Document and Entity Information
Document and Entity Information - shares | 3 Months Ended | |
Mar. 31, 2018 | May 01, 2018 | |
Document And Entity Information | ||
Entity Registrant Name | GULF RESOURCES, INC. | |
Entity Central Index Key | 885,462 | |
Document Type | 10-Q | |
Document Period End Date | Mar. 31, 2018 | |
Amendment Flag | false | |
Current Fiscal Year End Date | --12-31 | |
Is Entity a Well-known Seasoned Issuer? | No | |
Is Entity a Voluntary Filer? | No | |
Is Entity's Reporting Status Current? | Yes | |
Entity Filer Category | Non-accelerated Filer | |
Entity Common Stock, Shares Outstanding | 46,803,791 | |
Document Fiscal Period Focus | Q1 | |
Document Fiscal Year Focus | 2,018 |
CONDENSED CONSOLIDATED BALANCE
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) - USD ($) | Mar. 31, 2018 | Dec. 31, 2017 |
Current Assets | ||
Cash | $ 236,720,969 | $ 208,906,759 |
Accounts receivable | 10,246,518 | 29,765,884 |
Inventories, net | 193,801 | 1,196,785 |
Prepayments and deposits | 1,598,858 | 1,395,289 |
Prepaid land leases | 607,396 | 246,640 |
Other receivable | 2,149 | 2,089 |
Total Current Assets | 249,369,691 | 241,513,446 |
Non-Current Assets | ||
Property, plant and equipment, net | 94,051,877 | 95,114,504 |
Property, plant and equipment under capital leases, net | 484,860 | 492,238 |
Prepaid land leases, net of current portion | 14,919,014 | 14,477,771 |
Deferred tax assets | 7,989,879 | 6,526,555 |
Goodwill | 30,524,646 | 29,374,909 |
Total non-current assets | 147,970,276 | 145,985,977 |
Total Assets | 397,339,967 | 387,499,423 |
Current Liabilities | ||
Accounts payable and accrued expenses | 991,221 | 1,032,083 |
Retention Payable | 993,782 | 956,351 |
Capital lease obligation, current portion | 254,829 | 203,206 |
Taxes payable | 2,204,954 | 1,474,592 |
Total Current Liabilities | 4,444,786 | 3,666,232 |
Non-Current Liabilities | ||
Capital lease obligation, net of current portion | 2,394,174 | 2,303,995 |
Taxes payable-non-current | 4,969,000 | 4,969,000 |
Total Non-Current Liabilities | 7,363,174 | 7,272,995 |
Total Liabilities | 11,807,960 | 10,939,227 |
Stockholders Equity | ||
PREFERRED STOCK; $0.001 par value; 1,000,000 shares authorized; none outstanding | 0 | 0 |
COMMON STOCK; $0.0005 par value; 80,000,000 shares authorized; 47,052,940 shares issued and 46,803,791 shares outstanding as of March 31, 2018 and December 31, 2017, respectively | 23,525 | 23,525 |
Treasury stock; 249,149 shares as of March 31, 2018 and December 31, 2017 at cost | (554,870) | (554,870) |
Additional paid-in capital | 94,524,608 | 94,524,608 |
Retained earnings unappropriated | 243,193,331 | 250,170,431 |
Retained earnings appropriated | 24,233,544 | 24,233,544 |
Accumulated other comprehensive income | 24,111,869 | 8,162,958 |
Total Stockholders Equity | 385,532,007 | 376,560,196 |
Total Liabilities and Stockholders Equity | $ 397,339,967 | $ 387,499,423 |
CONDENSED CONSOLIDATED BALANCE3
CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares | Mar. 31, 2018 | Dec. 31, 2017 |
Statement of Financial Position [Abstract] | ||
PREFERRED STOCK, par or stated value per share | $ 0.001 | $ 0.001 |
PREFERRED STOCK, shares authorized | 1,000,000 | 1,000,000 |
PREFERRED STOCK, shares outstanding | 0 | 0 |
COMMON STOCK, par value per share | $ 0.0005 | $ 0.0005 |
COMMON STOCK, shares authorized | 80,000,000 | 80,000,000 |
COMMON STOCK, shares issued | 47,052,940 | 47,052,940 |
COMMON STOCK, shares outstanding | 46,803,791 | 46,803,791 |
Treasury stock, shares | 249,149 | 249,149 |
CONDENSED CONSOLIDATED STATEMEN
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (Unaudited) - USD ($) | 3 Months Ended | |
Mar. 31, 2018 | Mar. 31, 2017 | |
NET REVENUE | ||
Net revenue | $ 2,247,267 | $ 32,788,493 |
OPERATING INCOME (EXPENSE) | ||
Cost of net revenue | (1,241,809) | (20,213,863) |
Sales, marketing and other operating expenses | (34,974) | (75,833) |
Research and development cost | 0 | (61,898) |
Direct labor and factory overheads incurred during plant shutdown | (5,695,519) | 0 |
General and administrative expenses | (3,571,945) | (1,728,460) |
Other operating income | 0 | 104,558 |
Total Costs and Expenses | (10,544,247) | (21,975,496) |
INCOME/(LOSS) FROM OPERATIONS | (8,296,980) | 10,812,997 |
OTHER INCOME (EXPENSE) | ||
Interest expense | (43,344) | (41,911) |
Interest income | 169,478 | 125,860 |
INCOME/(LOSS) BEFORE TAXES | (8,170,846) | 10,896,946 |
INCOME TAX (EXPENSE) BENEFIT | 1,193,746 | (2,821,826) |
NET INCOME/(LOSS) | (6,977,100) | 8,075,120 |
COMPREHENSIVE INCOME: | ||
NET INCOME/(LOSS) | (6,977,100) | 8,075,120 |
OTHER COMPREHENSIVE INCOME | ||
Foreign currency translation adjustments | 15,948,911 | 2,037,272 |
COMPREHENSIVE INCOME | $ 8,971,811 | $ 10,112,392 |
EARNINGS (LOSS) PER SHARE: | ||
BASIC | $ (0.15) | $ 0.17 |
DILUTED | $ (0.15) | $ 0.17 |
WEIGHTED AVERAGE NUMBER OF SHARES: | ||
BASIC | 46,803,791 | 46,793,791 |
DILUTED | 46,826,388 | 46,804,241 |
CONDENSED CONSOLIDATED STATEME5
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY (Unaudited) - 3 months ended Mar. 31, 2018 - USD ($) | Common Stock | Treasury Stock | Additional Paid-In Capital | Retained Earnings | Retained earnings appropriated | Accumulated Other Comprehensive Income (Loss) | Total |
Balance at Dec. 31, 2017 | $ 23,525 | $ (554,870) | $ 94,524,608 | $ 250,170,431 | $ 24,233,544 | $ 8,162,958 | $ 376,560,196 |
Shares Issued at Dec. 31, 2017 | 47,052,940 | ||||||
Balance, shares at Dec. 31, 2017 | 46,803,791 | 249,149 | |||||
