Gulf Resources, Inc. (NASDAQ:GURE) ("Gulf Resources" or the
"Company"), a leading manufacturer of bromine, crude salt,
specialty chemical products, and natural gas in China today
announced results for the first quarter ended March 31, 2020 and
provided a business update on events occurring after the end of the
first quarter 2020.
Because of pollution issues, Chinese New Year, and
circumstances related to the COVID-19 pandemic outbreak, the
Company’s bromine facilities were closed for most time of the first
quarter 2020.
- On Nov. 25, 2019, the government of Shouguang City issued a
notice ordering all bromine facilities in Shouguang City to
temporarily stop production from December 16, 2019 to February 10,
2020 for environmental reasons.
- Due to the COVID-19 outbreak, the Company received an approval
dated on February 27, 2020 allowing the Company to resume its
bromine production issued by Shouguang Comprehensive Coordination
Group for Epidemic Prevention and Control.
- In January 2020, the Company obtained an environmental
protection assessment approval issued by the government of
Shouguang City, Shandong Province for the proposed new Yuxin
chemical factory.
- On January 27, 2020, the Company completed a 1-for-5 reverse
stock split of its issued and outstanding shares of common stock,
which was effective for trading purposes as of the commencement of
trading on January 28, 2020.
- On February 12, 2020, the Company announced that it received a
notice from The Nasdaq Stock Market LLC ("Nasdaq") on February 11,
2020 indicating that the Company has regained compliance with the
minimum bid price requirement under Nasdaq Listing Rule 5450(a)(1)
for continued listing on The Nasdaq Global Select Market.
- On March 5, 2020, the Company received a governmental approval
allowing the Company to resume production at bromine factories #1,
#4, #7, and #9.
- In the mid-March 2020, the Company began trial production at
bromine factories #1 and #7.
Since the Company’s factories were closed for most
time of the first quarter 2020, the Company generated relatively
little revenue and sustained operating losses. For the first
quarter 2020, ending March 31, 2020, Gulf Resources reported net
revenue of $557,670 up from $38,570 in the same quarter of the
previous year. The loss from operations was $4,835,429 compared to
$6,396,030 in the same quarter of the previous year. The net loss
after tax was $3,539,758 compared to $4,904,138 in the same quarter
of the previous year. The net loss per share was $0.37 compared to
$0.52 in the same quarter of the previous year.
Despite the closure of its facilities for 30 months
in the past, the Company’s balance sheet for the first quarter 2020
remains strong. As of March 31, 2020,
- The Company had cash of $93,632,690;
- Cash per share was $9.84*;
- Current assets were $96,207,226; and current liabilities were
$2,476,301;
- Working capital per share was $9.85;
- Shareholder’s equity was $255,051,983; and
- Book value per share was $26.80*.
Since the end of the first quarter 2020, the
Company has made substantial progress in reopening its
businesses.
- Bromine factories #1 and #7 commenced commercial production on
April 3, 2020.
- Bromine factories #4 and #9 commenced commercial production on
May 6, 2020. Because these two factories were not operational in
2019, their ramping up will be slower than that of factories #1 and
#7.
- The Company has been in discussions with the local government
for the opening of bromine factories #2, #8, and #10. The Company
is optimistic that it will receive approvals and will be able to
open these factories by 2020.
- The Company believes its bromine business will grow strong. To
the Company’s knowledge, some of the bromine factories in China are
still closed, and some of them may be closed permanently due to the
strict measures being taken by the Chinese government in an effort
to battle against environmental pollutions. The Company
expects the demand and pricing for bromine to increase. While sales
of some downstream products are down, bromine is increasingly being
used as a disinfectant for humans and animals as well as in
pharmaceutical intermediate products. The Company expects this
trend will lead to increasing demand and strong pricing for
bromine.
- The Company is planning to begin construction of its new Yuxin
Chemical factory in the second quarter 2020. Construction is
expected to take approximately one year. It is expected that it
will take additional 6 months to complete equipment installation
and testing. The Company expects to begin trial production at the
beginning of 2022. This factory will be expected to focus more on
the higher margin pharmaceutical intermediate products. While this
factory will be smaller than the combined two old factories, the
Company expects it to make higher net profit margin.
- On May 7, 2020, Petro China, the largest oil and gas producer
and distributor in China, announced that it has discovered a huge
natural gas belt found in China with an estimated reserve of over 1
trillion cubic meters. According to Petro China and news reported
in major media, such as Xinhua Net and China.org.cn, this natural
gas belt is located in Tianbao Township of Daying County
(http://www.xinhuanet.com/english/2020-05/07/c_139038228.htm). This
newly discovered natural gas belt is close to the Company’s current
natural gas well site as well as its two additional registered
sites. Gulf Resources believes this discovery could have a material
positive impact on the Company. The Company believes that the
government will more focus on finalizing the exploration planning
for the township and the county.
