See accompanying notes to the condensed consolidated financial
statements.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
MARCH 31, 2019
(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 quarter ended March 31, 2019 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, 2018. 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 the areas including classification of leases
and related party transactions.
The consolidated financial statements include
the accounts of Gulf Resources, Inc. and its wholly-owned subsidiary, Upper Class Group Limited, a company incorporated in the
British Virgin Islands, which owns 100% of Hong Kong Jiaxing Industrial Limited, a company incorporated in Hong Kong (“HKJI”).
HKJI owns 100% of Shouguang City Haoyuan Chemical Company Limited ("SCHC") which owns 100% of Shouguang Yuxin Chemical
Industry Co., Limited (“SYCI”) and Daying County Haoyuan Chemical Company Limited (“DCHC”). All
material intercompany transactions have been eliminated on consolidation.
(b) Nature
of the Business
The Company manufactures and trades bromine
and crude salt through its wholly-owned subsidiary, Shouguang City Haoyuan Chemical Company Limited ("SCHC") and manufactures
chemical products for use in the oil industry, pesticides, paper manufacturing industry and for human and animal antibiotics through
its wholly-owned subsidiary, Shouguang Yuxin Chemical Industry Co., Limited ("SYCI") in the People’s Republic of
China (“PRC”). Daying County Haoyuan Chemical Company Limited (“DCHC”) was established to further explore
and develop natural gas and brine resources (including bromine and crude salt) in the PRC. DCHC’s business commenced trial
production in January 2019.
On September 1, 2017, the Company received
notification from the Government of Yangkou County, Shouguang City of PRC that production at all its factories should be halted
with immediate effect in order for the Company to perform rectification and improvement in accordance with the county’s new
safety and environmental protection requirements.
The Company worked closely with the county
authorities to develop rectification plans for both its bromine and crude salt businesses and agreed on a plan in October 2017.
In the fiscal year ended December 31, 2018, the Company incurred $16,243,677 in the rectification and improvements of plant and
equipment of the bromine and crude salt factories resulting in a cumulative amount of $34,182,329 incurred as of December 31, 2018
recorded in the plant, property and equipment in the consolidated balance sheet. No such costs were incurred in the three-month
period ended March 31, 2019 and the Company does not expect to incur any additional capital expenditure in the rectification of
its bromine and crude salt factories in respect of meeting the county's new safety and environmental protection requirement.
Originally, six bromine factories
completed their rectification process within the factory areas (i.e. excluding crude salt field area) and were approved and scheduled
for production commencement by April 2018 as verbally indicated by the local government. Subsequently, the Shandong Provincial
government required the local government to conduct “four rating and one comprehensive evaluation” of all of the chemical
companies within its jurisdiction. This has delayed the production commencement schedule of the six bromine and crude salt factories.
Subsequently on June 29, 2018, the Company
received a formal notice (dated June 25, 2018) jointly issued by various provincial government agencies in Shandong Province (the
“Notice”) forwarded by the Weifang City Special Operations Leading Group Office of Safe Production, Transformation
and Upgrading of Chemical Industry. In the Notice, the provincial government agencies set forth further requirements and procedures
covering the following four aspects for the chemical industrial enterprises: project approval, planning approval, land use rights
approval and environmental protection assessment approval. Those standards and procedures apply to all chemical industrial enterprises
in Shandong Province including the Company’s bromine plants that have not completed project approval procedures, planning
approval procedures, land use rights approval procedures and environmental protection assessment procedures. The Company believes
that the government will not grant approval to the Company to allow its bromine and crude salt plants to resume operations until
the Company has fully complied with the aforesaid rules set forth in the Notice.
The Shouguang City Bromine Association,
on behalf of all the bromine plants in Shouguang, started discussions with the local government agencies subsequent to the issuance
of the above notice dated June 25, 2018. 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.
The Company is not certain how long the
temporary delay will be due to the issuance and implementation of the Notice. The Company believes that this is another step by
the government to improve the environment. It further believes the goal of the government is not to close all plants, but rather
to codify the regulations related to project approval, land use, planning approval and environmental protection assessment approval
so that illegal plants are not able to open in the future and 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 government applies the Notice in a consistent manner.
On September 21, 2018, the Company received
a closing notice from the People's Government of Yangkou Town, Shouguang City informing it that its three bromine factories (Number
3, Number 4, and Number 11.) are not allowed to resume production and hence the Company has to demolish these factories. The crude
salt fields surrounding these factories have been reclaimed as cultivated or construction land and hence did not meet the requirement
for bromine and crude salt co-production set by the relevant authority.
The Company entered into a contract with
a third party to allow the Company to use the land adjacent to Factory No. 10 for waste water discharge and invested $1.0 million
to build a aqueduct to discharge the waste water to a designated place for treatment by a designated party. This project was completed
as of December 31, 2018.
The Company believes the issues
related to the remaining seven bromine and crude salt factories which have passed inspection are almost resolved. The Company
is actively working with the local government to obtain the documentation for approval of project, planning, land use rights
and environmental protection evaluation. In April 2019, Subdivision of Factory No. 1 and No. 7 (the combination of Factory
No. 5 and Factory No. 7) started operations (See Note 20).
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.