Translation adjustments | 15,948,911 | 15,948,911 | |||||
Net loss | (6,977,100) | (6,977,100) | |||||
Balance at Mar. 31, 2018 | $ 23,525 | $ (554,870) | $ 94,524,608 | $ 243,193,331 | $ 24,233,544 | $ 24,111,869 | $ 385,532,007 |
Shares Issued at Mar. 31, 2018 | 47,052,940 | ||||||
Balance, shares at Mar. 31, 2018 | 46,803,791 | 249,149 |
CONDENSED CONSOLIDATED STATEME6
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) - USD ($) | 3 Months Ended | |
Mar. 31, 2018 | Mar. 31, 2017 | |
CASH FLOWS FROM OPERATING ACTIVITIES | ||
Net income/(loss) | $ (6,977,100) | $ 8,075,120 |
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | ||
Interest on capital lease obligation | 41,797 | 41,753 |
Amortization of prepaid land leases | 144,097 | 107,461 |
Depreciation and amortization | 4,757,530 | 5,439,098 |
Unrealized exchange loss on translation of inter-company balances | 1,058,852 | 137,255 |
Deferred tax asset | (1,193,746) | 0 |
Stock-based compensation expense | 0 | 9,000 |
Changes in assets and liabilities: | ||
Accounts receivable | 20,442,483 | (8,523,139) |
Inventories | 1,039,959 | 767,825 |
Prepayments and deposits | (81,635) | (29,129) |
Other receivables | 0 | (580) |
Accounts payable and accrued expenses | (68,833) | 1,641,677 |
Retention payable | 0 | (736,894) |
Taxes payable | 735,426 | 1,493,322 |
Net cash provided by operating activities | 19,898,830 | 8,422,769 |
CASH FLOWS USED IN INVESTING ACTIVITIES | ||
Additions of prepaid land leases | (367,143) | (324,743) |
Purchase of property, plant and equipment | (121,710) | (59,975) |
Net cash used in investing activities | (488,853) | (384,718) |
CASH FLOWS USED IN FINANCING ACTIVITIES | ||
EFFECTS OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS | 8,404,233 | 881,453 |
NET INCREASE IN CASH AND CASH EQUIVALENTS | 27,814,210 | 8,919,504 |
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD | 208,906,759 | 163,884,574 |
CASH AND CASH EQUIVALENTS - END OF PERIOD | 236,720,969 | 172,804,078 |
Cash paid during the period for: | ||
Income taxes | $ 0 | $ 1,798,807 |
1. BASIS OF PRESENTATION AND CO
1. BASIS OF PRESENTATION AND CONSOLIDATION | 3 Months Ended |
Mar. 31, 2018 | |
Accounting Policies [Abstract] | |
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | (a) Basis of Presentation and Consolidation The accompanying condensed financial statements have been prepared by Gulf Resources, Inc (“Gulf Resources”) a Nevada corporation and its subsidiaries (collectively, the “Company”), without audit, in accordance with the instructions to Form 10-Q and, therefore, do not necessarily include all information and footnotes necessary for a fair statement of its financial position, results of operations and cash flows in accordance with accounting principles generally accepted in the United States (“US GAAP”). In the opinion of management, the unaudited financial information for the quarter ended March 31, 2018 presented reflects all adjustments, which are only normal and recurring, necessary for a fair statement of results of operations, financial position and cash flows. These condensed financial statements should be read in conjunction with the financial statements included in the Company’s 2017 Form 10-K. Operating results for the interim periods are not necessarily indicative of operating results for an entire fiscal year. The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the amounts that are reported in the financial statements and accompanying disclosures. Although these estimates are based on management’s best knowledge of current events and actions that the Company may undertake in the future, actual results may be different from the estimates. The Company also exercises judgments in the preparation of these condensed financial statements in the areas including classification of leases and related party transactions. On September 2, 2016, the Company announced the planned merger of two of its 100% owned subsidiaries, Shouguan Yuxin Chemical Co., Limited (“SYCI”) and Shouguan Rongyuan Chemical Co., Ltd (“SCRC”). On March 24, 2017, the legal process of the merger was completed and SCRC was officially deregistered on March 28, 2017. The results of these two subsidiaries were reported as SYCI in the three months ended March 31, 2018. The consolidated financial statements include the accounts of Gulf Resources, Inc. and its wholly-owned subsidiary, Upper Class Group Limited, a company incorporated in the British Virgin Islands, which owns 100% of Hong Kong Jiaxing Industrial Limited, a company incorporated in Hong Kong (“HKJI”). HKJI owns 100% of Shouguang City Haoyuan Chemical Company Limited ("SCHC") which owns 100% of Shouguang Yuxin Chemical Industry Co., Limited (“SYCI”) and Daying County Haoyuan Chemical Company Limited (“DCHC”). All material intercompany transactions have been eliminated on consolidation. (b) Nature of the Business The Company manufactures and trades bromine and crude salt through its wholly-owned subsidiary, Shouguang City Haoyuan Chemical Company Limited ("SCHC") and manufactures chemical products for use in the oil industry, pesticides, paper manufacturing industry and for human and animal antibiotics through its wholly-owned subsidiary, Shouguang Yuxin Chemical Industry Co., Limited ("SYCI") in the People’s Republic of China (“PRC”). DCHC was established to further explore and develop natural gas and brine resources (including bromine and crude salt) in the PRC. DCHC’s business was not fully operational as of March 31, 2018. On September 1, 