GULF RESOURCES, INC. 
By NEW YORK and SHANDONG, China, Aug. 16, 2011 /PRNewswire-Asia-FirstCall/ -- 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 its financial results for the three and six months ended June 30, 2011.
Second Quarter 2011 Highlights
-- Revenue was $51.3 million, an increase of 10% comparing to the
corresponding period last year
-- Gross profit was $26.3 million, an increase of 13% comparing to the
corresponding period last year
-- Income from operations was $13.0 million, a decrease of 41% comparing to
the corresponding period last year
-- Net income was $10.0 million, or $0.29 per basic and diluted share,
compared with $16.4 million, or $0.47 per basic and diluted share a year
ago
-- Excluding non-cash impairment/write-off expenses, adjusted net income
was $17.6 million, or $0.51 per basic and diluted share
-- Cash totaled $59.7 million as of June 30, 2011
-- In June 2011, the Company changed the trading symbol of its common stock
on the Nasdaq Global Select Market to "GURE" effective at the open of
the market on June 30, 2011.
-- In June 2011, the Company announced that its subsidiary Shouguang City
Haoyuan Chemical Ltd. Co. ("SCHC") had signed a non-binding Letter of
Intent with the People's Government of Daying County in Sichuan Province
to explore and develop potential underground brine water resources.
-- On June 22, 2011, the Company hosted its Annual Meeting of Stockholders.
-- In June 2011, the Company announced that SCHC, ChemNet and local
government agencies successfully hosted the Third China Bromine Industry
Summit "Haoyuan Cup" in Daying County, Suining City, Sichuan Province,
China on June 16 - 18, 2011.
Second Quarter 2011 Results
"Our performance in the second quarter was mixed. Bromine and crude salt prices were higher compared with a year ago levels, which helped us combat increased raw material costs. However, despite a favorable pricing environment and an increase in the number of our bromine production factories, we have experienced a decrease in sales volume mainly due to less bromine being extracted from brine water during the production process due to the decrease in bromine concentration of brine water, government restrictions related to the supply of electricity to industrial users during periods of peak usage and limited supply in May 2011 and continued enhancement of our production facilities," said Xiaobin Liu, Chief Executive Officer of Gulf Resources. "Our operating costs also increased significantly during the second quarter. In June 2011, we began exploring the brine water resources in Sichuan province, which resulted in exploration costs. We also incurred several non-cash impairment charges related to our bromine and crude salt business in Shouguang, which impacted our profitability for the quarter. Our cash balance and operating cash flow remained strong, which provides us with a healthy buffer in case of unexpected capital outlays."
Gulf Resources' revenue was $51.3 million for the second quarter of 2011, an increase of 10% from $46.8 million for the second quarter of 2010. The increase in net revenue was primarily attributable to growth in the Company's bromine and crude salt segments.
Revenue from the bromine segment was $33.2 million, or 65% of total revenue, an increase of 7% from $30.9 million in the corresponding period last year. The increase in revenue from the Company's bromine segment was mainly due to an increase in the average selling price of bromine, offset by a decrease in sales volume.
Revenue from the crude salt segment was $6.0 million, or 12% of total revenue, an increase of 48% from $4.0 million in the corresponding period last year. The increase in revenue from the Company's crude salt segment was mainly due to an increase in the average selling price and sales volume of crude salt.
Revenue from the chemical products segment was $12.1 million, or 23% of total revenue, for the second quarter of 2011, an increase of 3% from $11.8 million in the corresponding period last year. The increase in revenue from the Company's chemical product segment was mainly due to the introduction of new wastewater treatment chemical additives and the increased sale of agricultural intermediates. In July the Company successfully converted the production equipment from wastewater treatment chemical additives to pharmaceutical and agricultural chemical additives with higher profit margins.
Gross profit for the second quarter of 2011 was $26.3 million, an increase of 13% from $23.3 million for the second quarter of 2010 and gross profit margin for the three months ended June 30, 2011 was 51% compared to 50% for corresponding three-month period last year. The flat gross profit margin despite higher price per tonne for both bromine and crude salt was mainly due to higher raw material costs and the increased number of crude salt fields. The gross profit margin for the bromine segment was 53% compared to 52% for the corresponding quarter. For the crude salt segment, gross profit margin was 76% compared to 77% for the corresponding quarter last year. Gross margin for the chemical products segment was 33% compared to 35% for the corresponding quarter last year.
