Gulf Resources, Inc. (Nasdaq: GURE) ("Gulf Resources", "we," or the
"Company"), a leading manufacturer of bromine, crude salt and
specialty chemical products in China, today announced unaudited
financial results for the first quarter 2021 financial results and
provides guidance for the second quarter and full fiscal year 2021.
The first quarters of 2020 and 2021 were both significantly
impacted by the government forced closures related to winter
weather and Chinese New Year. In 2021, our factories were closed
from December 25, 2020 to February 19, 2021.
In addition, even though the factories were closed for a
majority of the period, the Company still had to pay salaries,
rent, and incurred depreciation and amortization. In other words,
the Company had more than one month of production and three months
of overhead. In addition, the Company also incurred substantial
costs for the facilities that were still closed. Finally, because
of the process of salt crystallization, winter is always the
slowest season for crude salt production.
Despite all of the 4 operating bromine and crude
salt facilities being closed for a majority of the quarter, the
three other bromine and crude salt facilities awaiting government
approval, the chemical factory being under construction, and the
Sichuan facilities also awaiting government approval, Gulf
Resources was still able to generate $3,341,395 in free cash flow
($0.33 cents per share*.)
Q1 Fiscal 2021 Highlights
Balance Sheet
The Company ended the first fiscal quarter of 2021 with cash of
$96,699,324 ($9.67 per share*.) Net net cash per share (cash minus
all liabilities) equaled $76,442,515 ($7.65 per share *). Working
capital equaled $94,061,925 ($9.41 per share*). Shareholders’
equity equaled $272,337,459 ($27.24 per share*).
Income Statement
Net revenues for Q1 2021 increased by 843% to $5,259,243
compared to $557,670 in the previous year. The Company had 2
factories operating in 2020 and 4 factories in 2021. In the period
in which they were operating in 2021, our factories produced
positive results. Cost of goods sold in 2021 was 79.5% as compared
to 165% in the previous year.
Loss from operations was ($3,281,424) as compared to
($4,835,429) in the prior year. Our net loss was ($2,502,124) as
compared to ($3,539,758) in the prior year. Loss per share was
($0.25) as compared to ($0.37) in the prior year.
Several factors contributed to these losses. Our
4 operating facilities were only open in this quarter. The Company
spent $2,613,483 on direct labor and factory overhead costs for
facilities that were closed, compared to $3,610,423 in 2020.
General and administrative expenses increased by $892,913, the
majority of which was related to an unrealized foreign currency
translation loss on intercompany balance compared to a gain in the
previous year.
As noted, while the costs of closed factories,
depreciation & amortization, and foreign currency losses caused
the Company to report a loss, the Company did generate $3,341,395
in free cash flow.
Segment Reporting
Bromine & Crude SaltOn a segment basis,
bromine revenues increased 939% to $4,810,990 from $462,846 in the
prior year. Bromine production increased to 955 tonnes compared to
122 tonnes in the prior year, an increase of 683%. The average
price of bromine increased 33% to $5,037 per tonne from $3,794 per
tonne in the prior year.
Since the end of the quarter, bromine prices have continued
increasing:
Month |
RMB |
July 2020 |
26,650 |
September 30, 2020 |
30,000 |
November 14, 2020 |
32,278 |
February 13, 2021 |
34,166 |
March 31,2021 |
35,044 |
April 7, 2021 |
35,772 |
May 12, 2021 |
40,437 |
(Note- RMB above are extracted from the website
sunsirs.com.)
Since July 2020, bromine prices are up 52%. Since the end of Q1,
bromine prices have been up 15%. Higher prices are important
factors attributable to our profitability.
Crude salt revenues increased by 373% to $448,253 from the prior
year. Because the factories were open for a short period of time
and mining crude salt in the winter is difficult, first quarter
revenues in both years were not significant. Nonetheless, bromine
and crude salt profitability was impacted by overhead costs and
closed facilities.