2017, the Company received notification from the Government of Yangkou County, Shouguang City of PRC that production at all its factories should be halted with immediate effect in order for the Company to perform rectification and improvement in accordance with the county’s new safety and environmental protection requirements. The Company has been working closely with the county authorities to develop rectification plans for both its bromine and crude salt businesses and had agreed on a plan in October 2017. SCHC is currently under rectification process. The Company believes this rectification and improvement process will cost approximately $35 million in total. The Company incurred rectification and improvements in the amount of $18,046,005 and $17,938,652 as of March 31, 2018 and December 31, 2017. Originally, six bromine factories completed their rectification process and passed the inspection by local governments and were scheduled for production commencement by April 2018. Subsequently, the Provincial government required the local government to conduct “four rating and one comprehensive evaluation” for all of the chemical companies within its jurisdiction. This has delayed the production commencement schedule of the six factories. The Company is currently actively working on the rectification of the remaining four factories. The Company expects to complete the rectification and improvements of the bromine and crude salt factories and be ready for the government inspection, rating and evaluation by June 2018, and will resume operation for those when they have approval from the government. Four of the remaining bromine and crude salt factories have a slightly more complex issue that needs to be resolved. All bromine factories now require paired crude salt pans to prevent the halogen water resulting from the production process from flowing into the sea. Four of these bromine factories do not have a designated crude salt pan where the wastewater could be channeled. The Company has four alternatives for these four factories which do not have paired crude salt pans: 1. It can form partnerships with adjacent bromine facilities that do have crude salt pans The nature of these partnerships could take many forms. 2. The company could petition the government for a zoning change so that additional land for salt pans could be obtained. This might be difficult but is worth pursuing. 3. The Company could negotiate a different method of dealing with this issue. 4. Or these factories could conceivably be forced to close. At the present time, the Company is working with the government on these issues and did not reach the final solution yet. On November 24, 2017, the Company received a letter from the Government of Yangkou County, Shouguang City notifying the Company to relocate its two chemical production plants located in the second living area of the Qinghe Oil Extraction Plant to the Bohai Marine Fine Chemical Industrial Park (“Bohai Park”). This is because the two plants are located in a residential area and their production activities will impact the living environment of the residents. This is as a result of the country’s effort to improve the development of the chemical industry, manage safe production and curb environmental pollution accidents effectively, and ensure the quality of the living environment of residents. All chemical enterprises which do not comply with the requirements of the safety and environmental protection regulations will be ordered to shut down. The Company believes this relocation process will cost approximately $60 million in total. The Company incurred relocation cost in the amount of $9,732,118 as of March 31, 2018 and December 31, 2017 and estimated that the new factory will be fully operational by the beginning of 2020. During the first quarter, the Company continued its related environmental and planning preparation work for the new factory. Since the Company has paid for the lease of a piece of land at the Bohai Park, it does not see any potential delay with the construction of the new factory. The Company has signed several contracts for the new factory (see subsequent event in Note 18). As previously disclosed, during the course of drilling for more bromine and crude salt resources, the Company found natural gas resources under our bromine well in the Sichuan area. DCHC was established to further explore and develop natural gas and brine resources (including bromine and crude salt). On January 2017, the Company completed the first brine water and natural gas well field construction in Sichuan Province and announced the commencement of trial production. The Company has been working with Xinan Shiyou Daxue (Southwest Petroleum University) and developed a solution to DHCH’s technical drilling problem. In resolving the problem, the Company needs customized equipment. The customized equipment has been ordered and is now being manufactured. Once the equipment arrives, it will be installed and production will commence. While the Company hopes this will occur during the second quarter of 2018, the company has no control over the exact timing of the delivery of the equipment. It is possible the commencement of production might not occur until early in the third quarter in 2018. (c) Allowance for Doubtful Accounts As of March 31, 2018 and December 31, 2017, allowances for doubtful accounts were nil. No allowances for doubtful accounts were charged to the condensed consolidated statements of income for the three-month