Gulf Resources, Inc.

Good day, ladies and gentlemen, and welcome to the Gulf Resources Conference to discuss fourth quarter and full year 2021 financial results. At this time, all participants have been placed on a listen-only mode, and the floor will be open for questions and comments after the presentation. It is now my pleasure to turn the floor over to your host, Helen Zhu. Ma'am, the floor is yours.

Okay. Thank you, Operator. Good morning, ladies and gentlemen, and good evening to all those of you for joining us from China. And we'd like to welcome all of you to Gulf Resources' fourth quarter and fourth year 2021 earnings conference call. I'm Helen Xu, the IR Director, and our CEO of the company, Mr. Shelby Liu, also joining us for this call today. I'd like to remind you to all of our listeners that in this call, Third, amendment statements during the call will contain forelooking information about Gulf resources incorporation and its subsidiary business and products with the meaning of Rule 175 under Securities Act of 1933 and Rule 3B-6 under the Securities Exchange Act of 1934. And as subject to the safe harbors, created by those rules. Actual results may differ from those discussed today, taking into account a number of risk factors, including but not limited to the general economic and business conditions in China, the risks associated with the COVID 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 competition from the bromine and other chemicals products, changing technology, the ability to make future bromine assets, and the various other factors beyond the company's control. All four looking statements are expressly qualified in their entirety by this cautionary statement and the risk factors detailed in the company's report filed with the SEC. GovResources assumes no obligation to revise or update any follow-up statement to reflect events or circumstances after the date of this call. Accordingly, our company believes the expectations reflecting in those forelooking statements are reasonable and there can be no assurance of such will prove to be correct. In addition, any reference to the company's future performance represents the management estimates as of today, the 13th of April, 2022. For those of you unable to listen to the entire call at this time, a replay will be available at the company's website. The call is also accessible through the webcast and the link is accessible through our webcast. So please locate our press release issued earlier for the details. So first of all, I like to start by reviewing the fiscal year and fourth quarter 2021 and then product updating investors on each of our segments. For the 2021 fiscal year, the revenues exceeded approximately $65 million and increased of 95% compared to the previous fiscal year. The gross profit was approximately 21.9 million, an increase of 217% from the previous year. Gross margins were 15.7% versus 31.2%. Profits before taxes improved approximately 14.9 million to 5.2 million from a loss of approximately 9.7 million. Taxes were approximately 6.3 million, 117% of profits reflecting the cancellation of deferred tax assets. The loss after taxes declined 89% to $924,718. Three factors contributed to the net loss. Firstly, the depreciation expenses of approximately $4.3 million for closed factories number two, number eight, and number 10. Second reason, there are approximately $2.7 million for the cancellation of deferred tax assets. And the third reason, approximately $3.1 million in compensation charges for the shares being issued to companies, management consultants, and staff. So now we review the operating results by segment. Firstly, let's look at the bromine segment. The revenues in bromine increased by 78% to approximately $48.8 million. The increase was due to an increase in volume of 24% and an increase in pricing of 57%. For the year 2021, the average selling price of bromine was RMB $42,444. The current price is RMB $55,600. Gross profit increased by 182% to approximately $26 million. Gross profit margins were 53% compared to 37%. Net income in Bromley increased by 727%. to approximately $13.4 million. For crude salt segment, the revenues in crude salt increased by 101% to approximately $6.1 million. For the physical year, the crude salt segment lost approximately $1.1 million compared to a loss of $3.6 million in the previous year. Lastly, let's look at the chemicals and natural gas segment. The chemical product segment sustained a loss of approximately $2.5 million, roughly in line with the loss in the previous year. The chemical business did not operate in year 2021. The natural gas segment sustained a loss of approximately $167,000. The natural gas segment also did not operate in year 2021. Now let's review our first quarter 2021 results. In the first quarter 2021, revenues increased 76.7% to approximately $20.9 million. Growth margin increased 156.2%. Margins were 62.4% compared to 43.1% in the previous year, reflecting the higher prices for both Bromine and Crusade. Income from operations increased 350%. Tax increased 718.1%. The company incurred a loss of approximately $1.1 million versus a profit in a previous year. a number of unique accounting sectors impacted the first quarter results. Firstly, the depreciation in the first quarter was approximately $4.5 million higher than the previous year, primarily because we took all the depreciation from the three factories closed in one quarter, as we mentioned earlier. Secondly, the tax rate was 129% of profit instead of the traditional 25% because we canceled some deferred tax assets. Third reason, in excluding this one-time event, we would have shown a profit in the fourth quarter and in the year as a whole. Now let's look at cash flow. For the year, the company generated $23.3 million cash from operations compared to $9.3 million in the previous year. Capital expenditures were $30.1 million compared to $21.7 million in the previous year. Approximately $20.3 million worth spent on upgrading wells, aqueducts, and other resources for the chemical and crude salt segments with expenditures. And there are approximately $8.4 million worth spent on equipment for the new chemical factory. Now let's look at the balance sheet. The company ended the year with cash of approximately $95.8 