
included collecting all of our accounts receivables of $30,241,680.
We purchased property, plant, and equipment of $35,273,307.
As of December 31, 2018, we had $178,998,935 in
cash (or $3.82* per share). Our shareholders equity was
$293,853,404 (or $6.28 *per share).
During 2018, our major costs included
approximately $15.8 million for enhancement works in our protection
shells to crude salt fields, approximately $17.8 million to build
new extraction wells, a write-off of $18.6 million in the
loss on demolition of the three closed factories, impairment loss
on the related mineral rights of these three factories of $1.3
million, direct labor and factory overhead costs (including
depreciation of plant and machinery) of a total amount of $21.1
million, write-off and impairment losses on property, plant and
equipment of $1.4 million, write-off and impairment on prepaid land
leases for chemical factories of $4.0 million, repair and
maintenance expenses of $2.6 million for the damage by flood
from a typhoon, $0.4 million for the write-off of some of prepaid
land leases for the closed factories and raw material lost as a
result of the damage from the flooding, Goodwill Impairment Loss is
$28.0 million.
In the past two years, the Company spent
$34,182,329 in rectification of its bromine and crude salt
facilities. It expects to incur capital expenditure of
approximately $28 million on construction of extraction wells for
its existing bromine and crude salt business. It also expects to
spend approximately $60 million in total on its new chemical
factory.
Management Commentary
Mr. Liu Xiaobin, the CEO of Gulf Resources
states, “Fiscal 2018 has been the most difficult year for Gulf
Resources. All of our bromine mines and salt ponds were forced to
close by the government for environmental reasons. Our two chemical
factories were also closed for environmental reasons. Our natural
gas well required new equipment before it could begin test
production. We worked very hard to get our facilities rectified.
Subsequently, the provincial government decided it required even
stricter environmental controls to protect the population. During
the summer of 2018, our mines and factories in Shandong Province
were hit by one of the most powerful typhoons, as a result of which
we spend more than $8 million on cleaning up facilities, many of
which had been recently rectified. Finally, in September 2018, the
government informed us that we would have to close our bromine
factories #3,4, and 11.”
“During this period, it would have been easy for
us to give up. Our revenues came only from selling inventory. We
had a loss from operations of approximately $83.55 million. We
could have discontinued our bromine, salt, chemicals, and natural
gas business, which is represented by over $3.82 per share and
switched to other businesses by taking advantage of our strong cash
balance position.”
“However, it is not our intention to pursue any
of those. Instead, we spent $15.8 million on the protection shells
of our crude salt fields at costs and $17.8 million on building new
extraction wells. We spent more than $8 million on cleaning up our
facilities after the typhoon. We purchased new equipment for our
natural gas well in Sichuan Province, and we kept our work force
intact. We held quarterly conference calls, issued press releases
whenever we had something to report to the public, and worked
diligently to keep our shareholders informed.”
“Now as we enter 2019, we are increasingly
optimistic about the future of our business. While none of our
bromine facilities have yet been approved for reopening, we are
increasingly confident that all of the remaining 7 facilities are
expected to be approved. That is one reason that we are budgeting
$28 million capital expenditure for improvement of our wells during
2019. With the government forced closure of so many bromine
facilities nationally, bromine prices have remained extremely high.
The weakness of the Chinese RMB versus the U.S. dollar has made
imports more expensive. We believe that our facilities are among
the best in the province. We also believe that many of our
competitors may not have the capital to complete their
rectification process. We expect that as bromine prices should
remain extremely high we should be able to make reasonably high
profits when our bromine facilities reopen and our bromine
production resumes. We also believe that we may be able to make
acquisitions at comparable attractive rates.”
“The plans for our new chemical factory are
moving ahead well, although they are somewhat delayed. We expect to
focus more on higher profit margin businesses, such as
pharmaceutical chemicals. With the new modern equipment and lower
levels of competition caused by the closing of competitive
factories, our new chemical factory should be able to have more
competitive advantages than our previous two factories.”