Research and development expenses were $133,519 for the second quarter of 2011 compared with $596,151 for the corresponding period last year. The Company incurred research and development costs related to the new production line for wastewater treatment additives in the second quarter 2010. The new line began operations in April 2011. The research and development expense incurred for the new production line from outside parties and the consumption of bromine produced by SCHC during the three-month period ended June 30, 2011 were $12,261 and $13,158 respectively. In June 2011, the Company's subsidiary SYCI terminated its agreement with East China University of Science and Technology. The decision to terminate the cooperation agreement was mutual and due to successful completion of cooperative research and development tasks by both parties.
For the second quarter ended June 30, 2011, the Company incurred exploration costs of $3.9 million. These costs consisted of the drilling of exploratory wells and associated facilities in order to confirm and measure brine water resources in Sichuan province. As there is no guarantee that there will be a return on the investment of these exploration costs, the Company charged the exploration costs to the income statement as incurred. The exploratory wells are still under construction and expected to be completed by the end of 2011.
General and administrative expenses for the second quarter of 2011 were $1.7 million, compared to $0.7 million for the second quarter of 2010. The increase was mainly due to (i) the demolition and re-installation expense of $0.5 million for relocating Factory No.4 due to the Chinese government taking the leased land, where the Company's original Factory No.4 was situated, for civil redevelopment; (ii) inclusion of depreciation of owned property, plant and equipment and property under capital lease which were acquired in last quarter of 2011 but not put into use in the amount of $0.2 million; and (iii) the increase in legal fees, primarily related to litigation, by approximately $0.2 million.
The Company incurred non-cash write off and impairment charges of $7.6 million for the second quarter of 2011 due to (i) the impairment loss in the amount of $1.4 million on property, plant and equipment that could not be relocated to the new Factory No. 4; (ii) the impairment loss of in the amount of $1.8 million on property, plant and equipment related to the conversion of our production line from wastewater treatment chemical additives to the production of pharmaceutical and agricultural chemical intermediates; (iii) the impairment loss of in the amount of $0.7 million on property, plant and equipment under capital leases for idle plant and machinery; and (iv) the write-off of certain crude salt field protection shells and transmission pipelines replaced during renovation work in the amounts of $1.6 million and $2.1 million, respectively.
As a result, income from operations for the second quarter of 2011 was $13.0 million, a decrease of 41% compared to $21.9 million for the corresponding quarter of 2010. Operating margin was 25% for the second quarter of 2011, compared to 47% for the second quarter of 2010.
For the second quarter of 2011, the Company incurred other income of $0.4 million compared to $59,772 for the corresponding quarter last year mainly due to sundry income which was offset by an increase in interest expense.
Income taxes were $3.4 million for the second quarter of 2011, a decrease of 38% from $5.5 million for the second quarter of 2010. The Company's effective income tax rate was 25% in both periods.
Net income was $10.0 million for the second quarter of 2011, a decrease of 39% from $16.4 million for the second quarter of 2010. Basic and diluted earnings per share in the second quarter of 2011 were $0.29, compared to $0.47 per fully diluted share in the second quarter of 2010. Excluding the aforementioned non-cash write off/impairment charges, net income for the second quarter 2011 was $17.6 million, or $0.51 per basic and diluted share. Weighted average number of diluted shares for the three months ended June 30, 2011 was 34,733,188 compared with 34,738,667 for the three months ended June 30, 2010.
Six Months Ended June 30, 2011
Revenues for the six months ended June 30, 2011 were $96.7 million, up 26% from revenues of $76.4 million for the six months ended June 30, 2010. Gross profit for the six months ended June 30, 2011 was $51.1 million, up 39% from gross profit of $36.7 million for the corresponding period of 2010. Gross margin was 53%, compared to 48% for the first six months of 2010. Operating income was $33.2 million, a increase of 1% from $32.9 million for the first six months of 2010. Net income was $24.4 million, or $0.70 and $0.69 per basic and diluted share, respectively, compared to $24.4 million, or $0.71 and $0.70 per basic and diluted share, respectively, for the same period a year ago. Excluding the aforementioned non-cash write off/impairment charges of $$7.6 million and $3.2 million in non-cash expenses related to options granted to employees and warrants related to a service agreement, net income for the six months ended June 30, 2011 was $35.1 million, or $1.00 per diluted share, compared with $25.6 million, or $0.74 per diluted share for the six months ended June 30, 2010, excluding expenses related to options and warrants of $1.2 million.
