Gulf Resources, Inc.

Greetings. Welcome to the Gulf Resources Fiscal Year 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to your host, Helen Zhu. Ma'am, you may begin.

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' fiscal year 2022, our news conference call. I'm Helen Xu, the art director. Our CEO of the company, Mr. Xiaobin Liu, will also join this call today. I'd like to remind you to all our listeners that in this call, certain maintenance statements during the call will contain for looking information about Gulf Resources Incorporation and its subsidiary business and products within the meaning of Rule 175 under 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 conditions in China, 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 chemical productions, changing technology, the ability to make future bromine assets and various other factors beyond its control. All forelooking statements are expressly qualified in this entirety by this cautionary statement and the risk factors detailed with the company's reports started with the SEC. Company's call for 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 expectation reflection in those four looking statements are reasonable and there can be no assurance of such proved to be correct. In addition, and in reference to the company's future performance, we present the management estimates as of today, the 3rd of April, 2023. For those of you unable to listen to the entire call at this time, A replay will be available and the link is accessible through our website. So please locate to our press release issues earlier for the details. So before we turn the remarks from Ms. Liu and the questions from our investors, Let me briefly reveal the results for fiscal year 2022. The company had an excellent fiscal year 2022. Revenues increased approximately 20% to approximately $66.1 million. Gross profits increased 34% to approximately $37.4 million. Profits from operations increased 216% to approximately $16.5 million. We also had approximately 16 million of direct labor and factory overhead incurred during the shutdowns of our business. Income before taxes increased 210% to $16.6 million from $5.4 million. After tax, income was approximately $10.06 million compared to a loss of approximately $924.5 million. Earnings per share was $1 versus a loss of $0.09 per share. We generated cash flow from operations of approximately $51.1 million compared to approximately $23.3 million in the previous year. We invested approximately $37.6 million, making us free cash flow positive, despite negative foreign currency translation adjustment of approximately $24.9 million from the decline of the RMB against the U.S. dollar, ending cash worth $108.2 million, or $10.37 per share. Net net cash, which is cash minus all liabilities per share, worth $8.38 per dollar. Book value per share worth $26.04. We are very pleased to have had such strong earnings and to have generated good free cash flow during the year 2022. Instead of reading through all of the numbers which are in our press release, we like to bring investors up to date on a series of current and projected issues. Firstly, let's look at our Bromine and Cruise Shop segment. Last year, our Bromine business was extremely profitable with Bromine prices increasing 14%. Since the end of the fiscal year, warming prices have dropped approximately 40%. The company believes there are numerous reasons for the decline in warming prices. Firstly, the economic conditions in China as well as the rest of the world have slowed. Secondly, many of our customers have had their factories closed for Chinese New Year. as well as for COVID restrictions. Third, demand for fire retardants for export decreased due to the lockdown. Fourth, the export for some other booming downstream products have also decreased. Fifth, with the lockdown in China, many fewer people used disinfectants because they were home instead of going out or school. for work or school. Producers of these effects and retailers have geared up for continued high demand. And the lockdown was a surprise, leaving many with too much inventory. We believe this situation will reverse. The company remains optimistic about the opportunities in this growing business. Some factories in China have been permanently closed and some others, like our factory number 2 and number 10, which have not yet received permission to open yet. There have been no major and few minor new discoveries of bromine. The decline of the RMB against the U.S. dollar has made imports more expensive. With the Chinese economy and its factories starting to reopen, demand should increase. Our factory number eight entered production at the end of the year. We expect a full level of production from this factory in year 2023. We also expect and will try its best to be able to open one of our closed factories number two and number 10 in year 2023. We are working with the government to resolve these problems as quickly as possible. As far as the pricing is concerned, we believe bromine prices have reached a bottom and will begin to recover. However, until we get a better handle on the future pricing of bromine, we are not able to make any revenue and earnings projections for fiscal year 2023. We are, however, very confident about the long-term profitability potential for bromine and crude salt segment. Any shareholders wishing to track the daily price of bromine may look at the website sensors.com, which tracks daily bromine prices in China. So now let's look at our Yuxin Chemical Factory segment. On March The company issued a press release detailing the delays in the opening of our heating chemical factory. As noted in our press release, we have constructed a bulk of