periods ended March 31, 2018 and 2017. (d) Concentration of Credit Risk The Company is exposed to credit risk in the normal course of business, primarily related to accounts receivable and cash and cash equivalents. Substantially all of the Company’s cash and cash equivalents are maintained with financial institutions in the PRC, namely, Industrial and Commercial Bank of China Limited, China Merchants Bank Company Limited and Sichuan Rural Credit Union, which are not insured or otherwise protected. The Company placed $236,720,969 and $208,906,759 with these institutions as of March 31, 2018 and December 31, 2017, respectively. The Company has not experienced any losses in such accounts in the PRC. Concentrations of credit risk with respect to accounts receivable exists as the Company sells a substantial portion of its products to a limited number of customers. However, such concentrations of credit risks are limited since the Company performs ongoing credit evaluations of its customers’ financial condition. Approximately 24% and 13% of the balance of accounts receivable as of March 31, 2018 and December 31, 2017, respectively, are outstanding for less than three months. For the balances of accounts receivable aged more than 90 days as of March 31, 2018, approximately 41% were collected by April 30, 2018. The rate of collection in April 2018 for accounts receivable aged more than 90 days as of March 31, 2018 was analyzed as follows: Accounts Receivable Aging Percent Collected 90-120 days 0% 121-150 days 12% 151-180 days 0% 181-210 days 16% 211-240 days 100% (e) Property, Plant and Equipment Property, plant and equipment are stated at cost less accumulated depreciation and any impairment losses. Expenditures for new facilities or equipment, and major expenditures for betterment of existing facilities or equipment are capitalized and depreciated using the straight-line method at rates sufficient to depreciate such costs less 5% residual value over the estimated productive lives. All other ordinary repair and maintenance costs are expensed as incurred. Mineral rights are recorded at cost less accumulated depreciation and any impairment losses. Mineral rights are amortized ratably over the term of the lease, or the equivalent term under the units of production method, whichever is shorter. Construction in process primarily represents direct costs of construction of plant, machinery and equipment. Costs incurred are capitalized and transferred to property and equipment upon completion, at which time depreciation commences. The Company’s depreciation and amortization policies on property, plant and equipment, other than mineral rights and construction in process, are as follows: Useful life (in years) Buildings (including salt pans) 8 - 20 Plant and machinery (including protective shells, transmission channels and ducts) 3 - 8 Motor vehicles 5 Furniture, fixtures and equipment 3-8 Property, plant and equipment under the capital lease are depreciated over their expected useful lives on the same basis as owned assets, or where shorter, the term of the lease, which is 20 years. Producing oil and gas properties are depreciated on a unit-of-production basis over the proved developed reserves. Common facilities that are built specifically to service production directly attributed to designated oil and gas properties are depreciated based on the proved developed reserves of the respective oil and gas properties on a pro-rata basis. Common facilities that are not built specifically to service identified oil and gas properties are depreciated using the straight-line method over their estimated useful lives. Costs associated with significant development projects are not depreciated until commercial production commences and the reserves related to those costs are excluded from the calculation of depreciation. (f) Retirement Benefits Pursuant to the relevant laws and regulations in the PRC, the Company participates in a defined contribution retirement plan for its employees arranged by a governmental organization. The Company makes contributions to the retirement plan at the applicable rate based on the employees’ salaries. The required contributions under the retirement plans are charged to the condensed consolidated statement of income on an accrual basis when they are due. The Company’s contributions totaled $302,418 and $255,216 for the three-month periods ended March 31, 2018 and 2017, respectively. (g) Revenue Recognition Net revenue is net of discount and value added tax and comprises the sale of bromine, crude salt and chemical products. Revenue is recognized when the control of the promised goods is transferred to the customers in an amount that reflects the consideration that the Company expects to receive from the customers in exchange for those goods. The acknowledgement of receipt of goods by the customers is when control of the product is deemed to be transferred. Invoicing occurs upon acknowledgement of receipt of the goods by the customers. Customers have no rights to return the goods upon acknowledgement of receipt of goods. (h) Recoverability of Long-lived Assets In accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 360-10-35 “Impairment or Disposal of Long-lived Assets” The Company determines the existence of such impairment by measuring the expected future cash flows (undiscounted and without interest charges) and comparing such amount to the carrying amount of the assets. An impairment loss, if one exists, is then measured