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
results for the first quarter ending March 31 2018.
Three Months Ended March 31,
2018
- Net Revenue declined 93% to $2,247,267.
- Gross Profit declined 92% to $1,005,458
- General and Administrative expenses increased 107% to
$3,571,945.
- Loss from operations was $8,296,980.
- Net loss of $6,977,100.
- Loss per share was $0.15*.
- Cash flow from operations was $19,898,830 ($0.43* per
share)
- Free cash flow was $19,407,977 ($0.41* per share).
- Cash on hand totaled $236,720,969 ($5.06* per share).
- Net net cash (cash minus all liabilities) totaled $224,913,009
($4.81* per share).
- Shareholders’ Equity equaled $385,532,007 ($8.24* per
share)
With all of our facilities closed, our only revenue came from
the sale of crude salt and limited chemical products that were in
inventory. The average price of crude salt increased 32%. We
were able to collect a substantial portion of our accounts
receivable, which declined to $10,246,518 from $29,765,884. During
the quarter, direct labor and factory overheads cost the company
$5,695,519. However, we were still able to generate $19,407,977 in
free cash flow and increase our cash position to $236,720,969
($5.06* per share). Net net cash equaled $224,913,009 ($4.81* per
share).
“We are going through the most complex of times,” Mr. Liu
Xiaobin, the President and CEO stated. “The situation in which we
find ourselves is completely unprecedented. While we are strongly
in favor of the government’s decision to improve the environment,
this has been an extremely difficult and complex time for our
company. All of our factories are closed. Our bromine factories are
awaiting approval after the rectification completed. Our chemical
factory is being relocated. Our natural gas well is awaiting new
equipment that will solve its technical problems. Fortunately, we
have substantial amounts of cash that will enable us to satisfy the
government, build new facilities, and emerge as a much stronger
company. Our focus is where our company will be in the future. We
know that bromine and chemical capacity in China will be reduced,
and we believe that as one of the best financed companies in our
niche, we will have the ability to emerge much stronger and much
more profitable. Accordingly, we will focus on our progress and the
issues remaining in our attempt to satisfy the new environmental
regulations promulgated by the Chinese government. We will also
focus on how we see our businesses in the next several years.”
Bromine
On September 1, 2017, the Company received
letters from the Yangkou County, Shouguang City government
addressed to each of its subsidiaries, SCHC and SYCI, which stated
that in an effort to improve the safety and environmental
protection management level of chemical enterprises, the plants are
requested to immediately stop production and perform rectification
and improvements in accordance with the country's new safety and
environmental protection requirements. Subsequently, the Safety
Supervision and Administration Department and the Environmental
Protection Departments of the local government conducted
inspections of every bromine production enterprise within its
jurisdiction, in order to improve security, environmental
protections, pollution, and safety. The Company had been working
closely with the County authorities to develop rectification plans
for both its bromine and its chemical businesses. The Company and
the government had agreed on a rectification plan for SCHC, the
Company’s bromine and crude salt businesses which is currently
under process.
Originally, six of our bromine factories
completed their rectification process and passed the inspection by
local governments, and were scheduled for production to commence by
April 2018. Subsequently, the 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 factories. The Company expects to complete all of the
rectification and improvements of the bromine and crude salt
factories and be ready for the government inspection, rating and
evaluation by June 2018, and will resume operation for those
factories when they have approval from the government.
The Company is currently actively working on the
rectification of our remaining four factories. These factories have
a slightly more complex issue that needs to be resolved. All
bromine factories now require paired crude salt pans to prevent the
halogen water that results from the production process from flowing
into the sea. These remaining four bromine factories do not have a
designated crude salt pan where the wastewater could be channeled.
The Company has four alternatives for these four factories: 1. It
can form partnerships with adjacent bromine facilities that do have
crude salt pans. The nature of these partnerships could take many
forms. 2. The company could petition the government for a zoning
change so that additional land for salt pans could be obtained.
This might be difficult but is worth pursuing. 3. The Company could
negotiate a different method of dealing with this issue. 4. Or
these factories could conceivably be forced to close. At the
present time, the Company is working with the government on these
issues and did not reach the final solution yet.
The table below shows the expenditures to date for SCHC
rectification as well as the relocation cost for SYCI.