“Our natural gas well in Sichuan is now in trial
production. We are pleased with the initial results. Although it is
too soon to talk about full production or new wells, we expect to
have natural gas to be an important contributor to our sales and
income in coming years.”
“Despite all of the factors, our management team
has been very engaged and motivated. Our senior management team is
still intact. Our employees are ready to get back to the production
of our products. We believe competition has been and may remain
reduced. We believe our core businesses are expected to have higher
margins than they had in the past. We expect to have acquisition
opportunities. We expect our company may emerge from the difficult
period stronger and more profitable than before.”
“We appreciate the support from our
shareholders. By taking advantage of our strong cash position, we
expect to spend sufficient funds on building a new chemical
factory, drilling new bromine wells on all of properties, drilling
our natural gas well and future wells, and expect to remain in a
stronger financial position than our smaller competitors.”
(* All calculations have not been audited and per share
have been calculated using the end of the year share count of
46,803,791 as shown on the balance sheet in the
10-K.)
Conference Call
Gulf Resources' management will host a conference call on
Monday, March 18, 2019 at 8:30 a.m. Eastern Standard Time to
discuss its financial results for the fourth quarter & Fiscal
Year 2018 ended December 31, 2018.
Mr. Xiaobin Liu, CEO of Gulf Resources, will be hosting the
call. The Company's management team will be available for investor
questions following the prepared remarks.
To participate in this live conference call, please dial +1
(877) 275-8968 five to ten minutes prior to the scheduled
conference call time. International callers should dial +1 (706)
643-1666. The conference participant pass code is
9193404.
The webcasting is also available then, just simply click on the
link below: http://www.gulfresourcesinc.com/events.html
A replay of the conference call will be available two hours
after the call's completion during 03/18/2019 11:00 EST -
04/17/2019 22:59 EST. To access the replay, call +1 (855) 859-2056.
International callers should call +1 (404) 537-3406. The conference
ID is 9193404.
About Gulf Resources, Inc.
Gulf Resources, Inc. operates through three wholly-owned
subsidiaries, Shouguang City Haoyuan Chemical Company Limited
(“SCHC”), Shouguang Yuxin Chemical Industry Co., Limited (“SYCI”),
and Daying County Haoyuan Chemical Company Limited (“DCHC”). The
Company believes that it is one of the largest producers of bromine
in China. Elemental Bromine is used to manufacture a wide variety
of compounds utilized in industry and agriculture. Through SYCI,
the company manufactures chemical products utilized in a variety of
applications, including oil and gas field explorations and
papermaking chemical agents, and materials for human and animal
antibiotics. DCHC was established to further explore and develop
natural gas and brine resources (including bromine and crude salt)
in China. For more information, visit www.gulfresourcesinc.com.
Forward-Looking Statements
Certain statements in this news release contain forward-looking
information about Gulf Resources and its subsidiaries business and
products within the meaning of Rule 175 under the Securities Act of
1933 and Rule 3b-6 under the Securities Exchange Act of 1934, and
are subject to the safe harbor created by those rules. The actual
results may differ materially depending on a number of risk factors
including, but not limited to, the general economic and business
conditions in the PRC, future product development and production
capabilities, shipments to end customers, market acceptance of new
and existing products, additional competition from existing and new
competitors for bromine and other oilfield and power production
chemicals, changes in technology, the ability to make future
bromine asset purchases, and various other factors beyond its
control. All forward-looking statements are expressly qualified in
their entirety by this Cautionary Statement and the risks factors
detailed in the company's reports filed with the Securities and
Exchange Commission. Gulf Resources undertakes no duty to revise or
update any forward-looking statements to reflect events or
circumstances after the date of this release.
CONTACT: Gulf Resources, Inc.