as the amount by which the carrying amount of the asset exceeds the discounted estimated future cash flows. Assets to be disposed of are reported at the lower of the carrying amount or fair value of such assets less costs to sell. Asset impairment charges are recorded to reduce the carrying amount of the long-lived asset that will be sold or disposed of to their estimated fair values. Charges for the asset impairment reduce the carrying amount of the long-lived assets to their estimated salvage value in connection with the decision to dispose of such assets. To comply with the new safety and environmental regulations (see Note 1 (b)), the Company started the rectification and improvement program for the bromine and crude salt factories towards the end of the third quarter of fiscal year 2017, and as a result recorded an impairment loss of $216,181 and a write-off of $728,740 for certain property, plant and equipment in the year ended December 31, 2017. With the relocation of the chemical factories and the length of time required to set up the new factory building in the Bohai Marine Fine Chemical Industrial Park (see Note 1 (b)), the Company believes that it is not beneficial to move the existing plant and equipment to the new premises. This is because of the age of the plant and equipment and the impact on the production efficiency at the new plant using plant and equipment that are idle for a substantial amount of time. In addition, the Company also risks the possibility of not passing the inspection by the government at the new plant if existing plant and equipment are used. Therefore, an impairment loss of $16,636,322 equivalent to the net book values of all the property, plant and equipment at the two chemical factories was recorded in the year ended December 31, 2017. For the three-month period ended March 31, 2018 and 2017, the Company determined that there were no events or circumstances indicating possible additional impairment of its long-lived assets. (i) Basic and Diluted Net Income per Share of Common Stock Basic earnings per common share are based on the weighted average number of shares outstanding during the periods presented. Diluted earnings per share are computed using weighted average number of common shares plus dilutive common share equivalents outstanding during the period. Potential common shares that would have the effect of increasing diluted earnings per share are considered to be anti-dilutive, i.e. the exercise prices of the outstanding stock options were greater than the market price of the common stock. Anti-dilutive common stock equivalents which were excluded from the calculation of number of dilutive common stock equivalents amounted to 75,614 and 25,000 shares for the three-month periods ended March 31, 2018 and 2017, respectively. The following table sets forth the computation of basic and diluted earnings per share: Three-Month Period Ended March 31, 2018 2017 Numerator Net income/(loss) $ (6,977,100 ) $ 8,075,120 Denominator Basic: Weighted-average common shares outstanding during the period 46,803,791 46,793,791 Add: Dilutive effect of stock options 22,597 10,450 Diluted 46,826,388 46,804,241 Net income/(loss) per share Basic $ (0.15 ) $ 0.17 Diluted $ (0.15 ) $ 0.17 (j) Reporting Currency and Translation The financial statements of the Company’s foreign subsidiaries are measured using the local currency, Renminbi (“RMB”), as the functional currency; whereas the functional currency and reporting currency of the Company is the United States dollar (“USD” or “$”). As such, the Company uses the “current rate method” to translate its PRC operations from RMB into USD, as required under FASB ASC 830 “Foreign Currency Matters”. The assets and liabilities of its PRC operations are translated into USD using the rate of exchange prevailing at the balance sheet date. The capital accounts are translated at the historical rate. Adjustments resulting from the translation of the balance sheets of the Company’s PRC subsidiaries are recorded in stockholders’ equity as part of accumulated other comprehensive income. The statement of income and comprehensive income is translated at average rate during the reporting period. Gains or losses resulting from transactions in currencies other than the functional currencies are recognized in net income for the reporting periods as part of general and administrative expense. The statement of cash flows is translated at average rate during the reporting period, with the exception of the consideration paid for the acquisition of business which is translated at historical rates. (k) Foreign Operations All of the Company’s operations and assets are located in PRC. The Company may be adversely affected by possible political or economic events in this country. The effect of these factors cannot be accurately predicted. (l) Exploration Costs Exploration costs, which included the cost of researching appropriate places to drill wells and the cost of well drilling in search of potential natural brine or other resources, are charged to the income statement as incurred. Once the commercial viability of a project has been confirmed, all subsequent costs are capitalized. For oil and gas properties, the successful efforts method of accounting is adopted. The Company carries exploratory well costs as an asset when the well has found a sufficient quantity of reserves to justify its completion as a producing well and where the Company is making sufficient progress assessing the reserves and