LOS ANGELES and SHENZHEN, China, April 2 /Xinhua-PRNewswire/ -- Gulf
Resources, Inc. (the "Company") (OTC Bulletin Board: GUFR) a leading producer
of Bromine and crude salt in China through its wholly-owned subsidiary
Shuoguang City Haoyuan Chemical Company Limited (SCHC), announced today
operating results for the year ending December 31, 2006.
The company's financial results reflect full year pro forma revenues and
profits for its operating company SCHC, which was acquired by Gulf Resources,
Inc., formerly Diversifax, Inc. in December 2006. The results reported for the
fiscal year 2005 reflect the operating results of SCHC.
These results exclude any contribution from the February 2007 acquisition
of Shouguang Yuxin Chemical Industry Company Limited ("SYCI"), a manufacturer
of chemical products utilized by customers in the oil and gas distribution,
oil field drilling, wastewater processing, and paper manufacturing industries.
Pro forma results including the operations of SYCI, can be found in the
Company's 8-K filed with the Securities and Exchange Commission on February 9,
2007.
Net sales for 2006 were $17.8 million, which was derived exclusively from
the sale of bromine. During 2006 the Company's two largest customers accounted
for 74% of total revenue. The Company's crude salt plants began production at
the end of December and therefore provided no sales contribution during the
2006 year. The Company sold 10,035 tons of bromine with an average selling
price (ASP) of $1,828 per ton.
Cost of sales for the 2006 year was $10.5 million, yielding gross profits
of $7.3 million and gross margins of 41.2%. Electricity expenses were one of
the largest components of costs of sales at $2.7 million. General and
administrative expenses were $5.6 million, of which $5.3 million was a non-
cash charge related to consulting expenses which was paid through the issuance
of 4.4 million shares of common stock. The Company does not anticipate this to
be a recurring cost and thus believes G&A expenses will decrease significantly
during 2007.
Operating income for the year totaled $1.7 million, which was impacted by
the previously mentioned non-cash equity compensation charge of $5.3 million.
Net income was $1.1 million with earnings per share of $.04 based on 27.0
million fully diluted shares outstanding. Excluding the aforementioned non-
cash equity compensation charge, pro forma net income was $6.5 million, with
$0.24 in earnings per diluted weighted average share.
Net cash provided by operating activities for 2006 totaled $3.5 million.
On December 31, 2006 the company reported a cash balance of $3.7 million, a
current ratio of 1.0 to 1.0 and shareholder's equity of $3.5 million.
"During 2006, we made further progress in establishing our presence as a
premier bromine producer for the domestic China market while prudently
managing both production and operating expenses. We increased the utilization
efficiency of both raw and recyclable packaging materials while passing along
the responsibility of shipping costs to our customers, two initiatives which
we expect to benefit margins during 2007. In addition, we recently brought our
crude salt production online and expect this to contribute to revenues during
the current year," stated Mr. Ming Yang, Chairman and CEO of Gulf Resources,
Inc.
Bromine is utilized as an important component to manufacture dyes, fire
retardants, insect repellants, oilfield completion fluids, perfumes,
pharmaceuticals, photographic and water treatment chemicals, and in the paper
industry. The Company's customers typically process bromine into semi or
finished products. It is estimated that the annual domestic bromine market in
China is approximately $290 million in China and $1.24 billion globally.
SCHC is one of six companies in China which holds a license to produce and
distribute bromine. The Company currently maintains a 50-year mineral rights
and land lease covering 77,100 acres of property with proven and probable
reserves of 780,000 tons of bromine. Current bromine production capacity is
estimated between 8,000 to 12,000 tons annually.
"There are several large bromine reserves controlled by local producers in
our immediate geographic region, many which are undercapitalized but possess
the necessary licenses to produce and distribute, thus providing a substantial
opportunity for consolidation. The Company's management team is currently
evaluating several acquisition opportunities, which we expect to pursue during
this calendar year. In addition, we are evaluating the acquisition of direct
customers. This vertically integrated methodology would enable us to further
increase the size and scope of our Company, have more control over the supply
chain, further improve our collective production capacity, leverage and cross
sell to a larger base of end customers, which will lead to both economies of
scale and further margin enhancement opportunities," Mr. Ming Yang concluded.
Consistent with this strategy, the Company completed its first acquisition
on February 5, 2007 through the purchase of Shouguang Yuxin Chemical Industry
Company, Ltd. (SYCI) including its 14,500 square foot, ISO9001-2000 certified
manufacturing facility. During 2006, SYCI produced and sold approximately
10,000 tons of chemical products utilized in oil & gas field explorations and
7,000 tons of papermaking chemical agents, which resulted in approximately
$13.9 million in revenues and $2.65 million in net income. SYCI maintains
Guarantee Certificate from the China Association for Quality, is accredited by
the Shandong Province as a Provincial Credit Enterprises and is a Class One
supplier for both China Petroleum & Chemical Corporation (SINOPC) and
PetroChina Company Limited, both which are currently customers. SYCI has been
engaged in research and development projects with Shandong University,
Shandong Institute of Light Industry, Southeast University and other higher
education institutions, with a focus on developing new chemical product and
medicine intermediates.