Web: |
http://www.gulfresourcesinc.com |
|
|
|
Director of Investor
Relations |
|
|
|
Helen Xu |
|
|
|
beishengrong@vip.163.com |
GULF RESOURCES, INC. |
|
|
AND SUBSIDIARIES |
|
|
CONSOLIDATED BALANCE SHEETS |
|
|
(Expressed in U.S. dollars) |
|
|
|
As of December 31, |
|
2018 |
|
|
2017 |
|
Current Assets |
|
|
|
|
|
Cash |
$ |
178,998,935 |
|
|
$ |
208,906,759 |
|
Accounts
receivable |
|
— |
|
|
|
29,765,884 |
|
Inventories, net |
|
— |
|
|
|
1,196,785 |
|
Prepayments and deposits |
|
8,096,636 |
|
|
|
1,395,289 |
|
Prepaid land leases |
|
235,459 |
|
|
|
246,640 |
|
Other
receivables |
|
12,506 |
|
|
|
2,089 |
|
Total
Current Assets |
|
187,343,536 |
|
|
|
241,513,446 |
|
Non-Current Assets |
|
|
|
|
|
|
|
Property, plant and equipment, net |
|
82,282,630 |
|
|
|
95,114,504 |
|
Property, plant and equipment under capital leases, net |
|
250,757 |
|
|
|
492,238 |
|
Prepaid land leases, net of current portion |
|
9,639,009 |
|
|
|
14,477,771 |
|
Deferred tax assets |
|
19,030,858 |
|
|
|
6,526,555 |
|
Goodwill |
|
— |
|
|
|
29,374,909 |
|
Total non-current
assets |
|
111,203,254 |
|
|
|
145,985,977 |
|
Total
Assets |
$ |
298,546,790 |
|
|
$ |
387,499,423 |
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders’ Equity |
|
|
|
|
|
|
|
Current Liabilities |
|
|
|
|
|
|
|
Accounts payable and accrued expenses |
$ |
905,258 |
|
|
$ |
1,032,083 |
|
Retention payable |
|
332,416 |
|
|
|
956,351 |
|
Capital lease obligation, current portion |
|
197,480 |
|
|
|
203,206 |
|
Taxes
payable-current |
|
1,188,687 |
|
|
|
1,041,592 |
|
Total
Current Liabilities |
|
2,623,841 |
|
|
|
3,233,232 |
|
Non-Current Liabilities |
|
|
|
|
|
|
|
Capital lease obligation, net of current portion |
|
2,069,545 |
|
|
|
2,303,995 |
|
Total
non-Current Liabilities |
|
2,069,545 |
|
|
|
2,303,995 |
|
Total
Liabilities |
$ |
4,693,386 |
|
|
$ |
5,537,227 |
|
|
|
|
|
|
|
|
|
Stockholders’ Equity |
|
|
|
|
|
|
|
PREFERRED STOCK; $0.001
par value; 1,000,000 shares authorized; none outstanding |
$ |
— |
|
|
$ |
— |
|
COMMON STOCK; $0.0005 par value; 80,000,000 shares authorized;
46,803,791 shares outstanding as of December 31, 2018 and
2017, respectively |
|
23,525 |
|
|
|
23,525 |
|
Treasury stock; 249,149 shares, at cost, as of December 31, 2018
and 2017 |
|
(554,870 |
) |
|
|
(554,870 |
) |
Additional paid-in capital |
|
95,020,808 |
|
|
|
94,524,608 |
|
Retained earnings unappropriated |
|
185,608,445 |
|
|
|
255,572,431 |
|
Retained earnings appropriated |
|
24,233,544 |
|
|
24,233,544 |
|
Accumulated other comprehensive income/(loss) |
|
(10,478,048 |
) |
|
|
8,162,958 |
|
Total
Stockholders’ Equity |
|
293,853,404 |
|
|
|
381,962,196 |
|
Total
Liabilities and Stockholders’ Equity |