Financial Condition
As of June 30, 2011, Gulf Resources had cash of $59.7 million, current liabilities of $17.8 million, and shareholders' equity of $224.7 million. As of June 30, 2011, the Company had working capital of $81.8 million and a current ratio of 5.6:1. For the six months ended June 30, 2011, the Company generated $29.4 million in cash flow from operations, primarily attributable to net income, and used $39.0 million in investing activities to enhance bromine and crude salt production facilities. In particular, the Company invested approximately $12 million for renovation and reconstruction of crude salt fields at Factory No. 1, 5 to 9 and invested approximately $19 million for extraction wells and transmission channels at Factory No. 1 to 9. The Company also used approximately $4.6 million cash for the construction of a new Factory No. 4 due to the resumption of leased land by the local government for central redevelopment. The construction of Factory No. 4 is still ongoing and expected to complete by late August 2011. Further capital expenditure to complete the construction of Factory No. 4 amounted to approximately $1.7 million.
Non-GAAP Financial Measures
To supplement the Company's condensed consolidated financial statements for the three and six months ended June 30, 2011 and June 30, 2010 presented on a GAAP basis, the Company provided adjusted financial information in this release that excludes the impact of non-cash expenses related to impairment/write off on property, plant and equipment and non-cash expenses related to options granted to employees and a warrant issued to its investor relations firm resulting from the service agreement. The Company's management believes that these adjusted measures, adjusted net income and adjusted diluted earnings per share provide investors with a better understanding of how the results relate to the Company's current and historical performance. The additional adjusted information is not meant to be considered in isolation or as a substitute for GAAP financials. The adjusted financial information that the Company provides also may differ from the adjusted information provided by other companies. Management believes that these adjusted financial measures are useful to investors because they exclude non-cash expenses that management excludes when it internally evaluates the performance of the Company's business and makes operating decisions, including internal budgeting, and performance measurement, because these measures provide a consistent method of comparison to historical periods. Moreover, management believes that these adjusted measures reflect the essential operating activities of the Company. Adjusted measures are subject to inherent limitations because they do not include all of the expenses included under GAAP and because they involve the exercise of judgment of which charges are excluded from the adjusted financial measure. However, the Company's management compensates for these limitations by providing the relevant disclosure of the items excluded. A reconciliation of each adjusted measure to the nearest GAAP measure follows:
Three Months ended Six Months ended June
June 30, 30,
2011 2010 2011 2010
Net Income 10,023,255 16,426,445 24,388,254 24,418,581
Write-off /Impairment
Charge 7,570,566 - 7,570,566 -
Stock Compensation
Expense 31,000 - 3,169,000 1,188,966
Adjusted Net Income 17,624,821 16,426,445 35,127,820 25,607,547
Earnings Per Share -
Diluted 0.29 0.47 0.69 0.70
Write-off /Impairment
Charge - Per Diluted
Share 0.22 - 0.22 -
Stock Compensation
Expense -Per Diluted
Share 0.00 - 0.09 0.03
Adjusted Earnings Per
Share -Diluted 0.51 0.47 1.00 0.74
Subsequent Events
-- In July 2011, the Company requested the immediate withdrawal of its
registration statement on Form S-3, which was declared effective on
August 31, 2010 with the Securities and Exchange Commission (the "SEC").
The Company has not sold and/or distributed any of the securities
registered in the filing.
-- In mid-July 2011, the Company announced that its Chairman, Ming Yang and
his family will hold their shares for the next three years and confirmed
that Gulf Resources maintains 100% ownership of its two PRC subsidiaries
SCHC and SYCI.
Business Outlook
"As we complete renovations of our bromine and crude salt fields, we expect to stabilize production volumes slightly in the second half of the year. However, given that we do not expect further increases in bromine prices for the remainder of the year, we expect growth to be significantly slower compared to levels obtained previous years. Assuming current bromine prices of approximately $3,750 coupled with higher raw material costs, we may see a decrease in gross profit margin as well," said Mr. Liu. "Following the lower concentration of bromine in the brine water at our factories, we continue to explore brine water resources in Sichuan province in order to secure our future bromine production resources."
As a result, the Company revises guidance of revenue between $156 million and $158 million and net income between $48 million and $49.5 million for 2011.These projections include the aforementioned non-cash expenses related to impairment/write off and options and warrants issued.
Conference Call
Gulf Resources' management will host a conference call at 8:00 a.m. EDT on Tuesday, August 16, 2011 to discuss its financial results for the second quarter 2011. 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 call +1 (706) 643-1666. The conference participant pass code is 88548582.
A replay of the conference call will be available for 14 days starting from 11:00 a.m. EDT on Tuesday, August 16, 2011. To access the replay, call +1 (855) 859-2056. International callers should call +1 (404) 537-3406. The pass code is 88548582.
