Gulf Resources, Inc.

Good day, ladies and gentlemen, and welcome to the Gulf Resources 2022 First Quarter Earnings Conference Call. 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 Hsu. Ma'am, the floor is yours.

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 GovResources first quarter 2022, our news conference call. I'm Helen Xu, the IR Director. Our CEO of the company, Mr. Xiaobin Liu, is also joining us this call today. I'd like to remind you to all of our listeners that in this call, Certain management statements during the call will contain for looking information about garbage sources in corporations and its subsidiary business and products within the meaning of Rule 175 under the Securities Act of 1933 and Rule 3B-6 under the Security Exchange Act of 1934 and are subject to the safe harbor 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 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 competition from the bromine and the other oil field and power production chemicals, changing technology, the ability to make future bromine assets, and various other factors beyond its control. All four looking statements are expressly qualified in their entirety by this cautionary statement and the risk factors detailed with the company's report filed with the SEC. Gulf Resources assumes no obligation to revise or update any four looking statements to reflect events or circumstances after the date of this call. Accordingly, our company believes expectations reflected 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's estimates as of today, the 16th of May 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 website. So please locate our press release issued earlier for the details.

Go, go. Hello.

Hello.

Hello. Hello.

Hello. Hello. Hello. Hello. Hello.

Hello. Hello. I am the CEO of the company, Liu Xiaobin. First of all, I would like to welcome everyone to participate in the first quarter of the financial report operation meeting of Taiwan Resources in 2022. Since 2017, in order to respond to the new government policy, the company has taken a series of measures, including the closure of the embroidery facilities and the revision of the project, the permanent closure of three embroidery factories, and the relocation of our chemical factories. At the same time, the company also faced a devastating typhoon in Sandong Province. During this time, the company has been in a short-term response mode, responding to each crisis. Therefore, we cannot provide investors with a plan to understand the long-term potential of the company, nor can we design strategic methods to improve shareholder value. Now we can share our plans with investors. Our team is developing a six-year plan, including various business departments, until 2027. Before the end of next month, we will publish a report on the company's website and hold a telephone meeting. At that time, we will share all the expected assumptions. The plan will show the company's profit and loss potential. We believe that the investors will be very happy. Since we are going to show this plan, this phone call meeting will no longer provide the second quarter of 2022 or the profit forecast for the whole year, but we expect the company to achieve profit in the remaining three quarters and the whole year. Now let me give the phone to Helen to summarize the operation situation of the company in the first quarter of 2022.