the factory and received a good portion of the equipment. The refrigeration and air compressor units have recently been received. The remaining equipment primarily includes that related to environmental issues, such as the waste gas treatment equipment, solid waste treatment equipment, and wastewater treatment equipment. The delivery of this equipment was initially delayed by the COVID pandemic. The recent delay has been caused by the increase of strict government requirements for environmental issues, related to the public safety, including those that impact the air and the water pollution. We want investors to understand that these are not simple off-the-shelf products. To meet specific government regulations, each piece of equipment has to be customized to specific cases and environments. Gulf Resources has been working closely with its suppliers on the specifications that will meet the stricter government regulations. We believe we are making excellent progress in completing this phase. Once the equipment is delivered, it will take approximately three to four months to get them fully installed. After installation, the testing process should take another two to three months. After testing is complete, we will apply for environmental and safety approval from the government. After receiving these approvals, trial production may take an additional four months. Once trial production is completed, we will be able to start commercial production. So we are certain that to our customers, our investors, that as frustrated as we are by the delay in the opening of our chemical plant, We could not have projected a COVID pandemic, the response of the government, or the closing of the economy. We are working as fast as we can to overcome these obstacles. We will continue to actively update our investors on our progress. We are optimistic about the potential profitability of our Asian chemical factory. Our original view was that Incheon factory would have been producing higher-margin products. In year 2016, before the original chemical factory was shut down, our chemical factory had segment earnings of $25.5 million. We are currently not making long-term estimates for factory. that is still under construction. We would also like to note that chemical margins usually vary inversely with bromine margins, since bromine is a basic raw material for the chemical products. However, the competitive environment in China should be quite favorable, as with bromine, manufacturers have been closed and will not reopen. As the Chinese economy recovers and our Yuxin cat factory is opened, we believe investors will be pleased with the level of profits it will generate. So now let's look at Sichuan natural gas and bromine segment business. We are still waiting for the government of Sichuan province to finalize its land and resource planning. and then the company plans to proceed with its application for the natural gas and project approvals with related government departments. The company remains optimistic about the future of this project because, firstly, the government has ruled that private companies can drill for and produce natural gas. Secondly, the government had indicated that it wants to improve the private sector and strengthen the private companies. However, the company has decided to explore other options to hasten the process. One very promising option is to form a partnership with the government of Dying County for the extraction of halogen water and related products. Under such a partnership, the government of Dying County could assist the company to obtain the related approvals or may also be able to help provide other infrastructure help. But the company would then produce products and the partners would share the process. While we cannot guarantee that such a partnership will be finalized, It is encouraged. We believe this could be a very effective way for gaining approval to reopen our natural gas project and gain approval for drilling both natural gas and brine products. We'll keep investors updated on the progress of our negotiation with the government of Dying County. Now let's look at our shareholder value cut. Based on the closing of trading last Friday, our stock is selling at extremely cheap valuations. Our trading PE was 2.68 times. Our price divided by cash was only 25.8%. We're selling at less than one-third of our net net cash. We were selling at only 10%. of our book value. Shareholders keep writing to us asking what we can do about the share price. Many shareholders have asked us to pay a dividend or buy back a large amount of shares. However, as we have repeated on the call after call, China has strong currency restrictions. We are hammered in getting money out of the country. I like to repeat this so all our investors fully understand China has strong currency restrictions. We are hammered in getting money out of the country. Shareholders have also suggested we hire an IR firm, investor relations firm. As of the close on Friday, we had a market capitalization of about $29 million. Our stock trades and the average of 11,319 shares a day, or about $30,000. This makes us too small for most institutional investors. We believe that once we have more bromine factories in operation, our chemical factories is open, and we start producing natural gas and brine products in Sichuan, our shares will appreciate and we may be attractive to institutional investors. However, we have developed an alternative strategy that we believe it may be able to help the company to afford us the financial flexibility to consider the type of action our shareholders have been requesting. At this time, I will turn the call over to Ms. Liu

to describe this strategy. Hello. Hello, everyone.