the economic and operating viability of the project. Exploratory well costs not meeting these criteria are charged to expenses. Exploratory wells that discover potentially economic reserves in areas where major capital expenditure will be required before production would begin and when the major capital expenditure depends upon the successful completion of further exploratory work remain capitalized and are reviewed periodically for impairment. (m) Goodwill Goodwill represents the excess of the purchase price over the net of the fair value of the identifiable tangible and intangible assets acquired and the fair value of liabilities assumed in business acquisitions. Goodwill impairment is assessed based on qualitative factors to determine whether it is more likely than not that the fair value of a reporting entity is less than its carrying amount, including goodwill. If the Company determines that it is more likely than not that the fair value of a reporting entity is less than its carrying amount, the two-step goodwill impairment test will be performed. The Company performs its impairment assessment annually and between annual tests in certain circumstances and determined that the two-step goodwill impairment test is not required to be carried out as of March 31, 2018. (n) New Accounting Pronouncements Recently Adopted Accounting Pronouncements In May 2014 and April 2016, the FASB issued ASU No. 2014-09 and ASU No. 2016-10, Revenue from Contracts with Customers (Topic 606). The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In August 2015, FASB issued ASU 2015-14, which deferred the effective date of Update 2014-09 to annual reporting periods beginning after December 15, 2017. The Company adopted this Update as of January 1, 2018. This adoption did not have a material impact on the Company’s condensed consolidated financial statements as of and for the three months ended March 31, 2018 as the amount and timing of all the Company’s revenue will continue to be recognized at a point in time. As required by the Update, the Company disclosed its revenues from contracts with customers into disaggregated categories in Note 13. In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230), Classification of Certain Cash Receipts and Cash Payments. The Update addresses eight specific changes to how cash receipts and cash payments are presented and classified in the statement of cash flows. The amendments in this Update are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted. An entity that elects early adoption must adopt all of the amendments in the same period. The amendments in this Update should be applied using a retrospective transition method to each period presented. If it is impracticable to apply the amendments retrospectively for some of the issues, the amendments for those issues would be applied prospectively as of the earliest date practicable. The Company adopted this Update as of January 1, 2018 with no material impact on the condensed consolidated financial statements as of and for the three months ended March 31, 2018. In May 2017, the FASB issued ASU No. 2017-09, Compensation – Stock Compensation (Topic 718), Scope of Modification Accounting. The amendments in this Update provide guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting. The amendments in this Update are effective for all entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. The amendments in this Update should be applied prospectively to an award modified on or after the adoption date. The Company adopted this Update as of January 1, 2018 with no material impact on the condensed consolidated financial statements as of and for the three months ended March 31, 2018. Recently Issued Accounting Pronouncements Not Yet Adopted In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). The amendments in this Update specify the accounting for leases. The core principle of Topic 842 is that a lessee should recognize the assets and liabilities that arise from leases. For public business entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company is currently evaluating the effect of this on the consolidated financial statements and related disclosure. In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments. The amendments in this Update affect loans, debt securities, trade receivables, and any other financial assets that have the contractual right to receive cash. The ASU requires an entity to recognize expected credit losses rather than incurred losses for financial assets. For public entities, the amendments are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The Company is currently evaluating the effect of this on the consolidated financial statements and related disclosure. In January 2017, the FASB issued ASU No. 2017-04, Intangibles – Goodwill and Other (Topic 350), Simplifying the Test for Goodwill Impairment. To simplify the subsequent measurement of goodwill, the Board eliminated Step 2 from the goodwill impairment test. Instead, under the amendments in this Update, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. A public business entity that is a U.S. Securities and Exchange Commission (SEC) filer should adopt the amendments in this Update for its annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. The Company is currently evaluating effect of this on the consolidated financial statements and related disclosure. |
2. INVENTORIES
2. INVENTORIES | 3 Months Ended |
Mar. 31, 2018 | |
Inventory Disclosure [Abstract] | |
