Gulf Resources, Inc.

Greetings, ladies and gentlemen, and welcome to the Gulf Resources 2022 Quarter Earnings Conference. At this time, all participants have been placed on a listen-only mode, and we will open the floor for your questions and comments after the presentation. It is now my pleasure to turn the floor over to your host, Helen Chu. The floor is yours.

Thank you, Operator.

Good morning, ladies and gentlemen, and good evening to those of you Thank you for joining us from China, U.S., and we'd like to welcome all of you to GovResources' second quarter 2022 earnings conference call. I'm Helen Xu, the ad director. The company's CEO, Mr. Xiaobin Liu, COO, Mr. Nexi Niu, will also join 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 four looking statements, information about the Gulf resources. Incorporation 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. 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 condition 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 completion from existing and new completion from the bromine and the other oil fields and power production chemicals, changing technology, ability to make future bromine assets, and the various other factors beyond its control. All forelooking statements are extremely qualified in their entirety by these cautionary statements and the risk factors detailed with the company's report filed with the SEC. Gulf Resources assumes no obligation to revise or update any forelooking statements to reflect events or circumstances after the date of this call. Accordingly, Our company believes expectations reflecting in those forward-looking statements are reasonable and there can be no assurance of such will prove to be correct. In addition, any reference to a company's future performance represents the management's estimates as of today, the 15th of August 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. Now that the company has reported a strong quarterly profit with hopefully stronger quarterly numbers in the coming quarters, We are going to increase our efforts to communicate with our investors. We welcome you to provide suggestions to our IR management team. On this call, I will review the second quarter and the six-month results first, and then turn the call over to Mr. Miao and Mr. Liu for their commentary. So now, firstly, let's look at the three-month period ending June 30, 2002. We are pleased to have reported a strong and profitable second quarter in year 2022. Revenues increased 41% to $15.7 million. Gross profit increased 80% to approximately $7.6 million. Income from operations were approximately $5.1 million compared to a loss of approximately $2.4 million. Net income was $3.9 million compared to a loss of $2.7 million. Earnings per share were $0.37 compared to a loss of $0.26. Six-month period ended June 30, 2002. Net revenues increased 50% to approximately $24.6 million. Gross profit increased 126% to approximately income from the operation were approximately $5 million compared to a loss of approximately $5.7 million. Net income was $3.8 million compared to a loss of $5.2 million. Earnings per share were $0.36 compared to a loss per share of $0.50. Now let's look at the second quarter. business segment by segment. Firstly, let's look at bombing. Bombing revenue in the second quarter increased 38% to 13.9 million. The primary contributor to the higher revenue was the increase in the selling price. In second quarter, the average selling price was $7,740 compared to $5,556 in the same quarter. of the previous year. There's always a lag in the average selling price compared to the market price, and the company fulfills orders based on when they are received. During the quarter, the company sold 1,795 tons of roaming, slightly lower than 1,805 tons in the previous year. During the second quarter, in order to control COVID-19, the government made a series of unannounced inspections. That caused the company to shut and then reopened facilities. During the second quarter of 2021, there was one full inspection. The company believed the inspection in 2022 had the most significant impact on production. than it did in the inspection in the year 2021. The cost of revenues in bromine was approximately $6.9 million, an increase of approximately $1.3 million from the same quarter of the previous year. The price of bromine in China, the RMB has appreciated approximately over 100%. September 2020. Although the Chinese economy has slowed, roaming prices remained very strong for two primary reasons. Firstly, the demand remains strong for fire retardants, offshore drilling, and pharmaceuticals. Secondly, supply is constrained, both because older fields may have lower utilization and because many countries like China have forced the closing of bromine facilities for environmental reasons. In a recent press release, Ebermar, one of the world's largest producers of bromine, which stated that tight market conditions continue to drive strong demand and favorable pricing for bromine. We believe the supply and demand balance for bromine remains extremely promising. To comply with the new government directive, the company separated bromine and crude salt into two business separate entities. As a result of this relocation, bromine received a significant higher allocation of expenses than in previous years. Even with the higher allocation of costs, income from bromine segment increased 98.5% to approximately $5.3 million from approximately $2.7 million. In the quarter, the company spent approximately $32.8 million, mainly in its bromine wells, aqueducts, and the installation of high and low voltage lines for bromine wells. The company believes this expenditure may enable it to maintain or slightly increase its utilization in the bromine segment in future quarters. The company continues to believe it will receive permission to open one of its closed facilities in the near future and hopes to be able to open a second in the first half of year 2023. On August 3, 2022, Apple Mall, as we discussed earlier, which stated in its press release, it believes the tech market conditions continue to drive strong demand and stable pricing for bromine. The company also believes the same conditions may apply to its business in China. Now let's look at the second quarter results for the crude salt segment. GoodSort revenues increased 62% to approximately $1.8 million. There was a 10% increase in production in tons and a 47% increase in average enterprise. The cost of net revenue decreased by 9%, largely as a result of the reallocation of cost. GoodSort reported income from operations of $1,142,968 compared to a loss of $578,435. Now let's look at the chemical segments in the second quarter, 2022 results. The chemical segments were zero. The net loss were 4.2%. During the quarter, COVID restrictions as well as supply chain issues caused the delays in receiving some of the previous order machinery and equipment, including wastewater treatment and solid waste treatment equipment. The company is working with existing suppliers and may identify new suppliers so it can complete construction of its factory based on the delivery. To date, the company has spent approximately $45.6 million on its new factory. It is believed the total cost will be approximately $69 million. The company cannot currently project when construction will be completed and production will begin, but does not believe that delays will impact the cost of the projection or long-term profitability. The company will update our investors as soon as the wastewater treatment and solid waste treatment equipment is delivered. Now let's look at natural gas in this quarter. Natural gas segment has zero revenue and a net loss of $61,699, roughly equal to the loss in the previous year, pursued to the opinion of the Ministry of Natural Resources on several issues in promoting the reform of mineral resource management trial by the Ministry of Natural Resources on January 9, 2020. which came in effect on May 1st, 2020. Privately owned enterprises are allowed to participate in the natural gas production. The company plans to proceed with its application for the natural gas and project approvals with related government departments until the government planning has been finalized. Now let's look at the balance sheet. The company has cash of approximately $79.1 million. Total assets were approximately $298.6 million. Total liabilities were approximately $23 million. Shareholder's equity was approximately $275.6 million. Based on the shares issued and outstanding, which is $10,471,000, 1,924 shares, book value per share for shareholders' equity per share, worth $26.32. Cash flow. The company generated approximately $18.5 million in cash flow from operations versus $7 million in the previous year. The company invested approximately $33.2 million in its growing business mainly for bromine wells, echo ducts, and the installation of high and low voltage lines for bromine wells. The change in the value of the RMB to the U.S. dollar caused a reduction in cash and the cash equivalence of approximately $1.6 million versus a credit of $1.9 million. For other financials, In the second quarter, direct factory and overhead costs for closed factories were approximately $1.9 million versus $1.4 million in the same period of previous year. Corporate costs declined to $67,987 from approximately $3.2 million. In the second quarter of the year 2021, the company incurred approximately $3.1 million in charges for the stock grant to mandate. There were no stock grants in the second quarter of 2022. Foreign currency translation adjustment. For the quarter, the company had a negative foreign translation adjustment of approximately $16.4 million versus a positive adjustment of approximately $5.3 million in the previous year. This adjustment was caused by an approximately 6.1% decline of RMB versus the U.S. dollar. Adjustment impacts all balance sheet translation into U.S.