The Company believes this relocation process
will cost approximately $60 million in total. The Company incurred relocation costs comprising prepaid land lease and professional
fees related to the design of the new chemical factory in the amount of $10,925,081, which were recorded in the prepaid land leases
and property, plant and equipment in the consolidated balance sheets as of March 31, 2019 and December 31, 2018.
The Company does not anticipate that
the Company’s new chemical factory to be significantly impacted by the Notice. The Company has secured from the government
the land use rights for its chemical plants located at the Bohai Park and presented a completed construction design draft and other
related documents to the local authorities for approval. The Company is still waiting for the last approval report and is uncertain
when the approval will be issued. There could be a delay in the approval process given the ongoing rectification and approvals
process for the Company’s other plants. As the construction of the new factory cannot commence until the final approval from
the government is received, the delay in the receipt of the final approval will delay the commencement date of the construction
of the new factory.
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.
(c) Allowance
for Doubtful Accounts
As of March 31, 2019 and December 31, 2018,
allowances for doubtful accounts were nil. No allowances for doubtful accounts were charged to the condensed consolidated statements
of income for the three-month periods ended March 31, 2019 and 2018.
(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 $179,653,141 and $178,998,935 with these institutions as of March 31, 2019 and December 31, 2018,
respectively. The Company has not experienced any losses in such accounts in the PRC.
GULF RESOURCES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
MARCH 31, 2019
(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 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:
|
|
Useful life
(in years)
|
Buildings (including salt pans)
|
|
8 - 20
|
Plant and machinery (including protective shells, transmission channels and ducts)
|
|
3 - 8
|
Motor vehicles
|
|
5
|
Furniture, fixtures and equipment
|
|
3-8
|
Property, plant and equipment under the
capital lease are depreciated over their expected useful lives on the same basis as owned assets, or where shorter, the term of
the lease.
Producing oil and gas properties are depreciated
on a unit-of-production basis over the proved developed reserves. Common facilities that are built specifically to service production
directly attributed to designated oil and gas properties are depreciated based on the proved developed reserves of the respective
oil and gas properties on a pro-rata basis. Common facilities that are not built specifically to service identified oil and gas
properties are depreciated using the straight-line method over their estimated useful lives. Costs associated with significant
development projects are not depreciated until commercial production commences and the reserves related to those costs are excluded
from the calculation of depreciation.
(f) Retirement
Benefits
Pursuant to the relevant laws and regulations
in the PRC, the Company participates in a defined contribution retirement plan for its employees arranged by a governmental organization.
The Company makes contributions to the retirement plan at the applicable rate based on the employees’ salaries. The required
contributions under the retirement plans are charged to the condensed consolidated statement of income on an accrual basis when
they are due. The Company’s contributions totaled $310,937 and $302,418 for the three-month periods ended March 31, 2019
and 2018, 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.
GULF RESOURCES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
MARCH 31, 2019
(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-month period ended March
31, 2019 and 2018, the Company determined that there were no events or circumstances indicating possible additional impairment
of its long-lived assets.
(i) Basic
and Diluted Net Income per Share of Common Stock
Basic earnings per common share are based
on the weighted average number of shares outstanding during the periods presented. Diluted earnings per share are computed
using weighted average number of common shares plus dilutive common share equivalents outstanding during the period. Potential
common shares that would have the effect of increasing diluted earnings per share are considered to be anti-dilutive, i.e. the
exercise prices of the outstanding stock options were greater than the market price of the common stock. Anti-dilutive common stock
equivalents which were excluded from the calculation of number of dilutive common stock equivalents amounted to 337,991 and 75,614
shares for the three-month periods ended March 31, 2019 and 2018, respectively.
The following table sets forth the computation
of basic and diluted earnings per share:
|
|
Three-Month Period Ended
March 31,
|
|
|
2019
|
|
2018
|
Numerator
|
|
|
|
|
Net loss
|
|
$
|
(4,904,138
|
)
|
|
$
|
(6,977,100
|
)
|
|
|
|
|
|
|
|
|
|
Denominator
|
|
|
|
|
|
|
|
|
Basic: Weighted-average common shares outstanding during the period
|
|
|
46,886,558
|
|
|
|
46,803,791
|
|
Add: Dilutive effect of stock options
|
|
|
—
|
|
|
|
22,597
|
|
Diluted
|
|
|
46,886,558
|
|
|
|
46,826,388
|
|
|
|
|
|
|
|
|
|
|
Net loss per share
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.10
|
)
|
|
$
|
(0.15
|
)
|
Diluted
|
|
$
|
(0.10
|
)
|
|
$
|
(0.15
|
)
|
GULF RESOURCES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
MARCH 31, 2019
(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 income.
The statement of income and comprehensive income is translated at average rate during the reporting period. Gains or losses resulting
from transactions in currencies other than the functional currencies are recognized in net income for the reporting periods as
part of general and administrative expense. The statement of cash flows is translated at average rate during the reporting period,
with the exception of the consideration paid for the acquisition of business which is translated at historical rates.
(k) Foreign
Operations
All of the Company’s operations and
assets are located in PRC. The Company may be adversely affected by possible political or economic events in this country. The
effect of these factors cannot be accurately predicted.
(l) Exploration
Costs
Exploration costs, which included the cost
of researching appropriate places to drill wells and the cost of well drilling in search of potential natural brine or other resources,
are charged to the income statement as incurred. Once the commercial viability of a project has been confirmed, all subsequent
costs are capitalized.