To our knowledge, the government is currently
continuing to finalize the planning for all mining areas including
that for prevention of flood. We continue to be optimistic that we
will receive permission to open our remaining 3 factories. However,
at this point in time, we cannot estimate the timing yet.
We have indicated in the past our interest in acquiring more
bromine and crude salt facilities. However, at the present time, we
are not in negotiation with any party. As bromine prices increase,
companies with operating facilities are not anxious to sell. As the
government is still developing its planning and environmental
standards, we are not willing to risk our capital on purchasing
facilities that do not have clear paths to operation.
ChemicalsWe had no revenues from chemical
segment in the first quarter. The loss from operations before
income tax benefit in our chemical segment was $746,469.
The Company estimates the relocation process
will cost approximately $64 million in total. The Company has
already incurred costs of $35,635,297 comprising prepaid land
lease, professional fees related to the design of the new chemical
factory, purchase of plant and equipment, construction costs and
installation costs. Most of the remaining expenditures will be
incurred in 2021.
We expect our chemical factory construction to be completed by
the end of the second quarter this year or immediately thereafter.
Once the construction is completed, we plan to install the
machinery and test the equipment during the remainder of the year
and expect to begin trial production by the start of 2022. While
this new factory will be smaller than the combined two old
factories, the Company expects it to make higher net profit margin
as we plan to focus more on the higher margin pharmaceutical
intermediate products. We are optimistic by the progress we are
making on constructing our new chemical factory. Management expects
to continue to post photos on its website so investors can track
the progress of the construction of the chemical factories.
Natural GasWe had no revenues in our natural
gas segment in the first quarter. Our natural gas business lost
$54,787 in the quarter.
We are working with the governments of Tianbao Town, Daying
County, and Sichuan Province in China closely, and plan to proceed
with our application for the natural gas and brine project
approvals with related government departments after the government
has finalized the land and resources planning for Sichuan Province.
As we noted previously, there are important gas discoveries in
Tianbao Town, Daying County. Natural gas is a cleaner fuel than
coal. China is in short supply of natural gas. We continue to be
optimistic about the approval for our project.
Our natural gas business plans currently include three wells,
our initial well located at Tianbao Town, Daying County, Sichuan
Province in China and two others may be in nearby locations. In
addition to natural gas, we plan to produce bromine and crude salt.
We have found rich concentrations of bromine in Sichuan. However,
because the area is mountainous, we will have to develop additional
plans for the handling of salt and wastewater.
GuidancBecause of the closures in the first
quarter, the Company believes it would be helpful to provide
guidance for the 2nd Quarter and the full 2021 fiscal year. For the
second quarter, the Company estimates its net revenue will be in
the range of $12.0 million to $14.0 million. Net income will be
estimated to be in the range of $2.0 million to $2.4 million
without considering non-operational factors.
For the full 2021 fiscal year, the Company estimates net revenue
will be in the range of $45 million to $47 million and net income
will be in the range of $4.2 million to $4.7 million without
considering non-operational factors.
These estimates include only revenues from the 4
facilities currently in operation. No estimated revenues are
included from the remaining three bromine and crude salt
facilities, the new chemical factory under construction, or the
natural gas and brine project in Sichuan. In addition, these
estimates assume bromine prices could decline from the current
levels and that the government will again suspend production for
the winter season and Chinese New Year holidays. Because the 2022
Chinese New Year is 11 days earlier than the 2021 Chinese New Year,
the closures may have more impact in the 4th quarter of 2021 as
compared to the same quarter of 2020. The first quarter of 2022
could benefit from these additional days.
We do not know yet when we will receive approvals for our closed
facilities or if the government will again force a winter closure,
but we believe that we should be as conservative as possible.
Mr. Liu Xiaobin, the CEO of Gulf Resources stated, “Based on the
strong results in the first quarter, we have confidence that our
quarter and fiscal year will both be profitable. With the projected
completion of our chemical factory and some of our other
facilities, we look forward to strong financial results in fiscal
2022.”
