Gulf Resources(GURE) - 2022 Q4 - Annual Report

Corporate Structure and Ownership - Gulf Resources owns 100% of the outstanding shares of its subsidiaries, including SCHC and SYCI, reflecting a linear corporate structure[13] - The registered capital of Daying County Haoyuan Chemical Company Limited (DCHC) is RMB50,000,000, with RMB14,848,730 contributed by SCHC as of December 31, 2021[16] - A 1-for-5 reverse stock split was completed on January 27, 2020, adjusting all shares to reflect the new structure[17] - The corporate structure allows for legal cross-border fund transfers within the group, compliant with PRC laws[28] Regulatory Environment - The PRC government has initiated regulatory actions affecting overseas listings, which may impact Gulf Resources' ability to offer securities[24][25] - Current PRC regulations require subsidiaries to pay dividends only from accumulated profits and to set aside at least 10% of after-tax profits for statutory reserves[30] - A withholding tax of 10% applies to dividends payable by Chinese companies to non-PRC-resident enterprises, which may be reduced to 5% under certain conditions[33] - The company is subject to various governmental laws and regulations that may affect its operations in the PRC, with uncertain enforcement[81] - The Ministry of Land and Resources regulates mineral rights in China, granting licenses for land-use and exploration rights[83] Financial Performance and Losses - The company incurred a loss of $18,644,473 due to the write-off of the net book value of three bromine factories' property, plant, and equipment in 2018[39] - An impairment loss of $1,284,832 was recorded on the related mineral rights of the closed bromine factories in 2018[39] - As of the reporting period, no cash transfers or dividends have occurred among Gulf Resources and its subsidiaries, and no dividends are expected in the foreseeable future[29][30] Production and Operations - The company’s bromine and crude salt production operations are concentrated in Shandong Province, China[50] - The company expects to start testing and trial production of the new chemical factory by the end of 2023 or beginning of 2024[44] - The company completed the first brine water and natural gas well field construction in Sichuan Province and commenced trial production in January 2019[66] - The company’s chemical factory construction at Bohai Marine Fine Chemical Industrial Park began in June 2020 and civil works were completed by June 2021[76] - The company’s bromine production process involves extracting bromine from natural brine, which is the first component extracted during processing[56] Employee and Workforce Management - As of December 31, 2022, the company employed approximately 435 full-time employees, with 72% in SCHC, SHSI, and DCHC, and 28% in SYCI[84] - The company is required to contribute 16% of the average monthly salary to the state pension arrangement for employees in China, with social insurance expenses totaling approximately $624,827 for fiscal year 2022[85] - The company is committed to employee health and safety, providing various health and welfare programs, especially in response to the COVID-19 pandemic[87] - The company has implemented significant operating changes during the COVID-19 pandemic, including remote work for most employees[87] - The company focuses on developing talent from within while also hiring externally to foster a diverse and inclusive workforce[88] Market and Acquisition Strategy - The company plans to continue acquiring smaller scaled and unlicensed bromine producers to expand its downstream chemical operations[51] - The company believes there may be attractive acquisition opportunities in the bromine sector due to smaller producers lacking capital for required rectifications[43] - In 2022, sales to the three largest bromine customers totaled $19,581,606, accounting for approximately 33% of total net revenue from bromine sales[62] - The company’s largest customer represented approximately 12% of total net revenue from bromine sales in 2022[62] Environmental and Compliance Issues - The Chinese government has reinforced environmental regulations, impacting the chemical industry and requiring compliance from all facilities[81] - The company holds a bromine and salt production license, which is subject to yearly audits; failure to pass could materially affect operations[83] - The company is one of the licensed entities for bromine extraction in Shandong Province, amidst ongoing illegal extraction by unlicensed operations[82] Capital Expenditures and Future Plans - The total estimated cost for building a new chemical factory is approximately $64 million, with relocation costs amounting to $45,584,344 as of December 31, 2022[44] - The company expects to incur approximately $64 million in total costs related to the relocation of its chemical production plants[75] - The company’s auditor is subject to PCAOB inspections, with the last inspection occurring in November 2021[35] - The company’s operations were temporarily halted due to COVID-19, impacting the commencement of production for several factories[47]