For oil and gas properties, the successful
efforts method of accounting is adopted. The Company carries exploratory well costs as an asset when the well has found a sufficient
quantity of reserves to justify its completion as a producing well and where the Company is making sufficient progress assessing
the reserves and the economic and operating viability of the project. Exploratory well costs not meeting these criteria are charged
to expenses. Exploratory wells that discover potentially economic reserves in areas where major capital expenditure will be required
before production would begin and when the major capital expenditure depends upon the successful completion of further exploratory
work remain capitalized and are reviewed periodically for impairment.
(m) 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.
(n) Stock-based Compensation
Common stock, stock options and stock warrants
issued are recorded at their fair values estimated at grant date using the Black-Scholes model and the portion that is ultimately
expected to vest is recognized as compensation cost over the requisite service period.
The Company has elected to account for
the forfeiture of stock-based awards as they occur.
(o) New
Accounting Pronouncements
Recent accounting pronouncements adopted
In February 2016, the FASB issued ASU
No. 2016-02, Leases (Topic 842). The amendments in this Update specify the accounting for leases. The core principle of Topic
842 is that a lessee should recognize the assets and liabilities that arise from operating leases. The Company adopted the
standard effective January 1, 2019 under the optional transition method which allows an entity to apply the new lease
standard at the adoption date and recognize a cumulative-effect adjustment, if any, to the opening balance of retained
earnings in the period of adoption. The Company elected the available practical expedients. As a result of the adoption of
this standard, the Company recognized operating lease ROU assets of $9,520,317, operating lease liabilities of $8,952,252,
and the remaining balance in the other payable and accrued expense, and prepaid land lease in the condensed
consolidated financial statements as of March 31, 2019 with no cumulative-effect adjustment to retained earnings as of
January 1, 2019.
In June 2018, the FASB issued ASU No.2018-07,
Compensation- Stock Compensation (Topic 718). Improvements to Nonemployee Share-Based Payment Accounting. The amendments in this
update expand the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees.
Prior to this update, Topic 718 applied only to share-based transactions to employees. Consistent with the accounting requirements
for employee share-based payment awards, nonemployee share-based payment awards within the scope of Topic 718 are measured at grant-date
fair value of the equity instruments that an entity is obligated to issue when the good has been delivered or the service has been
rendered and any other conditions necessary to earn the right to benefit from the instruments have been satisfied. The amendments
in the Update are effective for public business entities form fiscal years beginning after December 15, 2018, including interim
periods within that fiscal year. The Company adopted this standard as of January 1, 2019. This adoption of this standard does not
have a material impact on the Company’s condensed consolidated financial statements.
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. The Company is currently evaluating the effect of this on the condensed consolidated financial statements
and related disclosure.
GULF RESOURCES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
MARCH 31, 2019
(Expressed in U.S. dollars)
(UNAUDITED)
NOTE 2 – INVENTORIES
Inventories consist of:
|
|
March 31,
2019
|
|
December 31,
2018
|
|
|
|
|
|
Finished goods
|
|
$
|
66,426
|
|
|
$
|
65,169
|
|
Allowance for obsolete and slow-moving inventory
|
|
|
(66,426
|
)
|
|
|
(65,169
|
)
|
|
|
$
|
—
|
|
|
$
|
—
|
|
NOTE 3 – PREPAID LAND LEASES
The Company has the rights to use certain
parcels of land located in Shouguang, the PRC, through lease agreements signed with local townships or the government authority.
The production facilities and warehouses of the Company are located on these parcels of land. The lease term ranges from ten to
fifty years. Some of the lease contracts were paid in one lump sum upfront and some are paid annually at the beginning of each
anniversary date. These leases have no purchase option at the end of the lease term and were classified as operating lease prior
to and as of January 1, 2019 when the new lease standard was adopted. Prior to January 2019, the prepaid land lease was amortized
on a straight line basis. As of January 1, 2019, all these leases that have commenced were classified as operating lease right-of-use
assets (“ROU”). See Note 6.
In December 2017, the Company paid a one
lump sum upfront amount of $9,442,047 for a 50-year lease of a parcel of land at Bohai Marine Fine Chemical Industrial Park (“Bohai”)
for the new chemical factory to be built. There is no purchase option at the end of the lease term. This was classified as an operating
lease prior to and as of January 1, 2019. The land use certificate is being processed by the government and the commencement date
of the lease will be known upon completion of the application process. Since the construction plan of the factory at Bohai is still
in the process of being approved by the government and the lease term of the land has not commenced, the Company classified the
lease payment in prepaid land lease instead of Right-of –use assets. No amortization of this prepaid land lease was recorded
as of March 31, 2019.
During the three-month period ended March
31, 2018, amortization of prepaid land lease totaled $144,097 was recorded as direct labor and factory overheads incurred during
plant shutdown.
For parcels of land that are collectively
owned by local townships, the Company cannot obtain land use rights certificates. The parcels of land of which the Company cannot
obtain land use rights certificates cover a total of approximately 38.6 square kilometers of aggregate carrying value of $599,747
as at December 31, 2018.
