SHOUGUANG, China, Nov. 14, 2016 (GLOBE NEWSWIRE) -- Gulf Resources, Inc. (Nasdaq:GURE) ("Gulf Resources" or the "Company"), a leading manufacturer of bromine, crude salt and specialty chemical products in China, today announced its financial results for the third quarter ended September 30, 2016.

Third quarter and year-to-date highlights

Year to Date

• Income from operations increased 12% to $39,953,640
• Net Income increased 13% to $30,179,696
• Fully Diluted Earnings per share increased 12% to $0.65 from $0.58.

Third Quarter

• Income from operations increased slightly to $13,956,200.
• Net Income was almost flat at $10,515,713
• Earnings per share were flat at $0.23.
• Income from operations in the bromine segment increased 83%
• Cash at the end of the quarter was $141,083,587 ($3.02 per share*)
• Net Net Cash equaled $2.59 per share*
• Working capital equaled $4.30 per share*
• Shareholders equity reached $7.65 per share*             

Mr. Xiaobin Liu, Gulf’s Chief Executive Officer stated, “Despite the continuing weakness in the Chinese economy, especially in industries related to our core business such as oil exploration in terms of money amount, we are pleased to report a quarter with improved income from operations and flat earnings per share. We are especially pleased with the strong performance of our bromine business. If the economy improves, as we believe it eventually will, we will have significant upside leverage in all of our core businesses.”

“Our cash balances continue to increase,” Mr. Liu continued. “We are now making good progress in building the infrastructure in Sichuan. We are very optimistic about the opportunities ahead of us.”
             
Three Months Ended September 30, 2016

Comparison of the Three-Month Period Ended September 30, 2016 and 2015

For the period ended September 30, 2016 compared to the period ended September 30, 2015, net revenues decreased 9% to $38,811,622 from $42,601,598. Cost of Goods Sold decreased 14% to $23,107,921 from $27,000,576. Gross profit increased 1% to $15,703,701 from $15,601,022. Gross margin increased 384 basis points to 40% from 37%. Sales and marketing expenses declined 10%. R&D costs declined 2%. Impairment of PP&E declined to $90,395 from $819,701. G&A expenses increased 94% to $1,613,933 from $831,955. However the increase was attributable to a decline in unrealized foreign exchange gains in 2016 compared to 2015. Excluding these gains, G&A actually declined by 5%.

Income from operations increase slightly to $13,956,200 from $13,903,158. Other income increased 17%. Pre-tax income increased slightly to $14,034,242 from $13,969,794. Taxes increased 7%. The tax rate increased to 25.1% from 23.6%. Net income declined 2% to $10,515,713 from $10,679,422.

Results by Segment

Bromine 
Sales of bromine increased 7% to $15,971,847 from $14,940,666. Volume decreased by 5% to 4,511 tonnes due to the slowdown in the Chinese economy. The average selling price increased 12% to $3,541 per tonne. Productivity declined 3% to 46%. Cost of production declined 22%. Despite the lower productivity, production cost per tonne declined 14% to $1,795. Gross profit increased 51% to $8,865,637. Gross margin increased to 56% from 39%.

Income from operations increased 83% to $7,898.302. As a percentage of revenues, income from operations increased to 49% from 29%.

The company is extremely pleased with the strong results from the bromine segment, especially considering the weakness in the Chinese economy. With the capital improvements and the reduction of competition, the company believes profits from Bromine could strengthen considerably in the future.

Crude Salt
Crude Salt revenues declined 24% to $2,310,799. Volume in tonnes declined 9%. The average selling price decreased 16% to $27.99 from $33.26. The decrease in volume and pricing was due to the slowdown in the Chinese economy that has impacted our customers’ industries. The cost of net revenue increased 10%, largely due to the increase in depreciation and amortization due to enhancement projects. Gross profit margins were -8%. The crude salt segment lost $382,917 compared to a profit of $351,251 in the previous year.

Chemical Products
Net revenues in our chemical products segment decreased to $20,528,975 from $24,628,731, a decrease of 17%. Revenues in our original chemical business declined by 27%, with Oil and gas additives declining 26%, Paper manufacturing additives declining 33%, and Pesticides additives declining 27%. Revenues in our SCRC segment declined by 5%, with Pharmaceutical intermediaries declining 2%, and By Products declining 10%. The company attributes most of the decline to the weakness of these industries in the Chinese economy.

Cost of net revenue for our chemical products segment for the three-month period ended September 30, 2016, was $13,502,894, representing a decrease of $2,140,628 or 14% over the same period in 2015. COGS were 66% of sales compared to 64% of sales in the previous period. Income from operations was $6,442,708, a decrease of 23%.

The company believes that the chemical business will slowly start to improve from its current levels. Some smaller competitors have recently gone out of business. The Chinese economy appears to be stabilizing, and there are significant opportunities in pharmaceuticals as healthcare spending increases.

In the third quarter, the company announced its intention to merge its two chemical subsidiaries (SYCI and SCRC). Because this integration has not been completed, the company is continuing to report these two businesses as separate entities. Once the merger is completed, the company expects to be able to reduce overhead costs and improve purchasing leverage. In addition, the combination should free up capital due to the capital reserve fund.

Natural Gas

On December 15, 2015, the Company registered a new subsidiary in the Sichuan Province of the PRC named Daying County Haoyuan Chemical Company Limited (“DCHC”) to develop natural gas and brine resources (including bromine and crude salt) in China. The Natural gas segment (DCHC) had no revenues in the quarter and incurred a loss of $2,476. During the quarter, the company spent $1.46 Million, primarily constructing roads and other facilities. At the end of the quarter, this segment had assets of $1,687,960. As noted in the recent press release, the company expects to complete the drilling of the first well by January 2017. The company remains highly optimistic about the opportunities for natural gas and brine resources in Sichuan province.

As we have noted, we expense all exploration costs. When the financial viability of a business is confirmed, we then capitalize expenditures. In the exploration stage, we spent $7,848,873 on our natural gas and brine project in Sichuan. These expenditures were expensed under the bromine segment.

Comparison of the Nine-Month Period Ended September 30, 2016 and 2015