$ |
298,546,790 |
|
|
$ |
387,499,423 |
|
GULF RESOURCES, INC. |
|
AND SUBSIDIARIES |
|
CONSOLIDATED STATEMENTS OF INCOME (LOSS) AND
COMPREHENSIVE INCOME (LOSS) |
|
(Expressed in U.S. dollars) |
|
|
Years Ended December 31, |
|
2018 |
|
|
2017 |
|
NET REVENUE |
|
|
|
|
|
Net revenue |
$ |
2,594,941 |
|
|
$ |
107,522,441 |
|
|
|
|
|
|
|
|
|
OPERATING
INCOME/(EXPENSE) |
|
|
|
|
|
|
|
Cost of
net revenue |
|
(1,310,272 |
) |
|
|
(63,157,090 |
) |
Sales,
marketing and other operating expenses |
|
(66,111 |
) |
|
|
(278,600 |
) |
Research
and development cost |
|
— |
|
|
|
(195,195 |
) |
Write-off
/ Impairment on property, plant and equipment |
|
(1,397,313 |
) |
|
|
(17,581,244 |
) |
Loss on
demolition of factories |
|
(18,644,473 |
) |
|
|
— |
|
Direct
labor and factory overheads incurred during plant shutdown |
|
(21,081,692 |
) |
|
|
(6,883,557 |
) |
Write-off
of prepaid land lease |
|
(4,004,788 |
) |
|
|
— |
|
Goodwill
impairment loss |
|
(27,966,050 |
) |
|
|
— |
|
General
and administrative expenses |
|
(11,268,800 |
) |
|
|
(8,536,757 |
) |
Other
operating income (loss) |
|
(407,973 |
) |
|
|
281,613 |
|
|
|
(86,147,472 |
) |
|
|
(96,350,830 |
) |
|
|
|
|
|
|
|
|
INCOME/(LOSS) FROM
OPERATIONS |
|
(83,552,531 |
) |
|
|
11,171,611 |
|
|
|
|
|
|
|
|
|
OTHER
INCOME/(EXPENSE) |
|
|
|
|
|
Interest
expense |
|
(160,422 |
) |
|
|
(164,321 |
) |
Interest
income |
|
661,112 |
|
|
|
556,163 |
|
|
|
500,690 |
|
|
|
391,842 |
|
INCOME/(LOSS) BEFORE
INCOME TAXES |
|
(83,051,841 |
) |
|
|
11,563,453 |
|
|
|
|
|
|
|
|
|
INCOME/(TAXES)
BENEFIT |
|
13,087,855 |
|
|
|
(3,610,140 |
) |
|
|
|
|
|
|
|
|
NET INCOME/(LOSS) |
$ |
(69,963,986 |
) |
|
$ |
7,953,313 |
|
|
|
|
|
|
|
|
|
COMPREHENSIVE
INCOME/(LOSS) |
|
|
|
|
|
|
|
NET INCOME/(LOSS) |
|
(69,963,986 |
) |
|
|
7,953,313 |
|
OTHER COMPREHENSIVE
INCOME/(LOSS) |
|
|
|
|
|
|
|
- Foreign currency
translation adjustments |
|
(18,641,006 |
) |
|
|
24,157,485 |
|
|
|
|
|
|
|
|
|
COMPREHENSIVE
INCOME/(LOSS) |
$ |
(88,604,992 |
) |
|
$ |
32,110,798 |
|
|
|
|
|
|
|
|
|
EARNINGS/(LOSS) PER
SHARE |
|
|
|
|
|
BASIC |
$ |
(1.49 |
) |
|
$ |
0.17 |
|
DILUTED |
$ |
(1.49 |
) |
|
$ |
0.17 |
|
|
|
|
|
|
|
|
|
WEIGHTED AVERAGE NUMBER
OF SHARES |
|
|
|
|
|
BASIC |
|
46,803,791 |
|
|
|
46,796,476 |
|
DILUTED |
|
46,803,791 |
|
|
|
46,835,830 |
|
GULF RESOURCES, INC. |
|
AND SUBSIDIARIES |
|
CONSOLIDATED STATEMENTS OF CASH FLOWS |
|
(Expressed in U.S. dollars) |
|
|
Years Ended December 31, |
|
2018 |
|
2017 |
CASH FLOWS FROM
OPERATING ACTIVITIES |
|
|
|
|
|
|
|
Net income/(loss) |
$ |
(69,963,986 |
) |
|
$ |
7,953,313 |
|
Adjustments to
reconcile net income to net cash provided by operating
activities: |
|
|
|
|
|
|