GULF RESOURCES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
MARCH 31, 2019
(Expressed in U.S. dollars)
(UNAUDITED)
NOTE 4 – PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment, net consist of the following:
|
|
March 31,
2019
|
|
December 31,
2018
|
At cost:
|
|
|
|
|
|
|
|
|
Mineral rights
|
|
$
|
2,864,171
|
|
|
$
|
2,809,977
|
|
Buildings
|
|
|
62,040,345
|
|
|
|
60,866,462
|
|
Plant and machinery
|
|
|
164,283,763
|
|
|
|
161,178,816
|
|
Motor vehicles
|
|
|
6,350
|
|
|
|
6,230
|
|
Furniture, fixtures and office equipment
|
|
|
3,352,442
|
|
|
|
3,289,010
|
|
Construction in process
|
|
|
16,077,711
|
|
|
|
6,535,808
|
|
Total
|
|
|
248,624,782
|
|
|
|
234,686,303
|
|
Less: Accumulated depreciation and amortization
|
|
|
(140,597,289
|
)
|
|
|
(134,681,628
|
)
|
Impairment
|
|
|
(18,063,835
|
)
|
|
|
(17,722,045
|
)
|
Net book value
|
|
$
|
89,963,658
|
|
|
$
|
82,282,630
|
|
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 $19,631,699 and $20,409,998 as at March
31, 2019 and December 31, 2018, respectively.
During the three-month period ended March
31, 2019, depreciation and amortization expense totaled $3,311,907, of which $3,066,896, $224,830 and $20,181were recorded in direct
labor and factory overheads incurred during plant shutdown and administrative expenses and cost of net revenue, respectively.
During the three-month period ended March
31, 2018, depreciation and amortization expense totaled $4,688,248, of which $4,504,249 and $183,999 were recorded in direct labor
and factory overheads incurred during plant shutdown and administrative expenses, respectively.
NOTE 5 – FINANCE LEASE RIGHT-OF-USE ASSETS
Property, plant and equipment under finance lease, net consist
of the following:
|
|
March 31,
2019
|
|
December 31,
2018
|
At cost:
|
|
|
|
|
|
|
|
|
Buildings
|
|
$
|
122,211
|
|
|
$
|
119,899
|
|
Plant and machinery
|
|
|
2,235,677
|
|
|
|
2,193,375
|
|
Total
|
|
|
2,357,888
|
|
|
|
2,313,274
|
|
Less: Accumulated depreciation and amortization
|
|
|
(2,167,760
|
)
|
|
|
(2,062,517
|
)
|
Net book value
|
|
$
|
190,128
|
|
|
$
|
250,757
|
|
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-month period ended March
31, 2019, depreciation and amortization expense totaled $65,342, which was recorded in direct labor and factory overheads incurred
during plant shutdown. During the three-month period ended March 31, 2018, depreciation and amortization expense totaled $69,282,
which was recorded in direct labor and factory overheads incurred during plant shutdown.
GULF RESOURCES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
MARCH 31, 2019
(Expressed in U.S. dollars)
(UNAUDITED)
NOTE 6 – OPERATING LEASE RIGHT-OF
USE ASSETS
As of March 31, 2019, the total operating
lease ROU assets was $9,520,317. The total operating lease cost for the three-month period ended March 31, 2019 and 2018 was $227,219
and $281,613.
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 $9,520,317 as at March 31, 2019.
NOTE 7 – OTHER PAYABLE AND ACCRUED
EXPENSES
Other payable and accrued expenses consist
of the following:
|
|
March 31,
|
|
December 31,
|
|
|
2019
|
|
2018
|
Salary payable
|
|
$
|
246,155
|
|
|
$
|
241,343
|
|
Social security insurance contribution payable
|
|
|
143,033
|
|
|
|
140,326
|
|
Other payable-related party (see Note 8)
|
|
|
23,162
|
|
|
|
90,900
|
|
Accrued expense-construction
|
|
|
2,637,910
|
|
|
|
104,246
|
|
Accrued expense-others
|
|
|
382,944
|
|
|
|
328,443
|
|
Total
|
|
$
|
3,433,204
|
|
|
$
|
905,258
|
|
NOTE 8 – RELATED PARTY TRANSACTIONS
During the three-month period ended March
31, 2019, the Company borrowed a sum of $60,000 from Jiaxing Lighting Appliance Company Limited (Jiaxing Lighting”), in which
Mr. Ming Yang, a shareholder and the Chairman of the Company, has a 100% equity interest. The amount due to Jiaxing Lighting was
unsecured, interest free and repayable on demand and was fully settled in the three-month period ended March 31, 2019. There was
no balance owing to Jiaxing Lighting as of March 31, 2019 and December 31, 2018.
On September 25, 2012, the Company purchased
five floors of a commercial building in the PRC, through SYCI, from Shandong Shouguang Vegetable Seed Industry Group Co., Ltd.
(the “Seller”) at a cost of approximately $5.7 million in cash, of which Mr. Ming Yang, the Chairman of the Company,
had a 99% equity interest in the Seller. During the first quarter of 2018, the Company entered into an agreement with the Seller,
a related party, to provide property management services for an annual amount of approximately $92,650 for five years from January
1, 2018 to December 31, 2022. The expense associated with this agreement for the three months ended March 31, 2019 and 2018 was
approximately $23,162 and $24,500. The amounting owing for the property management services as of March 31, 2019 and December 31,
2018 was $23,162 and $90,900 (See Note 7).
