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 the unaudited
financial results for the second quarter ended June 30, 2019.
Financial Results
Three Months Ended June 30, 2019 Compared to Three
Months Ended June 30, 2018
- Net Revenue was $6,009,409 compared to $4,594
- Gross Profit was $3,019,079 compared to $4,587
- Direct labor and factory overheads incurred during plant
shutdown were $2,875,285 compared to $5,689,486
- General & Administrative Expenses were $1,335,347 compared
to $1,125,683
- Loss Before Taxes was $1,103,689 compared to $6,696,114
- Net Loss was $737,706 compared to $4,812,873
- Earnings per share were a loss of $0.02 versus a loss of
$0.10
- Cash and cash equivalents were $160,354,069 compared to
$178,998,935
- Cash per share was $3.40* vs. $3.82* based on 47,214,075 shares
outstanding
- Net net Cash per share (cash minus all liabilities) $2.51*
- Book Value per share was $6.10*
- (*These calculations are based on the basic weighted
average number of shares outstanding of 47,214,075 as of June 30,
2019)
By Segment
- Bromine had revenues of $5,751,164 compared to $0. The loss
from operations before income taxes was $36,713 compared to
$5,577,272.
- Crude Salt Revenues were $245,079 compared to $0. The loss from
operations before income taxes were $828,736 compared to
$1,731,592.
- Chemical products revenue was $0 compared to $4,594. The loss
from operations before income taxes was $656,424 compared to
$727,595.
- Natural Gas Revenue was $13,166 compared to $0. The loss from
operations before income taxes was $61,401 compared to
$45,295.
During the second quarter, the government of China continued to
take steps to improve the environment by ensuring that industries,
such as chemicals, mining, and natural gas operate in a manner that
maximizes safety and minimizes damage to the environment. These
government regulations required a substantial amount of work from
the company and its competitors. We believe that a large
percentage of the factories and mines may not receive the required
approvals to reopen. However, the government believes this is the
only way to ensure the future health and safety of its
residents.
In the second quarter, the company began production in Factories
#1 and #7. Because these factories had new equipments, the
company began production at a very low level to ensure that the new
equipment was functioning correctly. During the quarter, the
company tested all of the new equipment and found minimal issues.
During the third quarter, the company intends to increase
production. It expects to achieve full production in these
factories by the end of the year. With the permanent closing of
factories #3, #4, and #11, total production capacity has declined
from 42,808 to 31,506 tonnes. However, Factories #1 and #7 have
annual production capacity of 13,667 tonnes, which equals
43.4% of our total capacity. For the three months ending June
2019, our utilization ratio for all of our remaining factories was
18%. The gross profit margin for the bromine segment was 53%. The
crude salt segment has a negative gross profit margin of 6%.
Natural gas, which was in a testing phase, also had a negative
gross profit margin.
During the first six months of 2019, the company invested
$39,596,434 in property, plant, and equipment. The major portion of
this investment was for the new drilled bromine wells to increase
the productivity of facilities to assure the level of profitability
in the future and was not related to the rectification
processes.
Update on Operations
Bromine and crude salt
We have opened Factories #1 and #7. (Factory Number #7 is a
combination of Factories #5 and #7.) We have completed the
rectification on our remaining factories, #2, #8, #9, #10, and #4
(previously called the subdivision of factory #1). We do not expect
any further rectification to be performed currently. The remaining
issues for those factories relate to project approval, planning
approval, land use rights approval, and the environmental
protection assessment. We cannot determine the timing for the
approvals of the other factories. However, we have been working
closely with the government and believe we have taken all of the
steps needed to obtain final approvals.
The price of bromine remains at very high levels. At the current
time, the price is approximately RMB 33,000 per tonne include VAT.
The closure of many mines and the decline in the price of the RMB
vs. other currencies should keep the price at elevated levels. The
company continues to believe that the bromine and crude salt
business will become profitable.