million on a per share basis using $10,471,924 shares issued and outstanding ended by December 31, 2021. This equals to $9.15 The net cash per share was $7.82. Working capital per share was $9.70. Shareholders' equity was $27.37. Now let's review our business by segment. Firstly, let's look at Bromley and Cushot segments. The pricing of Bromley. While Bromley prices have declined from the record highs, when all factories were closed. They remain substantially higher than last year. According to Census.com, roaming prices per ton were $36,222 on April 5, 2021, and $55,600 on April 5, 2022. We expect higher prices to continue for a number of reasons. First, the bromine factories have been permanently shut down. Secondly, because of the winter shutdown and the new COVID restrictions, some of our customers have not yet resumed production. Third, demand for bromine products such as pharmaceuticals and their products is increasing. Fourth, sector that could potentially lead to an even more significant price increase is the use of zinc and bromine batteries. The combination of zinc and bromine is now being used in hybrid batteries that appear to offer significant applications for EVs and power storage. The company does not know how important this application could be. But according to a study by marketdataforecast.com published on April 7th, the title of the market for zinc and bromine batteries is projected to grow from $8.6 billion in year 2021 to $20.6 billion in year 2027. We are not making any projections. But we think the adoption of these batteries could have a significant positive impact on the price of bromine. Fact sheet number two, number eight, number 10. The government is continuing its environmental planning to protect the pollution, sorry, the population against the pollution and the impact of flours. However, Recent contacts make us increasingly optimistic that the company will receive approval to open one or more of these factories in year 2022. We would like to be required to invest in new wells and aqueducts. The total cost of this rectification will depend on the requirements of the government, which cannot be estimated until the government gives us specific instructions. However, with the current price of bromine, we expect this factory to be strong contributors to profit. Chemical factories segment. Following the electricity restrictions are being eased in February year 2022 regarding its using chemical factories. At that time, the company requested the production and delivery of most of the equipment in an expedited manner. We are not certain when all the equipment will be delivered as some of our vendors are still closed because of the renewal of COVID restrictions in China. However, we do believe that all equipment should be delivered and installed by the third quarter of 2022. The delays caused by the electricity issues may increase the total cost of the chemical factory by approximately $5 million. As we have previously noted, once the equipment is installed, we will begin test and then trial production. This process should take about approximately six months. Assuming this could be another winter closure, we expect commercial production to begin in year 2023. The company has strong demand for the types of pharmaceutical intermediate products and byproducts this chemical factory will produce. Pricing remains extremely strong. The company believes this factory will generate sales and profit by year 2024. The company will be active in posting photographs of the factory so investors can follow our progress. Lastly, let's look at our Sichuan natural gas and brine projects. The company is still waiting for the provincial government of Sichuan to finalize its land and resource planning for Sichuan province. We hope investors can understand that this planning is not only for the entire province, which is about 84 million people, not just for our project. As a result, we cannot project when the province will complete its work. However, we do remain optimistic about the long-term potential. Investors have asked why we remain optimistic about this project. There are two reasons. Firstly, the central government has approved that privately owned enterprises are allowed to participate in the natural gas production. Given this approval, we do not think our application will be denied. Secondly, while we have been waiting for the province to complete its plans, the fundamentals underlying this project have changed significantly. natural gas prices continue to rise and China has faced a shortage of energy, especially clean energy. Bromid prices, as we have discussed, also continue to rise. The company would like to remind investors that the bromide concentrations in Sichuan are extraordinarily high. Finance sheet and cash. Investors have also asked why we do not put our substantial cash balance in long-term financing instruments that could provide us with additional income? The answer is that we have no exact handle on the timing of decisions by the government or opportunities on which we could capitalize. We are now moving ahead to complete construction of our chemical factory. We believe we will receive approval to open one or more of our closed roaming factories in year 2022. The opening of these factories will require some capital expenditures as well. If and when we receive approval in Sichuan province, we want to be very aggressive in treating for both natural gas and brine resources, not just in our existing location well, but in other locations that we have identified We also consider acquisitions, guidance. We will provide guidance for the full year when we report our first quarter in about one month. Because of the winter closures and the impact of the cold on crude salt production, the first quarter, year 2022, normally the first quarter is the weakest quarter of the year. In the first quarter of year 2022, the company expects first quarter revenues to be higher than those of the previous years. It also expects the loss to be very significantly reduced. However, any estimates exclude any potential non-recurring factors or write-offs. Now, let me turn the call over to Mr. Liu. Hello, everyone. Thank you.

I'm Mr. Xiaobin Liu, the CEO of the company. First of all, I'd like to welcome all of you to GovResources