NOTE 9 – TAXES PAYABLE
Taxes payable relates to land use tax payable
of $807,742 and $1,188,687 as of March 31, 2019 and December 31, 2018.
NOTE 10 –LEASE LIABILITIES-FINANCE
AND OPERATING LEASE
The components of finance lease liabilities
were as follows:
|
|
Imputed
|
|
March 31,
|
|
December 31,
|
|
|
Interest rate
|
|
2019
|
|
2018
|
Total finance lease liability
|
|
6.7%
|
|
$
|
2,349,480
|
|
|
$
|
2,267,025
|
|
Less: Current portion
|
|
|
|
|
(240,021
|
)
|
|
|
(197,480
|
)
|
Finance lease liability, net of current portion
|
|
|
|
$
|
2,109,459
|
|
|
$
|
2,069,545
|
|
Interest expenses from a finance lease
liability amounted to $38,659 and $41,797 for the three-month periods ended March 31, 2019 and 2018, respectively, were charged
to the condensed consolidated statement of loss. The remaining finance lease term at March 31, 2019 was 12 years.
The components of operating lease liabilities
as follows:
|
|
Imputed
|
|
March 31,
|
|
December 31,
|
|
|
Interest rate
|
|
2019
|
|
2018
|
Total Operating lease liabilities
|
|
4.89%
|
|
$
|
8,952,252
|
|
|
$
|
—
|
|
Less: Current portion
|
|
|
|
|
(416,656
|
)
|
|
|
—
|
|
Operating lease liabilities, net of current portion
|
|
|
|
$
|
8,535.596
|
|
|
$
|
—
|
|
The weighted average remaining operating
lease term at March 31, 2019 was 23 years and the weighted average discounts rate was 4.89%.
Maturities of lease liabilities were as
follows:
|
|
Financial lease
|
|
Operating Lease
|
Payable within:
|
|
|
|
|
|
|
|
|
the next 12 months
|
|
$
|
278,753
|
|
|
$
|
797,083
|
|
the next 13 to 24 months
|
|
|
278,753
|
|
|
|
809,731
|
|
the next 25 to 36 months
|
|
|
278,753
|
|
|
|
656,344
|
|
the next 37 to 48 months
|
|
|
278,753
|
|
|
|
661,798
|
|
the next 49 to 60 months
|
|
|
278,753
|
|
|
|
660,863
|
|
thereafter
|
|
|
1,951,274
|
|
|
|
12,484,462
|
|
Total
|
|
|
3,345,039
|
|
|
|
16,070,281
|
|
Less: Amount representing interest
|
|
|
(995,559
|
)
|
|
|
(7,118,029
|
)
|
Present value of net minimum lease payments
|
|
$
|
2,349,480
|
|
|
$
|
8,952,252
|
|
GULF RESOURCES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
MARCH 31, 2019
(Expressed in U.S. dollars)
(UNAUDITED)
NOTE 11 –EQUITY
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 March 31,
2019 for SCHC, SYCI and DCHC is 46%, 14% and 0% of its registered capital respectively.
NOTE 12 – TREASURY STOCK
In January 2019, the Company issued 20,000
shares of common stock from the treasury shares to one of its consultants. The shares were valued at the closing market price on
the date of the agreement and recorded as general and administrative expense in the condensed consolidated statements of income
and comprehensive income for the three months ended March 31, 2019. The shares issued were deducted from the treasury shares at
weighted average cost and the excess of the cost over the closing market price was charged to additional paid-in-capital.
NOTE 13 – STOCK-BASED COMPENSATION
Pursuant to the Company’s Amended and Restated 2007 Equity
Incentive Plan approved in 2011(“Plan”), the aggregate number shares of the Company’s common stock available
for grant of stock options and issuance is 4,341,989 shares. On October 5, 2015, during the annual meeting of the Company’s
stockholders, the aggregate number of shares reserved and available for grant and issuance pursuant to the Plan was increased to
10,341,989. As of March 31, 2019, the number of shares of the Company’s common stock available for issuance under the Plan
is 5,017,989.
The fair value of each option award is
estimated on the date of grant using the Black-Scholes option-pricing model. The risk free rate is based on the yield-to-maturity
in continuous compounding of the US Government Bonds with the time-to-maturity similar to the expected tenor of the option granted,
volatility is based on the annualized historical stock price volatility of the Company, and the expected life is based on the historical
option exercise pattern.
During the three months ended March 31, 2019, there were no
options issued to employees or non-employees.
The following table summarizes all Company
stock option transactions between January 1, 2019 and March 31, 2019.
|
|
Number of Option
and Warrants
Outstanding and exercisable
|
|
Weighted- Average Exercise price of Option
and Warrants
|
|
Range of
Exercise Price per Common Share
|
Balance, January 1, 2019
|
|
|
2,518,000
|
|
|
$
|
0.97
|
|
|
|
$0.71 - $4.80
|
|
Exercised during the period ended March 31, 2019
|
|
|
(245,000
|
)
|
|
$
|
0.71
|
|
|
$
|
0.71
|
|
Expired during the period ended March 31, 2019
|
|
|
(12,500
|
)
|
|
$
|
1.78
|
|
|
$
|
1.78
|
|
Balance, March 31, 2019
|
|
|
2,260,500
|
|
|
$
|
0.99
|
|
|
|
$0.71 - $4.80
|
|
Stock and Warrants Options Exercisable and Outstanding
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
|
|
|
Remaining
|
|
|
Outstanding at March 31, 2019
|
|
Range of
Exercise Prices
|
|
Contractual Life
(Years)
|
Exercisable and outstanding
|
|
|
2,260,500
|
|
|
|
$0.71 - $4.80
|
|
|
|
3.14
|
|
The aggregate intrinsic value of options outstanding and exercisable
as of March 31, 2019 was $546,924.