Chemical Products
We are waiting for government approval for our new chemical
plant. To date, we have invested $10,925,081 for a 50-year lease of
a parcel of land and the design of the new chemical factory.
While we are confident we will receive approval to build this
factory, we cannot provide any guidance about the timing of the
approval, the construction, or the beginning of production.
Natural Gas
On May 29,2019, the Company received a verbal notice from the
government of Tianbao Town, Daying County, Sichuan Province, that
the company will be required to obtain project approval for its
well, including the natural gas and brine water project and
approvals for safety production inspection, environmental
protection assessment and related land issues. Upon receipt
of the notice, the company halted trial production of its natural
gas well in Daying County.
The Company has been working with the local government in
Tianbao Town and Daying County to meet the new provincial
regulations. The local and county governments have been very
supportive, but the Company still needs provincial approval. The
Company is confident that this approval will be obtained. In
addition, the Company believes that the approval will provide the
ability to drill more than one well. However, at this point in
time, there is no way of knowing when all of the approvals will be
received, and production will recommence.
Balance Sheet
During the first six months of 2019, the company invested
$39,596,434 in property, plant, and equipment. The major portion of
this investment was for the new drilled bromine wells to increase
the productivity of facilities to assure a higher level of
profitability in the future. The company ended the quarter with
cash and cash equivalents of $160,354,069. Cash per share was
$3.40* based on 47,214,075 shares outstanding. Net net Cash per
share (cash minus all liabilities) was $2.51*. Book Value per share
was $6.10*.
“This has been a very difficult period for Gulf Resources,” Mr.
Liu Xiaobin, the CEO of Gulf, stated. “We believe the government of
China is taking the proper steps to protect its residents and
improve the environment. We understand this is a complicated issue.
We are very pleased to have been able to open our two largest
bromine and crude salt facilities. Our new equipment is functioning
well, and we believe we will continue to carefully ramp up
production in this quarter. We also believe will receive approvals
for some of our other bromine and crude salt facilities in the
future. We are confident we will receive approval from the
government to build and commence operations in our new chemical
factory, although we cannot predict the timing of such approvals.
We also believe we will receive approvals to continue our
production of natural gas and brine water in Sichuan Province.”
“We are frustrated that the process is taking as long as
it has, but recognize the complex issues confronted by the
government. However, we remain focused on opening the rest of our
remaining facilities,” Mr. Liu continued.
“At this time our financial position still remains strong,” Mr.
Liu concluded. “We have $3.40* per share in cash. Our cash
minus all of our liabilities is still $2.51* per share, even after
our major investments. We have begun production and are approaching
breakeven, we anticipate returning to profitability in the near
future.”
Conference Call
Gulf Resources' management will host a conference call on
Thursday, August 15, 2019 at 8:30 a.m. Eastern Time to discuss its
financial results for the second quarter ended June 30, 2019.
Mr. Xiaobin Liu, CEO and Mr. Min Li ,CFO 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) 407-8031 five to ten minutes prior to the scheduled
conference call time. International callers should dial +1 (201)
689-8031. The conference participant pass code
is 13693833.
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 08/15/2019 11:30 EDT -
08/22/2019 08:30 EDT. To access the replay, call +1 (877) 481-4010.
International callers should call +1 (919) 882-2331. The Replay
Passcode is 53288.
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
(Haiyan Xu)
beishengrong@vip.163.com
GULF RESOURCES,
INC. |
AND
SUBSIDIARIES |
CONDENSED
CONSOLIDATED BALANCE SHEETS |
(Expressed in U.S.