Hello, President Liu.

My name is Xiaobin Liu.

First of all, I would like to welcome everyone to participate in the 2022 Taiwan Telephone Conference. We know that shareholders are very depressed, and so is the management. In the past three years, I have not pulled the company. Our chief operating officer and chief financial officer annual income is only about $18,000. My personal company is about $600,000. This is all the company I have been in for more than 11 years. and flexible to help all customers. Although embroidery is difficult to import and export, the situation of chemical products is not the same. We plan to produce some of the materials in the chemical factory in the company, such as the material to be used in the middle, which can be exported from China to Asian countries and other places. We have established a working group to analyze these products and market conditions. We should also be preparing to export some of our chemical products. We expect that the export of these products will give us a better financial flexibility to buy shareholders and manage a better financial flexibility.

Hi everyone, so I will do the translation for Mr. Liu's explanation on this strategy. I'm the CEO of the company, Mr. Xiaobin Liu. First of all, welcome all of you to attend the physical year 2022 earnings conference call. We know that shareholders are frustrated, so is management team. In the last three years, I have earned no cash salary. Our COO and CFO have earned about $18,000 a year only. I personally repay the company back about $600,000 of all the salaries I earned for more than 11 years. I don't think the investors we may find another company where management pay back their salary for more than one decade. The welfare of my family and that of other senior management completely depends on the price of the shares. I can assure you, not one is more frustrated than management team. We are not just sitting around, we are now actively planning on a strategy that may give us the financial flexibility to help our shareholders, while bombing is difficult to transport and export. The same is not the case for chemicals. Many of the products we are planning to produce in our chemical factory, such as the materials for pharmaceuticals intermediaries, are actively export from China to countries in Asia and around the world. We have formed a task force to analyze the potential of each of these products and the markets, identify potential customer feeds, and focus on the products these customers are interested in purchasing. When our chemical factory is ready for full production, We may also be ready to begin exporting some of our chemical products. We expect that the export of these products may give us the financial flexibility that our shareholders and our management team have been demanding. We believe this strategy of this task force will provide a good opportunity for our company. Now let's turn back the call for Helen, and we may start the QA session.

Hi, operator.

Certainly. At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment while we poll for questions.

Your first question for today is coming from John Rawls, a private investor.

Yes, I would like to ask, are there people outside the company involved in the task force looking at exporting chemical products? Who are they?

Hi, John. Sorry, I did not get your question.

You mean task force?

Yes. You said you're going to establish a task force to look at the possibility of exporting chemical products. I want to know if there are people outside the company's employee list who are involved in that task force.

Okay, thank you. President Liu, the first question is from John. He wants to ask about the special action group mentioned by the company. About the export issue, are they from within the company? Are they from the personnel or from outside? Who is in charge of the personnel allocation?

Currently, they are from within the company. We are now preparing for this type of work. And then there are people from the company. In the future, we may hire some Hi John, currently it is from the company's inside staff. We are doing the planning still and doing the analysis. And once we're going well with this,

Future, we may consider to hire someone from outside consultant for the marketing and the technical segment.

Okay. I would encourage you also to talk to an investment banker to look at opportunities for improving the company's stock price.

Okay. Thank you. Okay, thank you.

Once again, if there are any questions or comments, please press star one on your phone at this time.

There are no further questions in queue. I will now turn the call over to management for closing remarks.

Okay, thank you. Yes, it looks like Mr. Liu's line disconnected. One moment while I reconnect his line. Okay. It's okay, Holly. I think we can close the call for today if there is no more questions.

There are no further questions in queue. I will close the call now. Thank you. This concludes today's conference.

Thank you all for ending the call. We should have a good day. Thank you. Take care.

Bye-bye. Thank you. This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.

Okay, thank you. Thank you, Holly. Bye-bye. Have a good day.