During the three months ended March 31,
2019, 96,969 shares of common stock were issued upon cashless exercise of 245,000 options.
The aggregate intrinsic value of options
exercised during the quarter ended March 31, 2019 was $114,415. There was no option exercised during the quarter ended March 31,
2018.
GULF RESOURCES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
MARCH 31, 2019
(Expressed in U.S. dollars)
(UNAUDITED)
NOTE 14 – INCOME TAXES
The Company utilizes the asset and liability
method of accounting for income taxes in accordance with FASB ASC 740-10.
(a) United
States (“US”)
Gulf Resources, Inc. may be subject to
the United States of America Tax laws at a tax rate of 21%. No provision for the US federal income taxes has been made as the Company
had no US taxable income for the three-month periods ended March 31, 2019 and 2018, and management believes that its earnings are
permanently invested in the PRC.
On December 22, 2017, the Tax Cuts and
Jobs Act (“TCJA”) was enacted in law. With the new tax law, the corporation income tax rate is reduced from 35% to
21% and there is a one-time mandatory transition tax on accumulated foreign earnings. The Company computed this one-time mandatory
transition tax on accumulated foreign earnings to be approximately $5.4 million. However, as the Company has available US federal
net operating loss carry forwards and foreign tax credit to fully offset the mandatory inclusion of the accumulated foreign earnings,
no net tax liability arose from the inclusion of these accumulated foreign earnings.
(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 periods ended March
31, 2019 and 2018.
(c) Hong
Kong
Hong Kong Jiaxing Industrial Limited, a
subsidiary of Upper Class Group Limited, was incorporated in Hong Kong and is subject to Hong Kong profits tax. The Company
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 profits tax has been made as the Company has no assessable income for the three-month periods ended March 31, 2019
and 2018. The applicable statutory tax rates for the three-month periods ended March 31, 2019 and 2018 are 16.5%.
(d) PRC
Enterprise income tax (“EIT”)
for SCHC, SYCI and DCHC in the PRC is charged at 25% of the assessable profits.
The operating subsidiaries SCHC, SYCI and
DCHC are wholly foreign-owned enterprises (“FIE”) incorporated in the PRC and are subject to PRC Local Income Tax Law.
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 March 31, 2019 and December 31, 2018,
the accumulated distributable earnings under the Generally Accepted Accounting Principles (GAAP”) of PRC that are subject
to WHT are $236,694,242 and $240,563,868, 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 March 31, 2018 and December 31, 2017, the Company has not recorded any
WHT on the cumulative amount of distributable retained earnings of its foreign invested enterprises that are subject to WHT in
China. As of March 31, 2019 and December 31, 2018, the unrecognized WHT are $10,823,223 and $11,035,843, respectively.
The Company’s income tax returns
are subject to the various tax authorities’ examination. The federal, state and local authorities of the United States may
examine the Company’s income tax returns filed in the United States for three years from the date of filing. The Company’s
US income tax returns since 2015 are currently subject to examination.
Inland Revenue Department of Hong Kong
(“IRD”) may examine the Company’s income tax returns filed in Hong Kong for seven years from date of filing.
For the years 2012 through 2018, HKJI did not report any taxable income. It did not file any income tax returns during these years
except for 2014 and 2018. For companies which do not have taxable income, IRD typically issues notification to companies requiring
them to file income tax returns once in every four years. The tax returns for 2014 and 2018 are currently subject to examination.
The components of the provision for income
tax benefit from continuing operations are:
|
|
Three-Month Period Ended March31,
|
|
|
2019
|
|
2018
|
|
|
|
|
|
Current taxes – PRC
|
|
$
|
—
|
|
|
$
|
—
|
|
Deferred tax – PRC
|
|
|
(1,395,137
|
)
|
|
|
(1,193,746
|
)
|
|
|
$
|
(1,395,137
|
)
|
|
$
|
(1,193,746
|
)
|
GULF RESOURCES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
MARCH 31, 2019
(Expressed in U.S. dollars)
(UNAUDITED)
NOTE 14 – INCOME TAXES – Continued
The effective income tax benefit differ
from the PRC statutory income tax rate of 25% from continuing operations in the PRC as follows:
|
|
Three-Month Period Ended March 31,
|
Reconciliations
|
|
2019
|
|
2018
|
Statutory income tax rate
|
|
|
25
|
%
|
|
|
25
|
%
|
Non-deductible expense and change in valuation allowance
|
|
|
(3
|
%)
|
|
|
(10
|
%)
|
Effective tax rate
|
|
|
22
|
%
|
|
|
15
|
%
|
Significant components of the Company’s
deferred tax assets and liabilities at March 31, 2019 and December 31, 2018 are as follows:
|
|
March 31,
|
|
December 31,
|
|
|
2019
|
|
2018
|
Deferred tax liabilities
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Allowance for obsolete and slow-moving inventories
|
|
$
|
16,607
|
|
|
$
|
16,292
|
|
Impairment on property, plant and equipment
|
|
|
3,675,218
|
|
|
|
3,696,332
|
|
Impairment on prepaid land lease
|
|
|
856,490
|
|
|
|
840,284
|
|
Exploration costs
|
|
|
1,848,950
|
|
|
|
1,813,965
|
|
Compensation costs of unexercised stock options
|
|
|
179,957
|
|
|
|
194,016
|
|
PRC tax losses
|
|
|
14,398,399
|
|
|
|
12,663,985
|
|
US federal net operating loss
|
|
|
148,000
|
|
|
|
119,000
|
|
Total deferred tax assets
|
|
|
21,123,621
|
|
|
|
19,343,874
|
|
Valuation allowance
|
|
|
(327,957
|
)
|
|
|
(313,016
|
)
|
Net deferred tax asset
|
|
$
|
20,795,664
|
|
|
$
|
19,030,858
|
|
The increase in valuation allowance for
the three-month period ended March 31, 2019 is $14,941.