dollars) |
|
June 30, 2019 Unaudited |
|
|
December 31, 2018 Audited |
|
Current Assets |
|
|
|
|
|
|
|
Cash |
$ |
160,354,069 |
|
|
$ |
178,998,935 |
|
Accounts receivable |
|
6,714,820 |
|
|
|
— |
|
Inventories, net |
|
453,664 |
|
|
|
— |
|
Prepayments and deposits |
|
1,364,457 |
|
|
|
8,096,636 |
|
Prepaid land leases |
|
176,264 |
|
|
|
235,459 |
|
Other receivable |
|
10,886 |
|
|
|
12,506 |
|
Total Current Assets |
|
169,074,160 |
|
|
|
187,343,536 |
|
Non-Current Assets |
|
|
|
|
|
|
|
Property, plant and equipment, net |
|
121,296,991 |
|
|
|
82,282,630 |
|
Finance lease right-of-use assets |
|
184,875 |
|
|
|
250,757 |
|
Operating lease right-of-use assets |
|
9,198,933 |
|
|
|
— |
|
Prepaid land leases, net of current portion |
|
9,077,501 |
|
|
|
9,639,009 |
|
Deferred tax assets |
|
20,731,267 |
|
|
|
19,030,858 |
|
Total non-current assets |
|
160,489,567 |
|
|
|
111,203,254 |
|
Total Assets |
$ |
329,563,727 |
|
|
$ |
298,546,790 |
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders’ Equity |
|
|
|
|
|
|
|
Current Liabilities |
|
|
|
|
|
|
|
Payable and accrued expenses |
$ |
27,360,782 |
|
|
$ |
905,258 |
|
Retention payable |
|
2,006,764 |
|
|
|
332,416 |
|
Taxes payable-current |
|
1,954,023 |
|
|
|
1,188,687 |
|
Finance lease liability, current portion |
|
132,178 |
|
|
|
197,480 |
|
Operating lease liabilities, current portion |
|
474,363 |
|
|
|
— |
|
Total Current Liabilities |
|
31,928,110 |
|
|
|
2,623,841 |
|
Non-Current Liabilities |
|
|
|
|
|
|
|
Finance lease liability, net of current portion |
|
1,933,958 |
|
|
|
2,069,545 |
|
Operating lease liabilities, net of current portion |
|
7,859,840 |
|
|
|
— |
|
Total Non-Current Liabilities |
$ |
9,793,798 |
|
|
$ |
2,069,545 |
|
Total Liabilities |
$ |
41,721,908 |
|
|
$ |
4,693,386 |
|
|
|
|
|
|
|
|
|
Stockholders’ Equity |
|
|
|
|
|
|
|
PREFERRED STOCK; $0.001 par
value; 1,000,000 shares authorized; none outstanding |
|
|
|
|
|
|
|
COMMON
STOCK; $0.0005 par value; 80,000,000 shares authorized; 47,812,221
and 47,502,940 shares issued; and 47,583,072 and 46,803,791 shares
outstanding as of June 30, 2019 and December 31, 2018 |
$ |
23,904 |
|
|
$ |
23,525 |
|
Treasury stock; 229,149 and 249,149 shares as of June 30,
2019 and December 31, 2018 at cost |
|
(510,329 |
) |
|
|
(554,870 |
) |
Additional paid-in capital |
|
95,043,388 |
|
|
|
95,020,808 |
|
Retained earnings unappropriated |
|
179,966,601 |
|
|
|
185,608,445 |
|
Retained earnings appropriated |
|
24,233,544 |
|
|
|
24,233,544 |
|
Accumulated other comprehensive loss |
|
(10,915,289 |
) |
|
|
(10,478,048 |
) |
Total Stockholders’ Equity |
|
287,841,819 |
|
|
|
293,853,404 |
|
Total Liabilities and Stockholders’ Equity |
$ |
329,563,727 |
|
|
$ |
298,546,790 |
|
|
|
GULF RESOURCES, INC. |
AND SUBSIDIARIES |
CONDENSED CONSOLIDATED STATEMENTS OF LOSS AND COMPREHENSIVE
LOSS |
(Expressed in U.S. dollars) |
(UNAUDITED) |
|