Rectification& Relocation Cost
Rectification Cost (SCHC-Bromine and crude salt
factories) |
Amount($) |
Year ended December 31,2017 |
|
Purchase of transformer and distribution cabinet |
528,268 |
Purchase of electric heating steam boiler |
441,667 |
Crude Salt Rectification |
13,744,565 |
Electrical automation procurement and installation |
1,604,105 |
Environmental safety infrastructure and related equipment |
648,259 |
Road hardening and reconstruction and other civil engineering |
895,876 |
Steam pipeline engineering |
40,430 |
Bromine storage and land balance purchase |
35,482 |
Total |
17,938,652 |
|
|
2018 (Quarter ended March 31,2018) |
|
Electric heating steam boiler |
107,353 |
|
|
Relocation cost (SYCI-Chemical factories) |
|
Land lease paid |
9,732,118 |
Chemicals
We have entered into contracts to lease two pieces of land next
to each other for our new chemical factory. During the first
quarter, we continued the related environmental and planning
preparation work for the new factory. We are now working with the
government, so we can begin construction. We believe we will be
able to be in full operation by the beginning of 2020 at the
latest. This factory is expected to cost $60 million. When it is
completed, the state of the art facilities should enable us to
produce more products, more profitably than we have in the
past.
Natural Gas
Gulf has been working with Xinan Shiyou Daxue
(Southwest Petroleum University) and developed a solution to DCHC’s
technical drilling problem. In resolving the problem, the Company
needs customized equipment. The customized equipment has been
ordered and is now being manufactured Once the equipment arrives,
it will be installed and production will commence. While we
anticipate that this will occur during the second quarter in 2018,
the Company has no control over the exact timing of the delivery of
the equipment. It is possible the commencement of production might
not occur until early in the third quarter in 2018.
“We appreciate the support of our shareholders,” Mr. Liu
continued. “I do not think anyone can imagine what a complex and
difficult time this has been for our management team. Every member
of our team is working day and night to meet all of the new
government requirements. Our focus is to get our bromine factories
operational, build our new chemical factory, and begin producing
natural gas at our first well. After these steps are completed,
company will consider for acquisition and enhance shareholder value
by using rest of the cash.”
“We recognize,” Mr. Liu continued, “that our shareholders have
been very patient. We know this is a difficult time for you. We
only ask that you understand this is an even more difficult time
for us. We are committed to improving our communication with our
shareholders, so they can follow every step in our progress of
re-opening our facilities. We are also committed to finding ways of
enhancing shareholder value once we have our businesses back
in operation.”
(*These calculations are based on the basic
weighted average number of shares outstanding of 46,803,791 for the
three months ended March 31, 2018.)
Conference Call
Gulf Resources' management will host a conference call on
Thursday, May 10, 2018 at 8:00pm Eastern Standard Time to
discuss its financial results for the First quarter ended March 31,
2018.
Mr. Xiaobin Liu, CEO of Gulf Resources, will be hosting the
call. The Company's management team will be available for investor
questions following the prepared remarks.
To participate in this live conference call, please dial +1
(877) 275-8968 five to ten minutes prior to the scheduled
conference call time. International callers should dial +1 (706)