Thank you, Mr. Liu. So I will do the translation for Mr. Liu's comments just now he provided. So first of all, I'm Xiaobin Liu, the CEO of the company, and I'd like to welcome all of you to Gov. Chelsea's earnings conference call for the first quarter year 2022. Since the year 2017, our company has been forced to deal with new government rules, which involved closing our facilities for environmental planning and the protection and rectification, permanently closed three bromine factories and relocating our chemical factories. We were also hit with the most destructive typhoon in Shandong province. During this period, we had been in a short-term react mode, dealing with one crisis after another. As a result, We have not been able to provide investors with a framework to understand our long-term potential, nor have been able to stress guys' methods for enhancing our shareholder value. Now we are in a position to share our plans with our investors. Our team is trying to develop a six-year plan, division by division, through year 2027, before the end of next month. We will put a detailed presentation on our website and host a conference call during which we will review all of our projected assumptions. Our plan will demonstrate the earnings potential for our company, and we believe investors will be pleased. Because we will present this plan, so we will not provide second quarter or full year guidance on this call for year 2022. However, our company is positioned to profitable operations in coming quarters and for this year. So now let me turn the call over to Helen to review the first quarter of 2022. So thank you, Mr. Liu. The company tried to answer most of the questions we received from our investors during this call. And some may relate to our future planning may be discussed with our six-year plan conference call later on. So for the first quarter 2022, revenues increased 70% to approximately $8.9 million from approximately $5.3 million. Our fact sheets were closed for environmental reasons until February 21, 2022. In the previous year, they were closed until February 19, 2021. We had 39 days of operation in year 2022 versus 41 days in year 2021. So our daily revenues increased 78.5%. The gross profit increased 306% to approximately $4.4 million from approximately $1.1 million. Direct labor and factory overhead incurred during the planned shutdown were approximately $2.2 million. General and admin expenses increased 29% to approximately $2.2 million. A major factor impacting this G&A expense was a swing in the unrecorded foreign translation losses. The loss from operations decreased 98% to approximately $65,100 from approximately $3.3 million if the direct labor and the factory overhead of approximately $2.2 million and the foreign translation losses of approximately $283.8 are excluded, the first quarter of the year 2022 would have been very profitable, even with only 39 days of operations. So now let's look at our business segment data by segments. Firstly, let's look at our Browning segment. The revenues in this Browning segment increased 69% to approximately $8.1 million. tons produced increased 5% to 1,005 tons. The average selling price increased 60.5% to $8,086. At the present time, based on the spot price from sensors.com and the current exchange rate, the selling price of bromine is $8,270, which is higher than in the first quarter. Gross profits were approximately $4.2 million compared to $1.3 million, an increase of 224%. As a percentage of sales, gross margins were 51% compared to 27%. Our utilization rate was 19% compared to 17% in the previous year. Given that our factories were only open for 39 days versus 41 days in the previous year, our utilization rate was much improved. Net profits in Bromine were approximately $1.3 million versus a loss of approximately $1.3 million. These numbers included overhead costs of the closed factories. G and A expenses, and negative non-cash foreign currency adjustments. The total assets in our blooming business increased to approximately $186 million from $144.7 million in the previous year. We have been treating new wells, building aqueducts, and making other improvements. we believe we will receive approval to open at least one and potentially more of the closed factories in year 2022. Secondly, let's look at the cool salt segment. Cool salt as with bromine, the cool salt facilities were open only 39 days of the 90 days in the quarter. In addition, because of low temperatures, Winter is a very slow time for crude salt production. Lastly, crude salt revenues increased 68% to $754,000. Despite the substantial revenue increase, the cost of revenues declined 6% to $629,560. Gross profit worth approximately $124.5 thousand compared to a loss of $219.1 thousand. For the quarter including its shares of costs from closed facilities, corporate overheads, and unrecorded foreign exchange losses, Cursos lost approximately $522,000 versus $1 million. Third, let's look at the chemical segments. Chemicals had zero revenues and an operating loss of approximately $513,000. The construction of our new Yuxing Chemical Factory has been delayed by electricity restrictions as well as by the winter shutdown. On February 22, 2022, we announced that we believed the electricity restrictions were being eased. As a result, the company has contacted its suppliers and will have the remainder of the equipment produced and delivered so we can complete installation and begin testing and trial production. At this time, the company may begin commercial production during the year 2023. Now let's look at the natural gas segment. Our natural gas business reported revenue of approximately $50,700 on the rental of some of our equipment. The business reported a loss of $26,739 The company is still waiting for the provincial government of Sichuan to finalize the land and resource planning for Sichuan province. The company has no assurance on the timing of this plan. However, since the government of China has approved that privately owned enterprises are allowed to participate in natural gas production, and since there is a great demand for natural gas in China, the company remains optimistic about this project. Now let's look at the company's balance sheet. The company ended the quarter with a cash of approximately $105.7 million, an increase of approximately $9.9 million from the level in the previous year. Cash per share was $10.05. Shareholder's equity was approximately $288.1 million. The shareholders' equity per share was $27.39. Cash flow. Despite the closure of our facilities for more than half of the quarter, the company generated strong cash flow from operating activities of approximately $8.5 million. We spent approximately $395.1 on property, plant, and equipment, free cash flow excluding the impact of foreign currency translation, worth approximately $8.1 million. There is one question regarding the accounts receivable after the company's PIN QB failed. the investor is asking why there was approximately $2.4 million of receivables older than 90 days in our 10-key. And I just want to let all our investors in this conference call notice that these receivables have been received in the month of April 2022. So now let's turn the call back to Mr. Liu for some concluding remarks. Liu Zhuang.

Hi, operator. Hi.

Hi, Ellen.

The price of embroidery is still very strong. Imported products become more expensive. Due to environmental control, China's production capacity has been reduced, and demand is still strong. We see that embroidery is increasingly widely used in medicine and other products, such as new embroidery batteries and incinerators. We also hope that in 2022, to open at least one closed embroidery factory. Based on the improvement we have made and our current expectation for the price of embroidery, our company is very optimistic about this area. As the weather gets colder, the production of raw materials should be improved. Our company is very optimistic about the construction of the new chemical industry. Our company plan to complete the construction and start production. In 2023, we may start commercialization production. We are optimistic that we will eventually get carbon dioxide and sewage permits in Sichuan Province. The company is facing a serious shortage of natural gas. We hope to solve part of this problem. Our team has been working hard to design detailed financial plans for each department in 2027. Okay, thank you, Mr. Liu.