- On May 1, 2020, the Opinions of the Ministry of Natural
Resources on Several Issues in Promoting the Reform of Mineral
Resources Management (Trial), promulgated by the Ministry of
Natural Resources of PRC on January 9, 2020 (the “Opinions”), came
into effect. Pursuant to the Opinions, privately owned enterprises
are allowed to participate in the oil and gas exploration and
production. The Company believes its natural gas business will
benefit from the Opinions.
Mr. Liu Xiaobin, the CEO of Gulf Resources, stated,
“The past 30 months have been long and very difficult for our
company as we had to close all of our facilities for the reasons
outlined above. During this difficult time, we were hit by one of
the most destructive typhoons in the history of China. When we were
getting production back, we were adversely impacted by the
coronavirus pandemic. Now, however, we can see real signs of
progress.”
“We have four of our bromine facilities in
commercial production,” Mr. Liu continued. “We are optimistic about
the remaining three bromine factories. We have drilled more new
wells and bought all new equipment. Now, we are about to start
construction of our new chemical factory, which is being planned to
focus more on higher margin pharmaceutical intermediate products,
and Petro China has discovered one of the biggest natural gas belts
in Chinese history in the same town that our existing natural gas
well and two additional registered sites are located.”
“Despite the fact that all of our facilities closed
for most time of the past 30 months and the cost of buying all new
equipment and drilling more new wells, we are still in a strong
financial position with $93.6 million in cash,” Mr. Liu continued.
“We have enough capital to build our new chemical factory, reopen
our remaining bromine and crude salt facilities, and drill our
wells in Sichuan.”
“We look forward to returning to profitability in
the near future,” Mr. Liu concluded. “We appreciate the support of
our shareholders. Once we start construction on our chemical
factory and get a better sense of timing for the approval of our
remaining bromine factories, we will provide investors with further
updates on our three-year plan for growth and profits. We are very
optimistic about our future.”
(*These calculations are
not audited and based on the number of
shares outstanding of 9,517,427 shares as
of March
31,
2020)
Conference Call
Gulf Resources management will host a conference
call on Thursday, May 21, 2020 at 08:30 AM Eastern Time to
discuss its financial results for the First quarter 2020 ended
March 31, 2020.
Mr. Xiaobin Liu, CEO of Gulf Resources, will be
hosting the call. The Company 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, and please reference to “Gulf Resources” while dial
in.
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 05/21/2020 11:30 ET -
05/28/2020 11:30 ET. To access the replay, call +1 (877) 481-4010.
International callers should call +1 (919) 882-2331. The Replay
Passcode is 34940. 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
StatementsCertain 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, the risks associated
with the COVID-19 pandemic outbreak, 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 STATEMENTS OF LOSS AND COMPREHENSIVE
INCOME(LOSS) |
(Expressed in U.S. dollars) |
(UNAUDITED) |
|
|
|
Three-Month Period Ended March 31, |
|
|
2020 |
|
2019 |
|
|
|
|
|
NET REVENUE |
|
|
|
|
|
|
|
|
Net revenue |
|
$ |
557,670 |
|
|
$ |
38,570 |
|
|
|
|
|
|
|
|
|
|
OPERATING EXPENSE |
|
|
|
|
|
|