643-1666. The conference participant pass code is
3595479.
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 05/11/2018 11:30 EDT -
05/28/2017 23:59 EDT. To access the replay, call +1 (855) 859-2056.
International
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) |
|
|
|
March 31, 2018 Unaudited |
|
|
December 31, 2017 Audited |
|
Current Assets |
|
|
|
|
|
|
|
|
Cash |
|
$ |
236,720,969 |
|
|
$ |
208,906,759 |
|
Accounts
receivable |
|
|
10,246,518 |
|
|
|
29,765,884 |
|
Inventories, net |
|
|
193,801 |
|
|
|
1,196,785 |
|
Prepayments and deposits |
|
|
1,598,858 |
|
|
|
1,395,289 |
|
Prepaid land leases |
|
|
607,396 |
|
|
|
246,640 |
|
Other
receivable |
|
|
2,149 |
|
|
|
2,089 |
|
Total
Current Assets |
|
|
249,369,691 |
|
|
|
241,513,446 |
|
Non-Current Assets |
|
|
|
|
|
|
|
|
Property, plant and equipment, net |
|
|
94,051,877 |
|
|
|
95,114,504 |
|
Property, plant and equipment under capital leases, net |
|
|
484,860 |
|
|
|
492,238 |
|
Prepaid land leases, net of current portion |
|
|
14,919,014 |
|
|
|
14,477,771 |
|
Deferred tax assets |
|
|
7,989,879 |
|
|
|
6,526,555 |
|
Goodwill |
|
|
30,524,646 |
|
|
|
29,374,909 |
|
Total non-current
assets |
|
|
147,970,276 |
|
|
|
145,985,977 |
|
Total
Assets |
|
$ |
397,339,967 |
|
|
$ |
387,499,423 |
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders’ Equity |
|
|
|
|
|
|
|
|
Current Liabilities |
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses |
|
$ |
991,221 |
|
|
$ |
1,032,083 |
|
Retention payable |
|
|
993,782 |
|
|
|
956,351 |
|
Capital lease obligation, current portion |
|
|
254,829 |
|
|
|
203,206 |
|
Taxes
payable-current |
|
|
2,204,954 |
|
|
|
1,474,592 |
|
Total
Current Liabilities |
|
|
4,444,786 |
|
|
|
3,666,232 |
|
Non-Current Liabilities |
|
|
|
|
|
|
|
|
Capital lease obligation, net of current portion |
|
|
2,394,174 |
|
|
|
2,303,995 |
|
Taxes
payable-non-current |
|
|
4,969,000 |
|
|
|
4,969,000 |
|
Total
Non-Current Liabilities |
|
|
7,363,174 |
|
|
|
7,272,995 |
|
Total
Liabilities |
|
$ |
11,807,960 |
|
|
$ |
10,939,227 |
|
|
|
|
|
|
|
|
|
|
Stockholders’ Equity |
|
|
|
|
|
|
|
|
PREFERRED STOCK; $0.001
par value; 1,000,000 shares authorized; none outstanding |
|
$ |
- |
|
|
$ |
- |
|
COMMON STOCK; $0.0005
par value; 80,000,000 shares authorized; 47,052,940 shares issued
and 46,803,791 shares outstanding as of March 31, 2018 and December
31, 2017, respectively |
|
|
23,525 |
|
|
|
23,525 |
|
Treasury stock; 249,149 shares as of March 31, 2018 and December
31, 2017 at cost |
|
|
(554,870 |
) |
|
|
(554,870 |
) |
Additional paid-in capital |
|
|
94,524,608 |
|
|
|
94,524,608 |
|
Retained earnings unappropriated |
|
|
243,193,331 |
|
|
|
250,170,431 |
|
Retained earnings appropriated |
|
|
24,233,544 |
|
|
|
24,233,544 |
|
Accumulated other comprehensive income |
|
|
24,111,869 |
|
|
|
8,162,958 |
|
Total
Stockholders’ Equity |
|
|
385,532,007 |
|
|
|
376,560,196 |
|
Total
Liabilities and Stockholders’ Equity |
|
$ |
397,339,967 |
|
|
$ |
387,499,423 |
|
|
|
|
|
|
|
|
|
|
|
GULF RESOURCES, INC. |
AND SUBSIDIARIES |
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND
COMPREHENSIVE INCOME |
(Expressed in U.S. dollars) |
(UNAUDITED) |
|
|
|
Three-Month Period Ended March 31, |
|
|
|
2018 |
|
|
2017 |
|
|
|
|
|
|
|
|
NET REVENUE |
|
|
|
|
|
|
Net revenue |
|
$ |
2,247,267 |
|
|
$ |
32,788,493 |
|
|
|
|
|
|
|
|
|
|
OPERATING INCOME
(EXPENSE) |
|
|
|
|
|
|
|
|
Cost of
net revenue |
|
|
(1,241,809 |
) |
|
|
(20,213,863 |
) |
Sales,
marketing and other operating expenses |
|
|
(34,974 |
) |
|
|
(75,833 |
) |
Research
and development cost |
|
|
- |
|
|
|
(61,898 |
) |
Direct
labor and factory overheads incurred during plant shutdown |
|
|
(5,695,519 |