The increase in valuation allowance for
the three-month period ended March 31, 2018 is $26,396.
There were no unrecognized tax benefits
and accrual for uncertain tax positions as of March 31, 2019 and December 31, 2018.
NOTE 15 – BUSINESS SEGMENTS
The Company has four reportable segments: bromine,
crude salt, chemical products and natural gas. The reportable segments are consistent with how management views the markets served
by the Company and the financial information that is reviewed by its chief operating decision maker.
GULF RESOURCES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
MARCH 31, 2019
(Expressed in U.S. dollars)
(UNAUDITED)
NOTE 15 – BUSINESS SEGMENTS – Continued
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 March 31, 2019
|
|
Bromine *
|
|
Crude
Salt *
|
|
Chemical
Products
|
|
Natural Gas
|
|
Segment
Total
|
|
Corporate
|
|
Total
|
Net revenue
(external customers)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
38,570
|
|
|
$
|
38,570
|
|
|
$
|
—
|
|
|
$
|
38,570
|
|
Net revenue
(intersegment)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Loss from operations before income taxes benefit
|
|
|
(3,625,014
|
)
|
|
|
(1,411,809
|
)
|
|
|
(673,550
|
)
|
|
|
(41,983
|
)
|
|
|
(5,752,356
|
)
|
|
|
(643,674
|
)
|
|
|
(6,396,030
|
)
|
Income tax benefit
|
|
|
(897,347
|
)
|
|
|
(352,952
|
)
|
|
|
(144,838
|
)
|
|
|
—
|
|
|
|
(1,395,137
|
)
|
|
|
—
|
|
|
|
(1,395,137
|
)
|
Loss from operations after income taxes benefit
|
|
|
(2,727,667
|
)
|
|
|
(1,058,857
|
)
|
|
|
(528,712
|
)
|
|
|
(41,983
|
)
|
|
|
(4,357,219
|
)
|
|
|
(643,674
|
)
|
|
|
(5,000,893
|
)
|
Total assets
|
|
|
124,257,161
|
|
|
|
38,212,093
|
|
|
|
146,602,776
|
|
|
|
1,888,494
|
|
|
|
310,960,524
|
|
|
|
19,094
|
|
|
|
310,979,618
|
|
Depreciation and amortization
|
|
|
2,118,077
|
|
|
|
1,105,108
|
|
|
|
117,388
|
|
|
|
36,676
|
|
|
|
3,377,249
|
|
|
|
—
|
|
|
|
3,377,249
|
|
Capital expenditures
|
|
|
2,528,111
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,528,111
|
|
|
|
—
|
|
|
|
2,528,111
|
|
Three-Month Period Ended March 31, 2018
|
|
Bromine *
|
|
Crude
Salt *
|
|
Chemical
Products
|
|
Natural Gas
|
|
Segment
Total
|
|
Corporate
|
|
Total
|
Net revenue
(external customers)
|
|
$
|
—
|
|
|
$
|
1,638,493
|
|
|
$
|
608,774
|
|
|
$
|
—
|
|
|
$
|
2,247,267
|
|
|
$
|
—
|
|
|
$
|
2,247,267
|
|
Net revenue
(intersegment)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Income (loss) from operations before income taxes(benefit)
|
|
|
(5,590,555
|
)
|
|
|
(807,884
|
)
|
|
|
(674,771
|
)
|
|
|
(35,655
|
)
|
|
|
(7,108,865
|
)
|
|
|
(1,188,115
|
)
|
|
|
(8,296,980
|
)
|
Income tax expense (benefit)
|
|
|
(1,391,152
|
)
|
|
|
(201,971
|
)
|
|
|
399,377
|
|
|
|
—
|
|
|
|
(1,193,746
|
)
|
|
|
—
|
|
|
|
(1,193,746
|
)
|
Income (loss) from operations after income taxes(benefit)
|
|
|
(4,199,403
|
)
|
|
|
(605,913
|
)
|
|
|
(1,074,148
|
)
|
|
|
(35,655
|
)
|
|
|
(5,915,119
|
)
|
|
|
(1,188,115
|
)
|
|
|
(7,103,234
|
)
|
Total assets
|
|
|
149,458,703
|
|
|
|
52,746,108
|
|
|
|
192,807,722
|
|
|
|
2,162,119
|
|
|
|
397,174,652
|
|
|
|
165,315
|
|
|
|
397,339,967
|
|
Depreciation and amortization
|
|
|
3,719,712
|
|
|
|
913,350
|
|
|
|
124,468
|
|
|
|
—
|
|
|
|
4,757,530
|
|
|
|
—
|
|
|
|
4,757,530
|
|
Capital expenditures
|
|
|
93,174
|
|
|
|
14,179
|
|
|
|
—
|
|
|
|
14,357
|
|
|
|
121,710
|
|
|
|
—
|
|
|
|
121,710
|
|
Goodwill
|
|
|
—
|
|
|
|
—
|
|
|
|
30,524,646
|
|
|
|
—
|
|
|
|
30,524,646
|
|
|
|
—
|
|
|
|
30,524,646
|
|
* 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.
