Gulf Resources, Inc.

Welcome to the Gulf Resource Second Quarter 2023 Earnings Conference. 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 Chu. You may begin.

Thank you, operator. Good morning, ladies and gentlemen, and good evening to those of you joining us from the U.S. And we'd like to welcome all of you to Public Resources' second quarter 2023 conference call. I'm Helen Xu, the ad director. Our CEO of the company, Mr. Shelby Liu, 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 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 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 other oil fields, and power production chemicals, changing technology, the ability to make future bromine assets, and the various other factors beyond its control. All forward-looking 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. Gulf Resources assumes no obligation to revise or update any forward-looking statements to reflect events or circumstances after the date of this call. 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 the company's future performance represents the management's estimate as of today, the 14th of August 2023 Eastern Time. 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 website. And the link is accessible through our website too. So please locate our press release issued earlier for the details. So we will review the results of this quarter first. I'd like to then turn the call back to Mr. Liu for his comments. So firstly, Let's look at the Chinese economy for this quarter. The Chinese economy continued to suffer a slowdown. Our products were especially impacted. The demand for bromine was weak with the control of COVID-19. The demand for sanitizers dried up, especially since many companies had built up stock anticipating higher demand. The slowdown in construction also impacted the sales of fire retardants. As a result, roaming prices based on sensors.com, which had been on the 69,500 tons on October 16, 2021, during the height of COVID, dropped to unbeaten $18,000 only on June 30, 2023, replaying a decline of 74%. The company expects roaming prices may improve in the future. In fact, by August 10, 2023, roaming prices had increased to RMB 24,200. However, at this time, it is difficult to estimate the timing of the improvement. In addition to the decline in the price of roaming, the RMB declined against the U.S. dollar. Over the extended term, this could be a significant benefit for our company. With the lower RMB, imports of chemicals using bromine are more expensive, meaning that domestic producers should give share exports of pharmaceuticals and other chemicals that may be cheaper, meaning the opportunities for building an export business may increase. Given the pricing of bromine in the second quarter, companies believe that most companies in the bromine industry and most companies producing chemicals made from bromine have not been profitable. We have yet to see many bankruptcies, but we assume many may come. Given the current market conditions, we believe that the companies currently have strong cash positions and a balanced sheet. Accordingly, the company made two decisions to protect capital and plan for future operations. It has slowed, seeking current approval for its rest to close Bromley factories. The opening of these factories may require the company to build aqueducts and drill new wells. This is the current market for Bromley. We have sufficient capacity and are not willing to expense. additional capital until we see a stronger rebound in the market. We still expect to receive permission to open these factories. However, there is no point to spending the capital until they can operate profitably. As previously announced, the company has also postponed the delivery of the remaining equipment for its chemical factories. while it re-evaluates the market opportunities. The company is committed to its chemical business and believes it will be profitable over the long term. However, different products will require slightly different final equipment. For example, some products which pollute more heavily may require more complex pollution-restricting equipment. During this period, when most chemical companies are losing money, the company is undertaking a thorough review of the potential market so it can ensure that it is ordering the most applicable equipment. Once the review is finalized and the market has stabilized, we will have the remainder of our equipment delivered and assembled. Then we will begin trial and test production. So now let's look at the financial results. Because of the weakness of the Chinese economy and the huge decline in the broad forming price, the company reported an after-tax loss of approximately $681.8 million for the second quarter and approximately $1.2 million for the six months ended June 30, 2003. However, during the six-month period, the company generated cash from operations of approximately $11 million. These numbers reflected the potential strength of our business model. At the end of the second quarter, our balance sheet was drawn. We have approximately cash of $1. $115 million, and approximately representing $11.05 per share. The net net cash, which is cash minus all liabilities, approximately $97 million, representing $9.32 per share, working capital. which is approximately $102.6 million, which represents $10.79 per share. Shareholder's equity, approximately $260 million, and representing $24.95 per share. We're very pleased to have weathered the shutdown while generating strong cash flow and strengthening our balance sheet. So for the company's future goals and objectives, the company expects that the economy in general and the growing market in particular to improve. As of August 8th, growing market prices had increased 34% since the end of the second quarter and 11% from the average selling price during the second quarter. During the second quarter, growing revenues were approximately $7.4 million. If the selling prices had been 11% higher, growing revenues would have been approximately $8.2 million. This would have provided us with an additional gross profit of approximately $809,000. In the quarter, our last default tax is worth approximately $874.5 million, meaning that a price increase slightly more than 11% may have taken us to break even. As of August 14th, we can see that market price for bromine was $24,600 RMB. which is representing an increase of 37% since the end of the second quarter, and 10.8% from the average selling price during the second quarter. This would bring more extra profit based on our previous prediction. So when bombing prices improve further, it will push ahead and get approval for the company's rest remaining bromine factories. The company is still expecting to increase its chemical business. At the present time, many chemical factories are still struggling. For the economy in general and bromine products in particular to improve, we will be in a position to identify the best products for our new factories, have the remaining equipment tailored to our needs, and deliver complete and assembled, and then can begin trial and test production. The company is continuing to explore opportunities for exports so that it can gain financial flexibility. At the present time, the export market is quite depressed. The company is looking for products that it can produce and profitably export so Company can obtain capital, which we may consider to use to repurchase shares, and all pay are divinded. The company is still continuing in the discussion with the government of Dailin County on creating a joint venture for the exploration and production of natural gas and farming products in Sichuan. While there is no guarantee that the joint venture will be created But if the company is successful in partnering with the local government, substantial opportunities could be open to us. In Financial Results, which included you will see in our income statement, balance sheet, and cash flow statement for the three and six months ended June 30th, 2023. Alternative, which has been developed with the SEC, We present a full description of the segments of our business and the factors contributing to our lower sales and profits.

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