“Over the past 3 ½ years, we have struggled with the closure of
all of our facilities for environmental remediation as well as the
impact of Typhoon Lekima,” Mr. Liu continued. “Even with all of our
difficulties, balance sheet remains very strong. We have almost $97
million in cash, which may be used to build our chemical factory,
open our closed facilities, and develop our business in Sichuan. We
also believe that, with the exception of the remaining expenditures
for our chemical factory, we will return to generating positive
free cash flow and will achieve profits. As soon as we have
visibility on the timing of production in our chemical factory as
well as the opening of our closed facilities, we will present
investors with our 5 year plan for growth.”
(*These calculations are based on the number of
shares outstanding of 9,997,477 as of Mach
31, 2020)
Conference Call
Gulf Resources management will host a conference call on
Tuesday, May 18, 2021 at 08:00 AM Eastern Time to discuss its First
Quarter 2021 results ended March 31, 2021.
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) 407-8031 five to ten minutes prior to the scheduled
conference call time. International callers should dial +1 (201)
689-8031.
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 05/18/2021 11:00 AM ET - 05/25
/2021 11:00 AM ET. To access the replay, call +1 (877) 481-4010.
International callers should call +1 (919) 882-2331. The Replay
Passcode is 41354.
About Gulf Resources, Inc.Gulf Resources, Inc.
operates through three wholly-owned subsidiaries, Shouguang City
Haoyuan Chemical Company Limited ("SCHC"), ShouguangYuxin 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 http://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, 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 SUBSIDIARIESCONDENSED CONSOLIDATED BALANCE
SHEETS(Expressed in U.S. dollars) |
|
|
|
|
|
March 31, 2021Unaudited |
|
December 31, 2020 Audited |
Current Assets |
|
|
|
|
|
|
|
Cash |
$ |
96,699,324 |
|
|
$ |
94,222,538 |
|
Accounts receivable |
|
4,859,705 |
|
|
|
6,521,798 |
|
Inventories, net |
|
576,607 |
|
|
|
419,609 |
|
Prepayments and deposits |
|
2,449,526 |
|
|
|
6,146,461 |
|
Other receivable |
|
559 |
|
|
|
559 |
|
Total Current Assets |
|
104,585,721 |
|
|
|
107,310,965 |
|
Non-Current Assets |
|
|
|
|
|
|
|
Property, plant and equipment, net |
|
149,966,631 |
|
|
|
148,947,689 |
|
Finance lease right-of use assets |
|
183,550 |
|
|
|
186,272 |
|
Operating lease right-of –use assets |
|
8,662,972 |
|
|
|
8,868,661 |
|
Prepaid land leases, net of current portion |
|
10,063,469 |
|
|
|
10,134,004 |
|
Deferred tax assets |
|
19,131,925 |
|
|
|
18,590,227 |
|
Total non-current assets |
|
188,008,547 |
|
|
|
186,726,853 |
|
Total Assets |
$ |
292,594,268 |
|
|
$ |
294,037,818 |
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders’ Equity |
|
|
|
|
|
|
|
Current Liabilities |
|
|
|
|
|
|
|
Accounts and other payable and accrued expenses |
$ |
8,549,889 |
|
|
$ |
5,081,701 |
|
Taxes payable-current |
|
1,405,772 |
|
|
|
1,326,179 |
|
Finance lease liability, current portion |
|
250,591 |
|
|
|