|
Three-Month Period Ended June 30, |
|
|
Six-Month Period Ended June 30, |
|
|
2019 |
|
|
2018 |
|
|
2019 |
|
|
2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
NET REVENUE |
|
|
|
|
|
|
|
|
|
|
|
Net revenue |
$ |
6,009,409 |
|
|
$ |
4,594 |
|
|
$ |
6,047,979 |
|
|
$ |
2,251,861 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING INCOME
(EXPENSE) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of net revenue |
|
(2,990,330 |
) |
|
|
(7 |
) |
|
|
(3,026,737 |
) |
|
|
(1,241,816 |
) |
Sales, marketing and other operating expenses |
|
(6,613 |
) |
|
|
(21,025 |
) |
|
|
(6,613 |
) |
|
|
(55,999 |
) |
Direct labor and factory overheads incurred during plant
shutdown |
|
(2,875,285 |
) |
|
|
(5,689,486 |
) |
|
|
(7,168,307 |
) |
|
|
(11,385,005 |
) |
General and administrative expenses |
|
(1,335,347 |
) |
|
|
(1,125,683 |
) |
|
|
(3,440,518 |
) |
|
|
(4,697,628 |
) |
|
|
(7,207,575 |
) |
|
|
(6,836,201 |
) |
|
|
(13,642,175 |
) |
|
|
(17,380,448 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LOSS FROM OPERATIONS |
|
(1,198,166 |
) |
|
|
(6,831,607 |
) |
|
|
(7,594,196 |
) |
|
|
(15,128,587 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER INCOME (EXPENSE) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
(38,396 |
) |
|
|
(43,185 |
) |
|
|
(77,220 |
) |
|
|
(86,529 |
) |
Interest income |
|
132,873 |
|
|
|
178,678 |
|
|
|
268,452 |
|
|
|
348,156 |
|
LOSS BEFORE TAXES |
|
(1,103,689 |
) |
|
|
(6,696,114 |
) |
|
|
(7,402,964, |
) |
|
|
(14,866,960 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME TAX BENEFIT |
|
365,983 |
|
|
|
1,883,241 |
|
|
|
1,761,120 |
|
|
|
3,076,987 |
|
NET LOSS |
$ |
(737,706 |
) |
|
$ |
(4,812,873 |
) |
|
$ |
(5,641,844 |
) |
|
$ |
(11,789,973 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COMPREHENSIVE LOSS: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET LOSS |
$ |
(737,706 |
) |
|
$ |
(4,812,873 |
) |
|
$ |
(5,641,844 |
) |
|
$ |
(11,789,973 |
) |
OTHER COMPREHENSIVE LOSS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments |
|
(6,603,591 |
) |
|
|
(20,586,976 |
) |
|
|
(437,241 |
) |
|
|
(4,638,065 |
) |
COMPREHENSIVE LOSS |
$ |
(7,341,297 |
) |
|
$ |
(25,399,849 |
) |
|
$ |
(6,079,085 |
) |
|
$ |
(16,428,038 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LOSS PER SHARE: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BASIC |
$ |
(0.02 |
) |
|
$ |
(0.10 |
) |
|
$ |
(0.12 |
) |
|
$ |
(0.25 |
) |
DILUTED |
$ |
(0.02 |
) |
|
$ |
(0.10 |
) |
|
$ |
(0.12 |
) |
|
$ |
(0.25 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED AVERAGE NUMBER OF
SHARES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BASIC |
|
47,214,075 |
|
|
|
46,803,791 |
|
|
|
47,068,417 |
|
|
|
46,803,791 |
|
DILUTED |
|
47,214,075 |
|
|
|
46,803,791 |
|
|
|
47,068,417 |
|
|
|
46,815,089 |
|
|
|
|
GULF RESOURCES, INC. |
|
AND SUBSIDIARIES |
|
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS |
|
