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Gulf Resources, Inc. Reports 2006 Financial Results

Gulf Resources, Inc.
2007-04-02 21:38 956


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

Source: Gulf Resources, Inc.
Keywords: Oil/Energy
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