Gulf Resources, Inc.

Good morning, ladies and gentlemen, and welcome to the Gulf Resources 2022 Third Quarter Earnings Conference Call. 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. Helen, the floor is yours.

Thank you, Tom. 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' third quarter 2022 earnings conference call. I'm Helen Xu, the IR director. Our CEO of the company, Mr. Xiaobin Liu, the COO, Mr. Naihui Miao, will also join this call today. I'd like to remind you to all our listeners that in this call, certain management statements during the call will contain forelooking statements about golf resources in corporation and its subsidiaries' business and the products with the meaning of Rule 175 under Security 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, shipment to end customers, market acceptance of new and existing products, additional competition from existing and new competition from the bromine and other oil field and power production chemicals, changing technology, the ability to make future bromine assets, and the various other factors beyond its control. All forelooking statements are expressly qualified in their entirety by this cautionary statement and the risk factors detailed with the company's reports filed with the SEC. Corporate authorities assume no obligation to revise or update any forelooking statements to reflect events or circumstances after the date of this call. Accordingly, our company believes expectation 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 a company's future performance represents the management's estimates as of today, the 15th of November 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 of the details. So I will review the quarter and nine months and then send a call back to Mr. Miao and Ms. Liu for their commentaries. After which, we will have a QA section. So firstly, let's look at the quarter of the company for the third quarter operating results, which is the outstanding quarter for our company. Because for the three months ended September 30, 2022, revenues increased 29% to approximately $22.8 million. Income from operations increased 68% to approximately $11.9 million. Profits before taxes increased 68% to approximately $12 million. Net income increased 66% to approximately $9 million. Earnings per share increased 65% to 86%. by segments for the quarter. Browning revenues increased 33% to approximately $19.8 million. Tones increased 6%, while the average selling price increased 26%. We had four factories in operation. We have prepared factory number eight for opening. We expect section number eight to produce revenues in the fourth quarter 2022. Gross profits were approximately $12.5 million, an increase of 50.1% from the results of the previous year. Profit margins increased to 63% from 56%. Income from operations increased 53% to approximately $10.6 million. Cruise sort segment revenues from cruise sort increased 3% to $2.9 million. Volume increased 3%. Cost of net revenues declined to $1 million from $1.6 million, largely due to the relocation between Bromine and cruise sort. income from operations increased 234% to approximately $1.9 million from $561,000, largely due to the change in allocation of costs. So on August 30th, 2022, the company provided guidance for the third quarter for our Browning and Crusoe segments. Our projections were for revenues in these two segments of $20 to $21.8 million. Extra revenues were $22.8 million. We projected profit before tax of $9 to $10.3 million. Extra profits before tax were $12.4 million. We are very pleased to have exceeded our guidance. Technical products which had zero revenue and had a loss from operations of approximately $448,000. Natural gas segment had revenue of approximately $82,000 from the rental of some of our equipment. direct labor, and the factory overhead. Investors should note that we incurred costs for our closed factories approximately $1.9 million. As noted, even with these costs, we were able to report earnings per share of $0.86 versus the $0.52 in the previous year. For the nine-month period ending September 30, 2022, the company revenues increased 39% to approximately $47.5 million. Income from operations increased more than 10 times to $17 million. Net income increased more than 60 times to $12.7 million. Earnings per share increased to $1.22 from two cents by segment. Firstly, let's look at the brownie segment. Revenues in this segment increased 41% to approximately $41.9 million. The cost of net revenues were worth $18.1 million. and the $2.2 million approximately of this increase was due to a reallocation of costs with crude salt. The gross profit was approximately $23.7 million compared to $13.8 million. Income from operations more than doubled to approximately $17.2 million. Crude salt segment. The revenues in this segment increased to approximately $5.5 million from $4.4 million. The cost in CUSOT dropped to $2.9 million from $3.3 million, largely due to $2.2 million in lower cost allocation. Gross profit more than doubled to $2.6 million from $1.1 million. Income from operations worth $1.5 million compared to a loss of $1 million. Other businesses, chemical products lost approximately $1.4 million compared to approximately $2 million in the previous year. Natural gas lost approximately $69,000 compared