This conference call will be broadcast live over the Internet and can be accessed by all interested parties by clicking on http://www.gulfresourcesinc.cn/events.html. Please access the link at least fifteen minutes prior to the start of the call to register, download, and install any necessary audio software. For those unable to participate during the live broadcast, a 90-day replay will be available shortly after the call by accessing the same link.
About Gulf Resources, Inc.
Gulf Resources, Inc. operates through two wholly-owned subsidiaries, Shouguang City Haoyuan Chemical Company Limited ("SCHC") and Shouguang Yuxin Chemical Industry Co., Limited ("SYCI"). 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 & gas field explorations and as papermaking chemical agents. For more information, visit www.gulfresourcesinc.cn.
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.
- Financial tables to follow-
GULF RESOURCES, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Expressed in U.S. dollars)
(UNAUDITED
June 30, December 31,
2011 2010
---- ----
Current Assets
Cash $59,738,125 $68,494,480
Accounts receivable 36,229,621 21,542,229
Inventories 3,151,972 2,679,899
Prepayments and deposits 46,134 939,940
Prepaid land leases 300,385 42,761
Deferred tax assets 1,712 99,694
Other receivables 151,853 -
------- ---
Total Current Assets 99,619,802 93,799,003
---------- ----------
Non-Current Assets 140,623,447 112,178,999
Property, plant and equipment, net
Property, plant and equipment under
capital leases, net 2,444,867 -
Prepaid land leases, net of current
portion 751,996 743,022
Deferred tax assets 2,034,568 -
--------- ---
Total non-current assets 145,854,878 112,922,021
----------- -----------
Total Assets $245,474,680 $206,721,024
============ ============
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable and accrued expenses $8,044,689 $6,419,735
Retention payable 1,623,338 453,000
Capital lease obligation, current
portion 82,847 -
Taxes payable 8,035,313 7,163,095
--------- ---------
Total Current Liabilities 17,786,187 14,035,830
---------- ----------
Non-Current Liabilities
Capital lease obligation, net of
current portion 2,956,391 -
--------- ---
Total Liabilities $20,742,578 $14,035,830
=========== ===========
Stockholders' Equity
PREFERRED STOCK ; $0.001 par value;
1,000,000 shares authorized; none
outstanding $ - $ -
COMMON STOCK; $0.0005 par value;
100,000,000 shares authorized;
34,745,342 and 34,735,912 shares
issued; and 34,644,842 and 34,735,912
shares outstanding as of June 30,
2011 and December 31, 2010,
respectively 17,373 17,368
Treasury stock (348,147) -
Additional paid-in capital 69,795,579 66,626,584
Retained earnings unappropriated 130,888,339 106,500,085
Retained earnings appropriated 10,271,293 10,271,293
Cumulative translation adjustment 14,107,665 9,269,864
---------- ---------
Total Stockholders' Equity 224,732,102 192,685,194
----------- -----------
Total Liabilities and Stockholders'
Equity $245,474,680 $206,721,024
============ ============
GULF RESOURCES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(Expressed in U.S. dollars)
(UNAUDITED)
Three-Month Period
Ended June 30,
2011 2010
---- ----
NET REVENUE
Net revenue $51,300,812 $46,751,809
OPERATING EXPENSES
Cost of net revenue (24,994,703) (23,470,972)
Sales, marketing and other
operating expenses (23,733) (75,687)
Research and development cost (133,519) (596,151)
Exploration cost (3,867,286) -
Write-off /Impairment on
property, plant and equipment (7,570,566) -
General and administrative expenses (1,714,694) (731,593)
---------- --------
(38,304,501) (24,874,403)
----------- -----------
INCOME FROM OPERATIONS 12,996,311 21,887,406
OTHER INCOME (EXPENSE)
Interest expense (65,740) (52)
Interest income 52,731 59,824
Sundry income 392,298 -
------- ---
INCOME BEFORE TAXES 13,375,600 21,937,178
INCOME TAXES (3,352,345) (5,510,733)
---------- ----------
NET INCOME $10,023,255 $16,426,445
=========== ===========
COMPREHENSIVE INCOME:
NET INCOME $10,023,255 $16,426,445