(Expressed in U.S. dollars) |
|
(UNAUDITED) |
|
|
Six-Month Period Ended June 30, |
|
|
2019 |
|
|
2018 |
|
|
|
|
|
|
|
CASH FLOWS FROM OPERATING
ACTIVITIES |
|
|
|
|
|
Net loss |
$ |
(5,641,844 |
) |
|
$ |
(11,789,973 |
) |
Adjustments to reconcile net
loss to net cash provided by operating activities: |
|
|
|
|
|
|
Interest on finance lease obligation |
|
76,940 |
|
|
|
86,214 |
|
Amortization of prepaid land leases |
|
- |
|
|
|
294,676 |
|
Depreciation and amortization |
|
6,964,880 |
|
|
|
9,511,515 |
|
Unrealized exchange gain on inter-company balances |
|
(44,427 |
) |
|
|
(345,086 |
) |
Deferred tax asset |
|
(1,761,118 |
) |
|
|
(3,076,986 |
) |
Common stock issued for services |
|
21,600 |
|
|
|
- |
|
Issuance of stock options to employee |
|
45,900 |
|
|
- |
|
Changes in assets and
liabilities: |
|
|
|
|
|
|
Accounts receivable |
|
(6,775,954 |
) |
|
|
25,720,587 |
|
Inventories |
|
(457,780 |
) |
|
|
1,039,959 |
|
Prepayments and deposits |
|
(17,037 |
) |
|
|
(61,251 |
) |
Other receivables |
|
1,631 |
|
|
|
(11,289 |
) |
Payable and accrued expenses |
|
321,706 |
|
|
|
(256,603 |
) |
Retention payable |
|
- |
|
|
|
(312,429 |
) |
Taxes payable |
|
768,072 |
|
|
|
592,979 |
|
Operating lease |
|
(268,620 |
) |
|
|
- |
|
Net cash (used in)
provided by operating activities |
|
(6,766,051 |
) |
|
|
21,392,313 |
|
|
|
|
|
|
|
|
CASH FLOWS USED IN INVESTING
ACTIVITIES |
|
|
|
|
|
|
Additions of prepaid land
leases |
|
- |
|
|
|
(693,198 |
) |
Purchase of property, plant
and equipment |
|
(11,501,738 |
) |
|
|
(10,333,721 |
) |
Net cash used in
investing activities |
|
(11,501,738 |
) |
|
|
(11,026,919 |
) |
|
|
|
|
|
|
|
CASH FLOWS USED IN FINANCING
ACTIVITIES |
|
|
|
|
|
|
Repayment of finance lease
obligation |
|
(275,506 |
) |
|
|
(294,295 |
) |
Net cash used in
financing activities |
|
(275,506 |
) |
|
|
(294,295 |
) |
|
|
|
|
|
|
|
EFFECTS OF EXCHANGE RATE
CHANGES ON CASH AND CASH EQUIVALENTS |
|
(101,571 |
) |
|
|
(3,001,994 |
) |
NET (DECREASE) INCREASE IN
CASH AND CASH EQUIVALENTS |
|
(18,644,866 |
) |
|
|
7,069,105 |
|
CASH AND CASH EQUIVALENTS -
BEGINNING OF PERIOD |
|
178,998,935 |
|
|
|
208,906,759 |
|
CASH AND CASH EQUIVALENTS -
END OF PERIOD |
$ |
160,354,069 |
|
|
$ |
215,975,864 |
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION |
|
|
|
|
|
|
|
Cash paid during the periods
for: |
|
|
|
|
|
|
|
Income taxes |
$ |
- |
|
|
$ |
- |
|
Operating right-of-use assets
obtained in exchange for lease obligations |
$ |
8,241,818 |
|
|
$ |
- |
|
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING
ACTIVITIES |
|
|
|
|
|
|
|
Purchase of Property,plant and equipment included in Payable and
other accrued expense and Retention payable |
$ |
28,094,696 |
|
|
$ |
- |
|
Par value of common stock issued upon cashless exercise of
options |
$ |
379 |
|
|
$ |
- |
|
Gulf Resources (NASDAQ:GURE)
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