|
|
Cost of net revenue |
|
|
(921,320 |
) |
|
|
(36,407 |
) |
Sales, marketing and other operating expenses |
|
|
(2,243 |
) |
|
|
— |
|
Direct labor and factory overheads incurred during plant
shutdown |
|
|
(3,610,423 |
) |
|
|
(4,293,022 |
) |
General and administrative expenses |
|
|
(843,337 |
) |
|
|
(2,105,171 |
) |
Other operating income (loss) |
|
|
(15,776 |
) |
|
|
— |
|
|
|
|
(5,393,099 |
) |
|
|
(6,434,600 |
) |
|
|
|
|
|
|
|
|
|
LOSS FROM OPERATIONS |
|
|
(4,835,429 |
) |
|
|
(6,396,030 |
) |
|
|
|
|
|
|
|
|
|
OTHER INCOME (EXPENSE) |
|
|
|
|
|
|
|
|
Interest expense |
|
|
(35,428 |
) |
|
|
(38,824 |
) |
Interest income |
|
|
74,656 |
|
|
|
135,579 |
|
LOSS BEFORE TAXES |
|
|
(4,796,201 |
) |
|
|
(6,299,275 |
) |
|
|
|
|
|
|
|
|
|
INCOME TAX BENEFIT |
|
|
1,256,443 |
|
|
|
1,395,137 |
|
|
|
|
|
|
|
|
|
|
NET LOSS |
|
$ |
(3,539,758 |
) |
|
$ |
(4,904,138 |
) |
|
|
|
|
|
|
|
|
|
COMPREHENSIVE LOSS: |
|
|
|
|
|
|
|
|
NET LOSS |
|
$ |
(3,539,758 |
) |
|
$ |
(4,904,138 |
) |
OTHER COMPREHENSIVE INCOME
(LOSS) |
|
|
|
|
|
|
|
|
- Foreign currency translation
adjustments |
|
|
(4,515,359 |
) |
|
|
6,166,350 |
|
|
|
|
|
|
|
|
|
|
COMPREHENSIVE INCOME
(LOSS) |
|
$ |
(8,055,117 |
) |
|
$ |
1,262,212 |
|
|
|
|
|
|
|
|
|
|
LOSS PER SHARE: |
|
|
|
|
|
|
|
|
BASIC |
|
$ |
(0.37 |
) |
|
$ |
(0.52 |
) |
DILUTED |
|
$ |
(0.37 |
) |
|
$ |
(0.52 |
) |
|
|
|
|
|
|
|
|
|
WEIGHTED AVERAGE NUMBER OF
SHARES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BASIC |
|
|
9,517,427 |
|
|
|
9,377,312 |
|
DILUTED |
|
|
9,517,427 |
|
|
|
9,377,312 |
|
|
|
|
GULF RESOURCES, INC. |
AND SUBSIDIARIES |
CONDENSED CONSOLIDATED BALANCE SHEETS |
(Expressed in U.S. dollars) |
|
|
|
March 31, 2020 Unaudited |
|
December 31, 2019 Audited |
Current Assets |
|
|
|
|
|
|
|
|
Cash |
|
$ |
93,632,690 |
|
|
$ |
100,301,986 |
|
Accounts receivable |
|
|
620,669 |
|
|
|
4,877,106 |
|
Inventories, net |
|
|
674,978 |
|
|
|
690,087 |
|
Prepayments and deposits |
|
|
1,278,330 |
|
|
|
1,332,970 |
|
Other receivable |
|
|
559 |
|
|
|
559 |
|
Total Current Assets |
|
|
96,207,226 |
|
|
|
107,202,708 |
|
Non-Current Assets |
|
|
|
|
|
|
|
|
Property, plant and equipment, net |
|
|
136,032,828 |
|
|
|
137,994,949 |
|
Finance lease right-of use assets |
|
|
175,463 |
|
|
|
179,526 |
|
Operating lease right-of –use assets |
|
|
8,551,066 |
|
|
|
8,817,884 |
|
Prepaid land leases, net of current portion |
|
|
9,342,440 |
|
|
|
9,115,276 |
|
Deferred tax assets |
|
|
16,804,875 |
|
|
|
15,940,642 |
|
Total non-current assets |
|
|
170,906,672 |
|
|
|
172,048,277 |
|
Total Assets |
|
$ |
267,113,898 |
|
|
$ |
279,250,985 |
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders’ Equity |
|
|
|
|
|
|
|
|
Current Liabilities |
|
|
|
|
|
|
|
|
Accounts and other payable and accrued expenses |
|
$ |
1,054,101 |
|
|
$ |
1,106,048 |
|
Retention payable |
|
|
— |
|
|
|
3,805,483 |
|
Taxes payable-current |
|
|
767,656 |
|
|
|
779,623 |
|
Finance lease liability, current portion |
|
|
230,190 |
|
|
|
198,506 |
|
Operating lease liabilities, current portion |
|
|
424,354 |
|
|
|
416,604 |
|
Total Current Liabilities |
|
|
2,476,301 |
|
|
|
6,306,264 |
|
Non-Current Liabilities |
|
|
|
|
|
|
|
|
Finance lease liability, net of current portion |
|
|
1,876,522 |
|
|
|
1,905,772 |
|
Operating lease liabilities, net of current portion |
|
|
7,709,092 |
|
|
|
7,931,849 |
|
Total Non-Current Liabilities |
|
|
9,585,614 |
|
|
|
9,837,621 |
|
Total Liabilities |
|
$ |
12,061,915 |
|
|
$ |
16,143,885 |
|
Commitment and Loss Contingencies |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ Equity |