|
Interest
on capital lease obligation |
|
159,839 |
|
|
|
163,184 |
|
Amortization of prepaid land leases |
|
761,713 |
|
|
|
982,108 |
|
Depreciation and amortization |
|
17,443,318 |
|
|
|
20,197,313 |
|
Allowance
for obsolete and slow-moving inventories |
|
21,248 |
|
|
|
43,921 |
|
Write-off
/ Impairment loss on property, plant and equipment |
|
1,397,313 |
|
|
|
17,581,244 |
|
Write-off
of Prepaid land lease |
|
4,004,788 |
|
|
|
— |
|
Loss on
demolition of factories |
|
18,644,473 |
|
|
|
— |
|
Goodwill
impairment loss |
|
27,966,050 |
|
|
|
— |
|
Unrealized translation difference |
|
(1,315,454 |
) |
|
|
1,557,759 |
|
Deferred
tax asset |
|
(13,087,855 |
) |
|
|
(4,126,947 |
) |
Stock-based compensation expense-options |
|
496,200 |
|
|
|
372,400 |
|
Treasury
stock issued for services |
|
— |
|
|
|
17,800 |
|
Changes in assets and
liabilities |
|
|
|
|
|
|
|
Accounts
receivable |
|
30,241,680 |
|
|
|
26,110,087 |
|
Other
receivables |
|
(11,289 |
) |
|
|
(580 |
) |
Inventories |
|
1,192,262 |
|
|
|
4,883,850 |
|
Prepayment and deposits |
|
(81,469 |
) |
|
|
(1,389,367 |
) |
Accounts
payable and accrued expenses |
|
(106,163 |
) |
|
|
(8,203,290 |
) |
Retention
payable |
|
(597,991 |
) |
|
|
206,211 |
|
Taxes
payable |
|
175,994 |
|
|
|
(3,597,390 |
) |
Net cash provided by operating activities |
|
17,340,671 |
|
|
|
62,751,616 |
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM
INVESTING ACTIVITIES |
|
|
|
|
|
|
|
Additions of prepaid
land leases |
|
(680,975 |
) |
|
|
(10,481,323 |
) |
Purchase of property,
plant and equipment |
|
(35,273,307 |
) |
|
|
(17,938,652 |
) |
Net cash used
in investing activities |
|
(35,954,282 |
) |
|
|
(28,419,975 |
) |
|
|
|
|
|
|
|
|
CASH FLOWS FROM
FINANCING ACTIVITIES |
|
|
|
|
|
|
|
Repayment of capital
lease obligation |
|
(294,295 |
) |
|
|
(273,873 |
) |
Net cash used
in financing activities |
|
(294,295 |
) |
|
|
(273,873 |
) |
|
|
|
|
|
|
|
|
EFFECTS OF EXCHANGE
RATE CHANGES ON CASH AND CASH EQUIVALENTS |
|
(10,999,918 |
) |
|
|
10,964,417 |
|
NET INCREASE/(DECREASE)
IN CASH AND CASH EQUIVALENTS |
|
(29,907,824 |
) |
|
|
45,022,185 |
|
CASH AND CASH
EQUIVALENTS - BEGINNING OF YEAR |
|
208,906,759 |
|
|
|
163,884,574 |
|
CASH AND CASH
EQUIVALENTS - END OF YEAR |
$ |
178,998,935 |
|
|
$ |
208,906,759 |
|
GULF RESOURCES, INC. |
|
AND SUBSIDIARIES |
|
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) |
|
(Expressed in U.S. dollars) |
|
|
Years Ended December 31, |
|
2018 |
|
2017 |
SUPPLEMENTAL DISCLOSURE
OF CASH FLOW INFORMATION |
|
|
|
|
|
|
|
Cash paid during the
year for: |
|
|
|
|
|
|
|
Income
taxes |
$ |
— |
|
|
$ |
11,113,143 |
|
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