) |
|
|
- |
|
General
and administrative expenses |
|
|
(3,571,945 |
) |
|
|
(1,728,460 |
) |
Other
operating income |
|
|
- |
|
|
|
104,558 |
|
|
|
|
(10,544,247 |
) |
|
|
(21,975,496 |
) |
|
|
|
|
|
|
|
|
|
INCOME/(LOSS) FROM
OPERATIONS |
|
|
(8,296,980 |
) |
|
|
10,812,997 |
|
|
|
|
|
|
|
|
|
|
OTHER INCOME
(EXPENSE) |
|
|
|
|
|
|
|
|
Interest
expense |
|
|
(43,344 |
) |
|
|
(41,911 |
) |
Interest
income |
|
|
169,478 |
|
|
|
125,860 |
|
INCOME/(LOSS) BEFORE
TAXES |
|
|
(8,170,846 |
) |
|
|
10,896,946 |
|
|
|
|
|
|
|
|
|
|
INCOME Tax
(EXPENSE)BENEFIT |
|
|
1,193,746 |
|
|
|
(2,821,826 |
) |
|
|
|
|
|
|
|
|
|
NET INCOME/(LOSS) |
|
$ |
(6,977,100 |
) |
|
$ |
8,075,120 |
|
|
|
|
|
|
|
|
|
|
COMPREHENSIVE
INCOME: |
|
|
|
|
|
|
|
|
NET INCOME/(LOSS) |
|
$ |
(6,977,100 |
) |
|
$ |
8,075,120 |
|
OTHER COMPREHENSIVE
INCOME |
|
|
|
|
|
|
|
|
- Foreign currency
translation adjustments |
|
|
15,948,911 |
|
|
|
2,037,272 |
|
|
|
|
|
|
|
|
|
|
COMPREHENSIVE
INCOME |
|
$ |
8,971,811 |
|
|
$ |
10,112,392 |
|
|
|
|
|
|
|
|
|
|
EARNINGS (LOSS) PER
SHARE: |
|
|
|
|
|
|
|
|
BASIC |
|
$ |
(0.15 |
) |
|
$ |
0.17 |
|
DILUTED |
|
$ |
(0.15 |
) |
|
$ |
0.17 |
|
|
|
|
|
|
|
|
|
|
WEIGHTED AVERAGE NUMBER
OF SHARES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BASIC |
|
|
46,803,791 |
|
|
|
46,793,791 |
|
DILUTED |
|
|
46,826,388 |
|
|
|
46,804,241 |
|
|
|
|
|
|
|
|
|
|
GULF
RESOURCES, INC. |
AND
SUBSIDIARIES |
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS |
(Expressed in U.S. dollars) |
(UNAUDITED) |
|
|
Three-Month Period Ended March 31, |
|
|
|
2018 |
|
|
2017 |
|
|
|
|
|
|
|
|
CASH FLOWS FROM
OPERATING ACTIVITIES |
|
|
|
|
|
|
Net income/(loss) |
|
$ |
(6,977,100 |
) |
|
$ |
8,075,120 |
|
Adjustments to
reconcile net income(loss) to net cash provided by operating
activities: |
|
|
|
|
|
|
|
Interest
on capital lease obligation |
|
|
41,797 |
|
|
|
41,753 |
|
Amortization of prepaid land leases |
|
|
144,097 |
|
|
|
107,461 |
|
Depreciation and amortization |
|
|
4,757,530 |
|
|
|
5,439,098 |
|
Unrealized exchange loss on translation of inter-company
balances |
|
|
1,058,852 |
|
|
|
137,255 |
|
Deferred
tax asset |
|
|
(1,193,746 |
) |
|
|
- |
|
Stock-based compensation expense |
|
|
- |
|
|
|
9,000 |
|
Changes in assets and
liabilities |
|
|
|
|
|
|
|
Accounts
receivable |
|
|
20,442,483 |
|
|
|
(8,523,139 |
) |
Inventories |
|
|
1,039,959 |
|
|
|
767,825 |
|
Prepayments and deposits |
|
|
(81,635 |
) |
|
|
(29,129 |
) |
Other
receivables |
|
|
- |
|
|
|
(580 |
) |
Accounts
payable and accrued expenses |
|
|
(68,833 |
) |
|
|
1,641,677 |
|
Retention
payable |
|
|
- |
|
|
|
(736,894 |
) |
Taxes
payable |
|
|
735,426 |
|
|
|
1,493,322 |
|
Net cash
provided by operating activities |
|
|
19,898,830 |
|
|
|
8,422,769 |
|
|
|
|
|
|
|
|
|
CASH FLOWS USED IN
INVESTING ACTIVITIES |
|
|
|
|
|
|
|
Additions of prepaid
land leases |
|
|
(367,143 |
) |
|
|
(324,743 |
) |
Purchase of property,
plant and equipment |
|
|
(121,710 |
) |
|
|
(59,975 |
) |
Net
cash used in investing activities |
|
|
(488,853 |
) |
|
|
(384,718 |
) |
|
|
|
|
|
|
|
|
EFFECTS OF EXCHANGE
RATE CHANGES ON CASH AND CASH EQUIVALENTS |
|
|
8,404,233 |
|
|
|
881,453 |
|
NET INCREASE IN CASH
AND CASH EQUIVALENTS |
|
|
27,814,210 |
|
|
|
8,919,504 |
|
CASH AND CASH
EQUIVALENTS - BEGINNING OF PERIOD |
|
|
208,906,759 |
|
|
|
163,884,574 |
|
CASH AND CASH
EQUIVALENTS - END OF PERIOD |
|
$ |
236,720,969 |
|
|
$ |
172,804,078 |
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURE
OF CASH FLOW INFORMATION |
|
|
|
|
|
|
|
|
Cash paid during the
period for: |
|
|
|
|
|
|
|
|
Income
taxes |
|
$ |
- |
|
|
$ |
1,798,807 |
|
|
|
|
|
|
|
|
|
|
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