So I will do the translation based on Mr. Liu's concluding remarks. So first off, the company are very pleased with this quarter operation results. We almost break even in and without the winter closure, we would have earned a strong profit. Roaming pricing has remained extremely strong. Imports have become more expensive. Capacity in China has been reduced. Because of environmental controls and the demand remains strong, we are seeing increased use of roaming in pharmaceuticals and other products, such as zinc roaming batteries and flame retardants. We also expect to open at least one of our close factories in year 2022. Based on the improvements we have made and our current outlook on pricing, the company are extremely bullish on the opportunities in this sector. Results in crude salt should improve as the weather warms. We are optimistic our Yuxin Chemical business We are planning to finish the construction and begin testing and shell production, and then may start our commercial production in year 2023. We are also optimistic that we will receive permission to drill for natural gas and brine in Sichuan province. China faces great shortage of natural gas. We hope to be part of this solution. Our team has been working diligently to produce detailed financial projections by division through year 2027. We will share these plans with investors before the end of next month. So now let's turn the call back to Helen for QA section.

Ladies and gentlemen, the floor is now open for questions. If you have any questions or comments, please press star 1 on your phone at this time. We ask that while posing your question, you please pick up your handset if listening on speakerphone to provide optimum sound quality. Please hold while we poll for questions. Your first question for today is coming from Glenn Crevlin. Please announce your affiliation, then pose your question.

Good morning, Glenn Crevlin. I'm an individual. I was wondering if you could go through each of your business segments and discuss how many plants are currently open, how many plants are currently closed, and when you expect the closed plants to be reopened? If you could do that for the bromine business, the salt business, and the chemical business individually, how many plants are currently open, closed, and when you expect them to reopen?

Hi, Glenn.

Do you mean this is your question or you mean we put this in our six-year plan?

No, currently in the quarter.

In the quarter.

Okay. You gave utilization, but I want to know how many plants, how many actual plants are open in each of those businesses, how many are closed, and when you expect the closed plants to reopen. That's my first question.

Okay. Okay. Okay. The first question is from the first investor, Glenn. He wants to ask about the current business department of the company. How many factories are open and how many are closed? When will the rest of the factories be open in the future?

Well, first of all, the company currently operates only embroidery and raw materials. There are currently four factories operating, and three factories are closed. Our plan this year may be able to increase the opening of one factory and increase the opening of five embroidery factories before the end of the year. The origin is the same. Yan Yan目前就是有四个原原产基地在运营生产然后就是计划我们在年底之前再增加一个原原的基地开始生产而化工项目目前还没有开始投入生产大英的天然气项目也没有开始投入生产好

Thank you. Hi, Glenn. Here is a response from Ms. Liu. First of all, there are three business segments in the company. We have bromine, firstly. Secondly is bromine and cool salt, firstly. Secondly is our chemical segment. The third is natural gas. So currently, we only have our bromine and cool salt segments open. The rest two, including chemical and natural gas, are closed. So there are one segment open. And in this one segment, we have bromine and crude salt. For bromine business, we have four bromine factories are open currently. And the rest three are closed. So by this year, we hope to open at least one more before the end end of the year. So before the end of the year, we would have some five factories, bromine factories in operation. Secondly, if we look at the crude salt, which has a similar case as our bromine segments, it also has four crude salt pans are in operation. And before the end of the year, we try to get another crucial time in operation. So we would have some to add some to five crucial time.

Okay.

Let me, let me ask the question slightly differently. If all your plants were open, give me some metric on how much capacity you have. will have and how much of that is open today. So if all the bromine plants were fully open, what's the capacity when they're all open and how much is open today for bromine and salt only?

Okay. Do you mean capacity in terms?

Yeah, you can give it to me. Tons of capacity. What the capacity is, would be if all the plants were open, and then what is, and how much capacity is open today in bromine and salt only?

Okay, got it. Thank you. Hello? Hello? Hello?

After all of them are produced, we expect that our maximum output will be around 13,000 tons. After our personnel are produced, Hi Glenn.

So the biggest capacity for seven farming factories would be 13,000 pounds per year. And for the crude salt, it would be 60,000 pounds for seven farming factories, crude salt factories.

So 13,000 pounds of bromine capacity if all seven were open and 60,000 pounds in salt. And how much is open today for bromine? And how much is open today for salt? How many pounds?

Okay. Okay. 50,000 pounds of cool salt. Okay. Okay. And how much is open today? How much is open today?

um um

Hi, Glenn. So currently, the bromine production per annual is 8,000 tons. And the cool salt is 32,000 tons per annual. Right. One last question. You said that there's $186 million of assets in the bromine invested in

How many dollars are invested in the salt? You did not give the salt number, only bromine at 186. Okay. 刘总,这个最后的一个问题啊,就说我们在鸡包里面披露,就说我们在这个锈数部分的这个资产的增加了,增加到了186个米点。

From 144.7 million to 186 million. But because we didn't disclose the original source, this investor is asking how much the original source has increased.