to a loss of approximately $167,000 in the previous year. Corporate costs were $187,000 compared to $3.4 million in the previous year. In year 2021, the company incurred about $3.1 million in the cost related to stock grants. By September 30, 2022, we had no new stock grants. But as noted in the 2022, on October 7, 2022, the company issued 200,000 shares under its equity incentive plan at a cost of approximately $668,000. For the nine-month cash flow, the company generated net cash from operations of approximately $37.1 million. Capital expenditures for the Browning segment were $33.2 million. The effect of the decline of the RMB versus the U.S. dollar impacted our cash and cash equivalents by approximately $6.7 million. Balance sheet. During year 2022, the RMB declined sharply against the U.S. dollar. According to the website, exchange readers at ORG at U.K., On January 1, 2022, $1 worth RMB 6.3557. On September 30, 2022, $1 worth RMB 3.1204 yuan, a decline of approximately 12%. The drop of the RMB against the US dollar caused a resulting impact on the balance sheet items. Despite the impact on our balance sheet, we ended the quarter with cash of $92.6 million, or $8.85 per share, working capital worth $94.1 million, or $8.99 per share, book value worth $268.6 million or $25.65 per share. So now let's look at the update on our business operations. COVID, because COVID continues to significantly impact on our business, it has caused a softening of the bombing prices and a delay in receiving the equipment. needed for our new chemical factory. We have no visibility as to when the impact of the COVID epidemic will abate. However, the company is aware of that COVID is more dangerous in the winter months, so issues may continue. During the third quarter, we prepared Factory 8 for production. are expected to be generated in the fourth quarter of 2022. We have not heard anything from the local government about factories number 2 and 10 yet. We remain optimistic that we may receive permission to open these factories, although some investment may need in the new wells, crude salt pumps, and aqueducts will be required. The chemical segments, or COVID, epidemic and resulting supply chain destruction has impacted the opening of our chemical factory. While some of the equipment has been delivered, we are still lacking a few components. We expect this to be delivered in this quarter or at latest in the first quarter of year 2023. Once all of the equipment is delivered, it will take three to four months to get them installed. After installation, the testing process should take two to three months, after which we will apply for the environmental approval and other approvals from damage. After we have all the necessary approvals, it will take four months to conduct the trial production. Full commercial production may start by the beginning of year 2024. The company regrets for this delay, but we could not have foreseen the continuing issues related to COVID. Natural gas segment. The company is continuing to wait for the government of Sichuan province to complete its plan. The company believes that Sichuan Steel represents a substantial opportunity for both natural gas and bromine. The company remains optimistic that it will eventually receive approval to drill for both products. However, the company is open to considering partnerships with state-owned enterprises. fourth quarter 2022 projections for the browning and the crude salt segments only. The COVID pandemic and the early Chinese New Year are likely to impact on the fourth quarter 2022. The Chinese economy remains soft. Browning prices dropped in the beginning of September and started to rise in the second week of October. On November 8th, We were at RMB 49,800 yen, which is higher than that of September 30th, 2021, but lower the highs achieved in the fourth quarter of the year, 2021. The company expects the government to announce another winter closing in the year 2022. Chinese New Year was on February 1st, In year 2023, it will be on January 22 equal to the earliest date in this century. This means there will be 10 less days of production in year 2022. By contrast, 2023 should have approximately 19 additional days of production because of the later Chinese New Year in year 2004. Given the potential of fewer days of production and a lower price of bromine, the company estimates revenues for bromine at CruzSalt will be in the range of $15.4 and $16.8 million. Profit before tax will be in a range of $3.8 to $4.2 million. In our projections of August 30th, 2022, the company indicated that Bromley & Cushart would have annual revenues between $62 million to $63.7 million. With the results for the nine months and the projections for the fourth quarter, we now project this segment will have revenue of $62.7 to $64.1 million. We had also projected this segment would have profits before taxes of $20 to $21.5 million. Based on the nine months and the projections for the fourth quarter, 2022, the company now projects that this segment will have profits before taxes of $22.4 to $22.8 million. So despite slowdown caused by COVID, We expect that it exceeds our original guidance for bromine and crude salt for both sales and earnings. So now I will turn the call back to Mr. Miao and Ms. Liu for their commentary. Hello, Mr. Miao.

Hello, Ms.