GULF RESOURCES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
MARCH 31, 2019
(Expressed in U.S. dollars)
(UNAUDITED)
NOTE 15 – BUSINESS SEGMENTS – Continued
|
|
Three-Month Period Ended March 31,
|
Reconciliations
|
|
2019
|
|
2018
|
Total segment operating loss
|
|
$
|
(5,752,356
|
)
|
|
$
|
(7,108,865
|
)
|
Corporate costs
|
|
|
(140,446
|
)
|
|
|
(129,263
|
)
|
Unrealized loss on translation of intercompany balance
|
|
|
(503,228
|
)
|
|
|
(1,058,852
|
)
|
Loss from operations
|
|
|
(6,396,030
|
)
|
|
|
(8,296,980
|
)
|
Other income
|
|
|
96,755
|
|
|
|
126,134
|
|
Loss before income taxes
|
|
$
|
(6,299,275
|
)
|
|
$
|
(8,170,846
|
)
|
The following table shows the major customer(s)
(10% or more) for the three-month period ended March 31, 2018.
Number
|
|
Customer
|
|
Bromine
(000’s)
|
|
Crude Salt
(000’s)
|
|
Chemical Products
(000’s)
|
|
Total
Revenue
(000’s)
|
|
Percentage of
Total
Revenue (%)
|
|
1
|
|
|
Shandong Morui Chemical Company Limited
|
|
$
|
—
|
|
|
$
|
534
|
|
|
$
|
155
|
|
|
$
|
689
|
|
|
|
30.6
|
%
|
|
2
|
|
|
Shandong Brother Technology Limited, Kuerle Xingdong Trading Limited
|
|
$
|
—
|
|
|
$
|
670
|
|
|
$
|
—
|
|
|
$
|
670
|
|
|
|
29.8
|
%
|
|
3
|
|
|
Shouguang Weidong Chemical Company Limited
|
|
$
|
—
|
|
|
$
|
435
|
|
|
$
|
—
|
|
|
$
|
435
|
|
|
|
19.3
|
%
|
NOTE 16– CUSTOMER CONCENTRATION
During the three-month period ended March
31, 2019, the Company sold 100% of its products to its one natural gas customer. As of March 31, 2019, amounts due
from this customer was $20,508.
During the three-month period ended March
31, 2018, the Company sold 88.8% of its products to its top five customers, respectively. As of March 31, 2018, amounts due from
these customers were $8,831,030. This concentration makes the Company vulnerable to a near-term severe impact, should the relationships
be terminated.
NOTE 17 – MAJOR SUPPLIERS
During the three-month period ended March
31, 2019 and 2018, the Company did not purchase any raw materials.
GULF RESOURCES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
MARCH 31, 2019
(Expressed in U.S. dollars)
(UNAUDITED)
NOTE 18 – 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 March 31, 2019
and December 31, 2018.
NOTE 19 – CAPITAL COMMITMENT AND
OTHER SERVICE CONTRACTUAL OBLIGATIONS
The Company has no purchase commitments
as of March 31, 2019.
The following table sets forth the Company’s
contractual obligations as of March 31, 2019:
|
|
Property Management Fees
|
|
Capital Expenditure
|
Payable within:
|
|
|
|
|
|
|
|
|
the next 12 months
|
|
$
|
92,650
|
|
|
$
|
26,174,050
|
|
the next 13 to 24 months
|
|
|
92,650
|
|
|
|
—
|
|
the next 25 to 36 months
|
|
|
92,650
|
|
|
|
—
|
|
the next 37 to 48 months
|
|
|
92,650
|
|
|
|
—
|
|
Total
|
|
$
|
370,600
|
|
|
$
|
26,174,050
|
|
NOTE 20 – SUBSEQUENT EVENTS
On April 1, 2019, the Company granted an
option to one member of management staff to purchase 150,000 shares of the Company’s common stock at an exercise price of
$0.91 per share and the options vested immediately. The options have a five-year expiration term with an expected tenor of 2.5
years and no dividend yield.
On
April 2, 2019, the Company was informed verbally by the Government of Yangkou County, Shouguang City of PRC that the
Subdivision of Factory No. 1 and No. 7 (the combination of Factory
No. 5 and Factory No. 7) had been approved for reopening and started operations in April, 2019. On May
7, 2019, the Company renamed its Subdivision of Factory No. 1 to Factory No. 4; and Factory No. 5 (which was previously
considered part of Factory No. 7) to Factory No. 7.