2. INVENTORIES | Inventories consist of: March 31, 2018 December 31, 2017 Raw materials $ 23,893 $ 396,482 Finished goods 175,381 844,224 Allowance for obsolete and slow-moving inventory (5,473 ) (43,921 ) $ 193,801 $ 1,196,785 |
3. PREPAID LAND LEASES
3. PREPAID LAND LEASES | 3 Months Ended |
Mar. 31, 2018 | |
Notes to Financial Statements | |
3. PREPAID LAND LEASES | The Company prepaid for land leases with lease terms for periods ranging from one to fifty years to use the land on which the production facilities and warehouses of the Company are situated. The prepaid land lease is amortized on a straight line basis. The Company paid $9,732,118 for a 50-year lease of a parcel of land for the new factory at Bohai Marine Fine Chemical Industrial Park in December, 2017. The land use certificate is being processed by the government and the commencement date of the lease will be known upon completion of the application process. During the three-month period ended March 31, 2018, amortization of prepaid land lease totaled $144,097, which amount was recorded as direct labor and factory overheads incurred during plant shutdown. During the three-month period ended March 31, 2017, amortization of prepaid land leases totaled $107,461, which amount was recorded as cost of net revenue. The Company has the rights to use certain parcels of land located in Shouguang, the PRC, through lease agreements signed with local townships or the government authority. For parcels of land that are collectively owned by local townships, the Company cannot obtain land use rights certificates. The parcels of land of which the Company cannot obtain land use rights certificates covers a total of approximately 54.97 square kilometers of aggregate carrying value of $916,059 and approximately 54.97 square kilometers of aggregate carrying value of $645,761 as at March 31, 2018 and December 31, 2017, respectively. |
4. PROPERTY, PLANT AND EQUIPMEN
4. PROPERTY, PLANT AND EQUIPMENT, NET | 3 Months Ended |
Mar. 31, 2018 | |
Property, Plant and Equipment [Abstract] | |
4. PROPERTY, PLANT AND EQUIPMENT, NET | Property, plant and equipment, net consist of the following: March 31, 2018 December 31, 2017 At cost: Mineral rights $ 4,896,244 $ 4,711,822 Buildings 70,400,195 67,748,512 Plant and machinery 208,538,996 200,742,652 Motor vehicles 9,136 8,792 Furniture, fixtures and office equipment 4,313,043 4,150,588 Construction in process 190,200 183,036 Total 288,347,814 277,545,402 Less: Accumulated depreciation and amortization (174,767,162 ) (163,597,407 ) Impairment (19,528,775 ) (18,833,491 ) Net book value $ 94,051,877 $ 95,114,504 The Company has certain buildings and salt pans erected on parcels of land located in Shouguang, PRC, and such parcels of land are collectively owned by local townships or the government authority. The Company has not been able to obtain property ownership certificates over these buildings and salt pans. The aggregate carrying values of these properties situated on parcels of the land are $28,025,014 and $27,432,351 as at March 31, 2018 and December 31, 2017, respectively. During the three-month period ended March 31, 2018, depreciation and amortization expense totaled $4,688,248, of which $4,504,249 and $183,999 were recorded in direct labor and factory overheads incurred during plant shutdown and administrative expenses, respectively. During the three-month period ended March 31, 2017, depreciation and amortization expense totaled $5,360,103, of which $5,068,503 and $291,600 were recorded as cost of net revenue and administrative expenses, respectively. |
5. PROPERTY, PLANT AND EQUIPMEN
5. PROPERTY, PLANT AND EQUIPMENT UNDER CAPITAL LEASES, NET | 3 Months Ended |
Mar. 31, 2018 | |
Leases [Abstract] | |
5. PROPERTY, PLANT AND EQUIPMENT UNDER CAPITAL LEASES, NET | Property, plant and equipment under capital leases, net consist of the following: March 31, 2018 December 31, 2017 At cost: Buildings $ 130,868 $ 125,939 Plant and machinery 2,404,774 2,314,196 Total 2,535,642 2,440,135 Less: Accumulated depreciation and amortization (2,050,782 ) (1,947,897 ) Net book value $ 484,860 $ 492,238 The above buildings erected on parcels of land located in Shouguang, PRC, are collectively owned by local townships. The Company has not been able to obtain property ownership certificates over these buildings as the Company could not obtain land use rights certificates on the underlying parcels of land. During the three-month period ended March 31, 2018, depreciation and amortization expense totaled $69,282, which was recorded in direct labor and factory overheads incurred during plant shutdown. During the three-month period ended March 31, 2017, depreciation and amortization expense totaled $78,996, which was recorded as cost of net revenue. |
6. ACCOUNTS PAYABLE AND ACCRUED
6. ACCOUNTS PAYABLE AND ACCRUED EXPENSES | 3 Months Ended |
Mar. 31, 2018 | |
Payables and Accruals [Abstract] | |
6. ACCOUNTS PAYABLE AND ACCRUED EXPENSES | Accounts payable and accrued expenses consist of the following: March 31, December 31, 2018 2017 Accounts payable $ - $ - Salary payable 270,901 393,617 Social security insurance contribution payable 140,671 135,203 Other payables 579,649 503,263 Total $ 991,221 $ 1,032,083 |
7. RELATED PARTY TRANSACTIONS
7. RELATED PARTY TRANSACTIONS | 3 Months Ended |
Mar. 31, 2018 | |
Related Party Transactions [Abstract] | |