Hi, Glenn.

I think for this detailed number, I may email back. How do you think? Because we do not have this number on hand currently. Okay.

Or maybe we can disclose it in our six-year plan when we put it out.

Okay. Current liabilities in the quarter were 35, I'm sorry, current payables were $35 million in the quarter. At year-end, they were $10. Can you explain why they went up $25 million?

Twenty-five million dollars. Okay. Okay. There's a question from Glenda. She's asking, at the end of the year, we still have 10 million dollars. But by the end of this year, we have 35 million dollars. We have 25 million dollars. She wants to know what the main cost is. The main cost is...

so majorly because the company did some purchase some equipment and materials

For what? For plant openings? What was it bought for?

um majorly because you know our chemical our chemical segments we have orders of equipment and for our roaming segments we have you know some projects on construction so we have some payables and some materials for our roaming production needed.

My last question is, what is your projection for capital spending in 2022? What's your capital spending plan for 2022? Okay.

Hi, Glenn. So for this question, we may discuss it in our six-year plan later on. In more detail, how do you think?

What is depreciation going to be for this year? What's your plan for depreciation?

Hi, Glenn. So regarding this year, like we explained at the beginning of this call, we will provide a six-year financial plan. So later on, on the company website, and we will hold a conference call later on when the presentation will be put on the company website, and which will discuss all these questions on that presentation and during the call later on including all these depreciation catholic expenditures and detailed by segments by business segments okay why why six year plan and not three year plan or five year plan why six Then, Mr. Liu, Glenn is asking this question, why is the company providing a six-year plan instead of a three-year plan?

Due to our chemical industry, new chemical factories, within three years, it may be said that it is the first production, and it cannot really achieve the commercial So we would like to have a longer time to predict business value. In addition, we are also trying to get some approval from the government. But even if we get approval from the government, we also need an investment development period. Therefore, we hope to complete all these projects and let everyone see us.

um hi glenn so because first of all if we look at the company's chemical business segments which may start commercial production in year 2023 and for the initial year because it's just startup so in order to experience the business value of this segment. We think a six-year would be more valuable to our shareholders. And a similar case to our natural gas segment because we would put the approval from the government and the company needed to do some more projections on this project as well. And in order for our shareholder to see the business value of these projects as well. So the sixth year would be more reasonable year for us to do the assumption.

Okay. I'll let someone else ask. I've been asking a lot of questions. I thank you for your help.

Okay. You're welcome. Your next question for today is coming from Asher Stein. Please announce your affiliation, then pose your question.

Hi, good morning. I'm an individual. My first question is a follow-up to the previous caller's question about the $25 million in payable expenses. So you answered that part of that is due to expenses relating to the chemical factory. But in the notes to the balance sheet, it says that the expense incurred in relation to the chemical plant didn't increase from the end of year 2021, still at around $45 million. So how do you reconcile that? Meaning if the $25 million in debt was incurred in relation to the chemical factory, shouldn't that number, $45 million, have increased also?

OK, Mr. Liu, this question is from Asher. Asher is asking about the issue of 25 million in the Glandy issue. He said he saw in this report that in fact, the chemical industry has no additional assets. He wants to know the reason and the 25 million is specific. The main thing is... Hi, Asha.

Mr. Liu explained that just now we didn't mention that the major increase due to the construction projects for our plumbing business segments.

But you also said that it was because of expenses of equipment for the chemical plant. So why was that?

That is like a minor part. There is some, but not my major part. And because Mr. Liu did not put this one in the first, maybe my translation did not put his comments on the first.

Uh-huh. And those expenses for the bromine plants, was that going towards reopening the closed plants, or is that going to improvements on the open plants?

These expenses are on the operating plans for the improvements.

The operating plans. Okay, got it. My second question is about share buybacks. So we were first told that it couldn't be done, and then we were told that it could be done, but the company is holding onto their cash in case an investment opportunity arises. I just want to know, does the company feel that shares of their own company at $3.50 is not a good investment that the company should jump on with their $105 million in cash? Why does the company not feel that their own share is a good investment?

Actually, I didn't get your point.

My question was that at the last earning calls you said that the reason why the company wasn't pursuing share buybacks at this time was they want to have cash on hand in case an investment comes up. I want to know, does the company not feel that their own shares at $3.50 is a good investment? Okay.