217,070 |
|
Operating lease liabilities, current portion |
|
317,544 |
|
|
|
477,350 |
|
Total Current Liabilities |
|
10,523,796 |
|
|
|
7,102,300 |
|
Non-Current Liabilities |
|
|
|
|
|
|
|
Finance lease liability, net of current portion |
|
1,875,592 |
|
|
|
1,888,903 |
|
Operating lease liabilities, net of current portion |
|
7,857,421 |
|
|
|
8,022,342 |
|
Total Non-Current Liabilities |
|
9,733,013 |
|
|
|
9,911,245 |
|
Total Liabilities |
$ |
20,256,809 |
|
|
$ |
17,013,545 |
|
|
|
|
|
|
|
|
|
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; 10,043,307 shares issued; and
9,997,477 shares outstanding as of March 31, 2021 and December 31,
2020, respectively |
|
24,139 |
|
|
|
24,139 |
|
Treasury stock; 45,830 shares as of March 31, 2021 and December 31,
2020 at cost |
|
(510,329 |
) |
|
|
(510,329 |
) |
Additional paid-in capital |
|
97,435,316 |
|
|
|
97,435,316 |
|
Retained earnings unappropriated |
|
148,886,232 |
|
|
|
151,388,356 |
|
Retained earnings appropriated |
|
24,233,544 |
|
|
|
24,233,544 |
|
Accumulated other comprehensive income |
|
2,268,557 |
|
|
|
4,453,247 |
|
Total Stockholders’ Equity |
|
272,337,459 |
|
|
|
277,024,273 |
|
Total Liabilities and Stockholders’ Equity |
$ |
292,594,268 |
|
|
$ |
294,037,818 |
|
See accompanying notes to the condensed consolidated
financial statements.
|
GULF RESOURCES, INC.AND SUBSIDIARIESCONDENSED CONSOLIDATED
STATEMENTS OF COMPREHENSIVE LOSS(Expressed in U.S.
dollars)(UNAUDITED) |
|
|
|
Three-Month Period Ended March 31, |
|
2021 |
|
2020 |
|
|
|
|
NET REVENUE |
|
|
|
|
|
|
|
Net revenue |
$ |
5,259,243 |
|
|
$ |
557,670 |
|
|
|
|
|
|
|
|
|
OPERATING EXPENSE |
|
|
|
|
|
|
|
Cost of net revenue |
|
(4,181,389 |
) |
|
|
(921,320 |
) |
Sales, marketing and other operating expenses |
|
(9,545 |
) |
|
|
(2,243 |
) |
Direct labor and factory overheads incurred during plant
shutdown |
|
(2,613,483 |
) |
|
|
(3,610,423 |
) |
General and administrative expenses |
|
(1,736,250 |
) |
|
|
(843,337 |
) |
Other operating expense |
|
— |
|
|
|
(15,776 |
) |
|
|
(8,540,667 |
) |
|
|
(5,393,099 |
) |
|
|
|
|
|
|
|
|
LOSS FROM OPERATIONS |
|
(3,281,424 |
) |
|
|
(4,835,429 |
) |
|
|
|
|
|
|
|
|
OTHER INCOME (EXPENSE) |
|
|
|
|
|
|
|
Interest expense |
|
(36,862 |
) |
|
|
(35,428 |
) |
Interest income |
|
72,453 |
|
|
|
74,656 |
|
LOSS BEFORE TAXES |
|
(3,245,833 |
) |
|
|
(4,796,201 |
) |
|
|
|
|
|
|
|
|
INCOME
TAX BENEFIT |
|
743,709 |
|
|
|
1,256,443 |
|
|
|
|
|
|
|
|
|
NET LOSS |
$ |
(2,502,124 |
) |
|
$ |
(3,539,758 |
) |
|
|
|
|
|
|
|
|
COMPREHENSIVE LOSS: |
|
|
|
|
|
|
|
NET LOSS |
$ |
(2,502,124 |
) |
|
$ |
(3,539,758 |
) |
OTHER COMPREHENSIVE LOSS |
|
|
|
|
|
|
|
- Foreign currency translation
adjustments |
|
(2,184,690 |
) |
|
|
(4,515,359 |
) |
|
|
|
|
|
|
|
|
COMPREHENSIVE LOSS |
$ |
(4,686,814 |
) |
|
$ |
(8,055,117 |
) |
|
|
|
|
|
|
|
|
LOSS PER SHARE: |
|
|
|
|
|
|
|
BASIC AND DILUTED |
$ |
(0.25 |
) |
|
$ |
(0.37 |
) |
|
|
|
|
|
|
|
|
WEIGHTED AVERAGE NUMBER OF
SHARES: |
|
|
|
|
|
|
|
BASIC AND DILUTED |
|
9,997,477 |
|
|
|
9,517,427 |
|
See accompanying notes to the condensed consolidated
financial statements.