|
|
|
|
|
|
|
|
PREFERRED STOCK; $0.001 par
value; 1,000,000 shares authorized; none outstanding |
|
$ |
— |
|
|
$ |
— |
|
COMMON STOCK; $0.0005 par
value; 80,000,000 shares authorized; 9,563,257 and 9,563,257 shares
issued; and 9,517,427 and 9,517,427 shares outstanding as of March
31, 2020 and December 31, 2019, respectively |
|
|
23,904 |
|
|
|
23,904 |
|
Treasury stock; 45,830 and 45,830 shares as of March 31, 2020
and December 31, 2019 at cost |
|
|
(510,329 |
) |
|
|
(510,329 |
) |
Additional paid-in capital |
|
|
95,043,388 |
|
|
|
95,043,388 |
|
Retained earnings unappropriated |
|
|
156,268,642 |
|
|
|
159,808,400 |
|
Retained earnings appropriated |
|
|
24,233,544 |
|
|
|
24,233,544 |
|
Accumulated other comprehensive loss |
|
|
(20,007,166 |
) |
|
|
(15,491,807 |
) |
Total Stockholders’ Equity |
|
|
255,051,983 |
|
|
|
263,107,100 |
|
Total Liabilities and Stockholders’ Equity |
|
$ |
267,113,898 |
|
|
$ |
279,250,985 |
|
|
|
|
|
GULF RESOURCES, INC. |
AND SUBSIDIARIES |
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS |
(Expressed in U.S. dollars) |
(UNAUDITED) |
|
|
|
Three-Month Period Ended March 31, |
|
|
2020 |
|
2019 |
|
|
|
|
|
CASH FLOWS FROM OPERATING
ACTIVITIES |
|
|
|
|
Net loss |
|
$ |
(3,539,758 |
) |
|
$ |
(4,904,138 |
) |
Adjustments to reconcile net
loss to net cash (used in) provided by operating activities: |
|
|
|
|
|
|
|
Interest on capital lease obligation |
|
|
35,272 |
|
|
|
38,659 |
|
Depreciation and amortization |
|
|
3,454,891 |
|
|
|
3,377,249 |
|
Unrealized exchange (gain) loss on translation of inter-company
balances |
|
|
(400,449 |
) |
|
|
503,228 |
|
Deferred tax asset |
|
|
(1,256,443 |
) |
|
|
(1,395,137 |
) |
Common stock issued for services |
|
|
— |
|
|
|
21,600 |
|
Changes in assets and
liabilities |
|
|
|
|
|
|
|
Accounts receivable |
|
|
4,245,576 |
|
|
|
(20,469 |
) |
Inventories |
|
|
523 |
|
|
|
— |
|
Prepayments and deposits |
|
|
54,350 |
|
|
|
(35,157 |
) |
Other receivables |
|
|
— |
|
|
|
1,631 |
|
Accounts and Other payable and accrued expenses |
|
|
(41,562 |
) |
|
|
2,509,573 |
|
Retention payable |
|
|
— |
|
|
|
(39,027 |
) |
Taxes payable |
|
|
(18,999 |
) |
|
|
(377,581 |
) |
Prepaid land leases |
|
|
(369,066 |
) |
|
|
— |
|
Operating leases |
|
|
38,022 |
|
|
|
55,843 |
|
Net cash provided
by(used in) operating activities |
|
|
2,202,357 |
|
|
|
(263,726 |
) |
|
|
|
|
|
|
|
|
CASH FLOWS USED IN INVESTING
ACTIVITIES |
|
|
|
|
|
|
|
Purchase of property, plant
and equipment |
|
|
(7,416,211 |
) |
|
|
(2,528,111 |
) |
Net cash used in
investing activities |
|
|
(7, 416,211 |
) |
|
|
(2,528,111 |
) |
|
|
|
|
|
|
|
|
EFFECTS OF EXCHANGE RATE
CHANGES ON CASH AND CASH EQUIVALENTS |
|
|
(1,455,442 |
) |
|
|
3,446,043 |
|
NET (DECREASE) INCREASE IN
CASH AND CASH EQUIVALENTS |
|
|
(6,669,296 |
) |
|
|
654,206 |
|
CASH AND CASH EQUIVALENTS -
BEGINNING OF PERIOD |
|
|
100,301,986 |
|
|
|
178,998,935 |
|
CASH AND CASH EQUIVALENTS -
END OF PERIOD |
|
$ |
93,632,690 |
|
|
$ |
179,653,141 |
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION |
|
|
|
|
|
|
|
Cash paid during the period
for: |
|
|
|
|
|
|
|
Income taxes |
|
$ |
— |
|
|
$ |
— |
|
Operating right-of-use assets
obtained in exchange for lease obligations |
|
$ |
— |
|
|
$ |
8,241,818 |
|
SUPPLEMENTAL DISCLOSURE OF
CASH NON-CASH INVESTING AND FINANCING ACTIVITIES |
|
|
|
|
|
|
|
Par value of common stock
issued upon cashless exercise of options |
|
$ |
— |
|
|
$ |
48 |
|
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