Asher's question is that the company mentioned in the last meeting that the company did not buy back because the company was worried that if there was any chance of investment, the company would keep the cash. Why didn't the company buy the company's own stock as an investment? The stock price is so low now, more than three dollars.

First of all, we need to complete the construction of some of our new projects. For example, our chemical factory needs money, and our single-use project also needs money.

So firstly, the company wants to position itself as its business operation. So, you know, our chemical segments, which may need more investment for cash, and our Da Ying, our natural gas business segments also need more investment as well. So we need to keep our cash on hand in order to make sure our future business can operate well when they need cash.

Okay, I would just suggest for the company to reconsider its position on that because no matter how well the company is operating, as we see now, it's operating great and we appreciate that, but the company has yet to find a way to return the value to its shareholders. So, you know, as well as the company is operating, I think the owners of the company would appreciate, you know, some return of their investment.

Okay, thank you. I don't know. Okay, thank you.

Okay, thanks a lot.

You're welcome.

Once again, if there are questions or comments, please press star 1 on your phone at this time. Your next question for today is coming from Bill Bender. Please announce your affiliation, then pose your question.

Good morning. Thank you for your time today. An individual question. and investor for over 11 years. And as some of the previous people have mentioned, your numbers are terrific this quarter. I'm sure the six year plan is going to look terrific. The outlook always has been with the cash balance and the book value per share. But I'm concerned with the focus on shareholder value. We know the businesses, we know they're profitable. My question is, If we're not gonna do buybacks, is it possible to pay a dividend? Obviously, just performing isn't bringing the value to us. I've been a patient shareholder since the beginning, and I do recall a few quarters ago, Chairman making some comments about the awareness. I know they've changed their compensation, and I just would like to know, without deferring to the six-year plan, there is a plan to bring shareholder value back to this company so that we can see a runway here of potential success in general. Would there be a dividend? Would there be a buyback? What the plan is in general, if we could answer that rather than defer to the six-year plan, I'd appreciate it. Thank you.

Okay, thank you, Bill. President Liu, this question is from an investor, Bill. He is also an investor in the company for many years. He said he also understands the operation and business situation of the company, including the previous one. The chairman also specially had some speeches, including the company's high-ranking official pushing back this. Paying bills and pushing back some of the company's money, he has been tracking the company. He thinks that the company should provide a six-year financial plan. He is very grateful. I think it is also a good idea. But he said that at the same time, the company has thought about giving investors a plan of return, such as wind and red or repurchase stocks. Is this also a plan of return for investors? Is this also in consideration?

Yes, we will consider this plan to reward our shareholders. Based on that we can make sure our business operations can go well.

Well, currently it appears to be going very well. So I guess my second question would be, how well do we have to be doing to be considering? Because earnings are clearly going to be back this year. Balance sheet is better than any. We have positive cash flow. So when we say the business is doing well, we compare that to other companies here in the United States. how well is well, I guess, would be my question. And is there a concern that our business is located in China and there's a lot of concern about technology, but do we have any concern at all with the geopolitical of where we're located? Is that causing us any issues as shareholders on a regulatory basis that we should be made aware of?

Okay, thank you. Because a lot of Chinese companies are now thinking about technology, and whether it is the main problem of the company. Is it because we are, for example, local, we may need some kind of relationship, or something like that.

Is it something they don't know?

No, the company's main concern is that some of the country's um um

So the company's major concern is the continuing impact of the national policies on the companies. For example, due to the government policy changes, we still have three bromine factories are closed and which did not start operation yet. For years, our natural gas projects in Sichuan and still did not get the government approvals yet. These are the company's major concerns.

Okay, thank you. I would suggest in the six-year plan that they could tie in their plans as a company for those items that we're all concerned with. For example, if we open another plant or two, We do plan buybacks and or dividends so that as the six-year plan rolls out, we all as shareholders can have an idea of the runway for us, the shareholders. So thank you for the call today.

Okay, thank you. You're welcome. Liu Dong, that's Bill's last comment. He said that when he was working on the six-year plan, he wanted to consider the return of shareholders. For example, after a few factories opened, OK, well noted. Thank you, Bill. There are no further questions in queue. OK. 刘总,那没有问题了。 我们今天会到此为止。 我跟operator说一下。 Hi, operator. If there is no more questions, can we close the call for today? Thank you. Thank you very much for attending this call. Have a good night. Thank you.

Bye-bye. Thank you, ladies and gentlemen. This does conclude today's conference call. You may disconnect your phone lines at this time and have a wonderful day. Thank you for your participation.

Thank you, operator.

Bye-bye.