|
GULF RESOURCES, INC.AND SUBSIDIARIESCONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS(Expressed in U.S. dollars)(UNAUDITED) |
|
|
|
Three-Month Period Ended March 31, |
|
2021 |
|
2020 |
|
|
|
|
CASH FLOWS FROM OPERATING
ACTIVITIES |
|
|
|
Net loss |
$ |
(2,502,124 |
) |
|
$ |
(3,539,758 |
) |
Adjustments to reconcile net
loss to net cash (used in) provided by operating activities: |
|
|
|
|
|
|
|
Interest on capital lease obligation |
|
35,538 |
|
|
|
35,272 |
|
Depreciation and amortization |
|
4,104,357 |
|
|
|
3,454,891 |
|
Unrealized exchange (gain) loss on translation of inter-company
balances |
|
104,812 |
|
|
|
(400,449 |
) |
Deferred tax asset |
|
(743,709 |
) |
|
|
(1,256,443 |
) |
Common stock issued for services |
|
— |
|
|
|
— |
|
Changes in assets and
liabilities |
|
|
|
|
|
|
|
Accounts receivable |
|
1,637,800 |
|
|
|
4,245,576 |
|
Inventories |
|
(162,099 |
) |
|
|
523 |
|
Prepayments and deposits |
|
(71,888 |
) |
|
|
54,350 |
|
Other receivables |
|
— |
|
|
|
— |
|
Accounts and Other payable and accrued expenses |
|
830,751 |
|
|
|
(41,562 |
) |
Retention payable |
|
— |
|
|
|
— |
|
Taxes payable |
|
72,758 |
|
|
|
(18,999 |
) |
Prepaid land leases |
|
— |
|
|
|
(369,066 |
) |
Operating leases |
|
35,199 |
|
|
|
38,022 |
|
Net cash provided by
operating activities |
|
3,341,395 |
|
|
|
2,202,357 |
|
|
|
|
|
|
|
|
|
CASH FLOWS USED IN INVESTING
ACTIVITIES |
|
|
|
|
|
|
|
Purchase of property, plant
and equipment |
|
— |
|
|
|
(7,416,211 |
) |
Net cash used in
investing activities |
|
— |
|
|
|
(7, 416,211 |
|
|
|
|
|
|
|
|
|
EFFECTS OF EXCHANGE RATE
CHANGESON CASH AND CASH EQUIVALENTS |
|
(864,609 |
) |
|
|
(1,455,442 |
) |
NET (DECREASE) INCREASE IN
CASH AND CASH EQUIVALENTS |
|
2,476,786 |
|
|
|
(6,669,296 |
) |
CASH AND CASH EQUIVALENTS -
BEGINNING OF PERIOD |
|
94,222,538 |
|
|
|
100,301,986 |
|
CASH AND CASH EQUIVALENTS -
END OF PERIOD |
$ |
96,699,324 |
|
|
$ |
93,632,690 |
|
|
|
|
|
|
|
|
|
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 |
$ |
— |
|
|
$ |
— |
|
SUPPLEMENTAL DISCLOSURE OF
CASH NON-CASH INVESTING AND FINANCING ACTIVITIES |
|
|
|
|
|
|
|
Increase in Property, plant
and equipment transferred from Prepayment and deposits and included
in Accounts and other payable and accrued expenses |
$ |
6,199,214 |
|
|
$ |
— |
|
See accompanying notes to the condensed consolidated
financial statements.
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