OTHER COMPREHENSIVE INCOME
-Foreign currency translation
adjustments 2,816,166 682,396
--------- -------
COMPREHENSIVE INCOME $12,839,421 $17,108,841
=========== ===========
EARNINGS PER SHARE:
BASIC $0.29 $0.47
DILUTED $0.29 $0.47
WEIGHTED AVERAGE NUMBER OF SHARES:
BASIC 34,729,179 34,587,479
DILUTED 34,733,188 34,738,667
========== ==========
Six-Month Period Ended
June 30,
2011 2010
---- ----
NET REVENUE
Net revenue $96,679,344 $76,445,227
OPERATING EXPENSES
Cost of net revenue (45,586,087) (39,706,471)
Sales, marketing and other
operating expenses (47,745) (96,385)
Research and development cost (313,856) (721,353)
Exploration cost (3,867,286) -
Write-off /Impairment on
property, plant and equipment (7,570,566) -
General and administrative expenses (6,055,985) (2,988,386)
---------- ----------
(64,441,525) (43,512,595)
----------- -----------
INCOME FROM OPERATIONS 33,237,819 32,932,632
OTHER INCOME (EXPENSE)
Interest expense (107,956) (226)
Interest income 128,775 113,584
Sundry income 415,083 21,998
------- ------
INCOME BEFORE TAXES 33,673,721 33,067,988
INCOME TAXES (9,285,467) (8,649,407)
---------- ----------
NET INCOME $24,388,254 $24,418,581
=========== ===========
COMPREHENSIVE INCOME:
NET INCOME $24,388,254 $24,418,581
OTHER COMPREHENSIVE INCOME
-Foreign currency translation
adjustments 4,837,801 662,662
--------- -------
COMPREHENSIVE INCOME $29,226,055 $25,081,243
=========== ===========
EARNINGS PER SHARE:
BASIC $0.70 $0.71
DILUTED $0.69 $0.70
WEIGHTED AVERAGE NUMBER OF SHARES:
BASIC 34,732,527 34,574,514
DILUTED 35,128,273 34,750,714
========== ==========
GULF RESOURCES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Expressed in U.S. dollars)
(UNAUDITED)
Six-Month Period Ended June
30,
2011 2010
---- ----
CASH FLOWS FROM OPERATING
ACTIVITIES
Net income $24,388,254 $24,418,581
Adjustments to reconcile net
income to net cash provided by
operating activities:
Interest on capital lease
obligation 106,835 -
Amortization of prepaid land
leases 102,831 46,379
Depreciation and amortization 7,468,616 4,787,674
Write-off /Impairment loss on
property, plant and equipment 7,570,566 -
Stock-based compensation
expense 3,169,000 1,188,966
Deferred tax assets (1,913,608) (21,445)
Changes in assets and
liabilities:
Accounts receivable (14,033,743) (10,055,752)
Inventories (405,227) 19,405
Prepayments and deposits 905,669 (682,423)
Other receivables (151,853) -
Accounts payable and accrued
expenses 1,468,892 4,920,174
Taxes payable 697,706 3,320,663
------- ---------
Net cash provided by operating
activities 29,373,938 27,942,222
---------- ----------
CASH FLOWS USED IN INVESTING
ACTIVITIES
Additions of prepaid land
leases (348,196) (50,940)
Purchase of property, plant and
equipment (34,075,105) (20,283,022)
Increase in construction in
progress (4,609,456) (551,699)
---------- --------
Net cash used in investing
activities (39,032,757) (20,885,661)
----------- -----------
CASH FLOWS PROVIDED BY
FINANCING ACTIVITIES
Proceeds from exercising stock
options - 18,000
Proceeds from private placement - 2,192,919
Repurchase of common stock (348,147) -
Repayment of capital lease
obligation (288,739) -
Advance from a related party - 231,210
--- -------
Net cash (used in)/provided by
financing activities (636,886) 2,442,129
-------- ---------
EFFECTS OF EXCHANGE RATE
CHANGES ON CASH AND CASH
EQUIVALENTS 1,539,350 161,947
--------- -------
NET (DECREASE)/INCREASE IN CASH
AND CASH EQUIVALENTS (8,756,355) 9,660,637
CASH AND CASH EQUIVALENTS -
BEGINNING OF PERIOD 68,494,480 45,536,735
---------- ----------
CASH AND CASH EQUIVALENTS -END
OF PERIOD $59,738,125 $55,197,372
=========== ===========
Gulf Resources, Inc. CCG Investor Relations
Helen Xu
Ms. Linda Salo, Account
E-mail: beishengrong@vip.163.com Manager
Website: http://www.gulfresourcesinc.cn/ Phone: +1-646-922-0894
E-mail:
linda.salo@ccgir.com
Mr. Crocker Coulson,
President
Phone: +1-646-213-1915
E-mail:
crocker.coulson@ccgir.com
Website: http://
www.ccgirasia.com/
SOURCE Gulf Resources, Inc.