As of March 22, 2007 Gulf Resources had approximately 48.2 million shares
outstanding.
Gulf Resources, Inc.
Gulf Resources, Inc. operates through two wholly-owned subsidiaries: SCHC,
which is engaged in manufacturing and trading Bromine and Crude Salt in China.
Bromine is used to manufacture a wide variety of bromine compounds used in
industry and agriculture, and SYCI, which manufactures and sells chemical
products utilized in oil & gas field explorations and as papermaking chemical
agents. For more information, please visit http://www.gulfresourcesco.com.
Investor Relations Contact:
Ethan Chuang (714) 858-1147
Ethan@gulfresourcesco.com
Matthew Hayden
HC International, Inc.
(858) 704-5065
matt@haydenir.com
Safe Harbor Statement:
Certain statements in this news release may contain forward-looking
information about Gulf Resources 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. The actual results may differ materially depending on
a number of risk factors including, but not limited to, the following: general
economic and business conditions, product development, shipments to end
customers, market acceptance of new and existing products, additional
competition from existing and new competitors, changes in technology, and
various other factors beyond its control. All forward-looking statements are
expressly qualified in their entirety by this Cautionary Statement and the
risks factors detailed in the Company's reports filed with the Securities and
Exchange Commission. Gulf Resources undertakes no duty to revise or update any
forward-looking statements to reflect events or circumstances after the date
of this release.
GAAP note: This press release includes financial measures for net income
(loss) and diluted earnings per share calculations which excludes certain non-
cash costs not calculated in accordance with generally accepted accounting
principles (GAAP). Management believes that these non-GAAP financial measures
provide meaningful supplemental information regarding our performance that
enhances management's and investors' ability to evaluate the Company's net
income and income per share and to compare it with historical net income and
income per share.
The financial information stated above and in the tables below has been
abstracted from the Company's Form 10-K for the year ended December 31, 2006
filed with the Securities and Exchange Commission and should be read in
conjunction with the information provided therein.
GULF RESOURCES, INC. (formerly DIVERSIFAX, INC.)
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2006 AND 2005
2006 2005
ASSETS
CURRENT ASSETS
Cash $3,725,824 $2,409,781
Accounts receivable 1,187,727 325,193
Inventories 53,263 89,383
Due from related party 540,081 503,787
Prepaid land lease 11,923 496
Income tax receivable 1,111,154 -
6,629,972 3,328,640
PROPERTY, PLANT AND EQUIPMENT, Net 2,673,281 2,220,319
PREPAID LAND LEASE, Net of current portion 582,231 23,808
TOTAL ASSETS $9,885,484 $5,572,767
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $6,148,974 $330,472
Due to director - 70,924
Due to related party 15,384 46,322
Taxes payable 177,087 1,325,863
TOTAL LIABILITIES 6,341,445 1,773,581
STOCKHOLDERS' EQUITY
COMMON STOCK; $0.001 par value; 70,000,000
shares authorized; 27,017,322 and
26,500,000 shares issued and outstanding 27,017 26,500
ADDITIONAL PAID-IN CAPITAL 1,355,413 419,900
RETAINED EARNINGS - UNAPPROPRIATED 1,352,648 2,815,396
RETAINED EARNINGS - APPROPRIATED
Statutory Common Reserve Fund 447,450 331,223
Statutory Public Welfare Fund 223,725 165,611
CUMULATIVE TRANSLATION ADJUSTMENT 137,786 40,556
TOTAL STOCKHOLDERS' EQUITY 3,544,039 3,799,186
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $9,885,484 $5,572,767
GULF RESOURCES, INC. (formerly DIVERSIFAX, INC.)
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 2006 AND
THE PERIOD MAY 18, 2005 (DATE OF INCEPTION)
THROUGH DECEMBER 31, 2005
2006 2005
NET SALES $17,825,097 $14,344,296
OPERATING EXPENSES
Cost of net sales 10,481,567 9,095,301
General and administrative expenses 5,614,784 304,451
16,096,351 9,399,752
INCOME FROM OPERATIONS 1,728,746 4,944,544
OTHER INCOME
Interest income 5,990 446
INCOME BEFORE INCOME TAXES 1,734,736 4,944,990
INCOME TAXES - current 572,463 1,632,760
NET INCOME $1,162,273 $3,312,230
BASIC AND DILUTED EARNINGS PER SHARE $0.04 $0.12
BASIC AND DILUTED WEIGHTED AVERAGE
NUMBER OF SHARES 27,017,322 26,500,000