7. RELATED PARTY TRANSACTIONS | During the three-month period ended March 31, 2018, the Company borrowed a sum of $185,912 from Jiaxing Lighting Appliance Company Limited (Jiaxing Lighting”), in which Mr. Ming Yang, a shareholder and the Chairman of the Company, has a 100% equity interest. The amount due to Jiaxing Lighting was unsecured, interest free and repayable on demand and was fully settled in the three-month period ended March 31, 2018. There was no balance owing to Jiaxing Lighting as of March 31, 2018 and December 31, 2017. On September 25, 2012, the Company purchased five floors of a commercial building in the PRC, through SYCI, from Shandong Shouguang Vegetable Seed Industry Group Co., Ltd. (the “Seller”) at a cost of approximately $5.7 million in cash, of which Mr. Ming Yang, the Chairman of the Company, had a 99% equity interest in the Seller. During the first quarter of 2018, the Company entered into an agreement with the Seller, a related party, to provide property management services for an annual amount of approximately $99,200 for five years from January 1, 2018 to December 31, 2022. The expense associated with this agreement for the three months ended March 31, 2018 was approximately $24,500. |
8. TAXES PAYABLE
8. TAXES PAYABLE | 3 Months Ended |
Mar. 31, 2018 | |
Income Tax Disclosure [Abstract] | |
8. TAXES PAYABLE | Taxes payable consists of the following: March 31, December 31, 2018 2017 Income tax payable $ 433,000 $ 433,000 Natural resource tax - 156,147 Land use tax payable 1,698,290 810,841 Other tax payables 73,664 74,604 Total current taxes payable 2,204,954 1,474,592 Non-current taxes payable 4,969,000 4,969,000 Total $ 7,173,954 $ 6,443,592 The non-current taxes payable of $4,969,000 relates to the one-time mandatory transition tax on accumulated foreign earnings that are payable in the following periods (See Note 12(a)): Year ending December 31 Current 2018 $ 433,000 Non-current 2019 $ 433,000 2020 433,000 2021 433,000 2022 433,000 2023 and after 3,237,000 4,969,000 Total $ 5,402,000 |
9. CAPITAL LEASE OBLIGATIONS
9. CAPITAL LEASE OBLIGATIONS | 3 Months Ended |
Mar. 31, 2018 | |
Leases [Abstract] | |
9. CAPITAL LEASE OBLIGATIONS | The components of capital lease obligations are as follows: Imputed March 31, December 31, Interest rate 2018 2017 Total capital lease obligations 6.7% $ 2,649,003 $ 2,507,201 Less: Current portion (254,829 ) (203,206 ) Capital lease obligations, net of current portion $ 2,394,174 $ 2,303,995 Interest expenses from capital lease obligations amounted to $41,797 and $41,753 for the three-month periods ended March 31, 2018 and 2017, respectively, were charged to the condensed consolidated statement of income. See Note 17 for future minimum lease payments disclosure. |
10. EQUITY
10. EQUITY | 3 Months Ended |
Mar. 31, 2018 | |
Equity [Abstract] | |
10. EQUITY | (a) Authorized shares During the annual general meeting held on June 18, 2013, the shareholders of the Company approved the amendment to the Certificate of Incorporation to decrease the number of the authorized shares of the Company’s common stock to 80,000,000. The Company filed an amended and restated Certificate of Incorporation with the Secretary of the State of Delaware to decrease the number of authorized shares of the Company’s common stock. Accordingly, 80,000,000 is disclosed as the authorized shares of the Company’s common stock in the consolidated balance sheets as of March 31, 2018 and December 31, 2017. (b) Retained Earnings - Appropriated In accordance with the relevant PRC regulations and the PRC subsidiaries’ Articles of Association, the Company’s PRC subsidiaries are required to allocate its profit after tax to the following reserve: Statutory Common Reserve Funds SCHC, SYCI and DCHC are required each year to transfer at least 10% of the profit after tax as reported under the PRC statutory financial statements to the Statutory Common Reserve Funds until the balance reaches 50% of the registered share capital. This reserve can be used to make up any loss incurred or to increase share capital. Except for the reduction of losses incurred, any other application should not result in this reserve balance falling below 25% of the registered capital. The Statutory Common Reserve Fund as of March 31, 2018 for SCHC, SYCI and DCHC is 46%, 14% and 0% of its registered capital respectively. |
11. STOCK-BASED COMPENSATION
11. STOCK-BASED COMPENSATION | 3 Months Ended |
Mar. 31, 2018 | |
Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | |
11. STOCK-BASED COMPENSATION | Pursuant to the Company’s Amended and Restated 2007 Equity Incentive Plan approved in 2011(“Plan”), the aggregate number shares of the Company’s common stock available for grant of stock options and issuance is 4,341,989 shares. On October 5, 2015, during the annual meeting of the Company’s stockholders, the aggregate number of shares reserved and available for grant and issuance pursuant to the Plan was increased to 10,341,989. As of March 31, 2018, the number of shares of the Company’s common stock available for issuance under the Plan is 6,714,989. The fair value of each option award is estimated on the date of grant using the Black-Scholes option-pricing model. The risk free rate is based on the yield-to-maturity in continuous compounding of the US Government Bonds with the time-to-maturity similar to the expected tenor of the option granted, volatility is based on the annualized historical stock price volatility of the Company, and the expected life is based on the historical option exercise pattern. During the three months ended March 31, 2018, there were no options issued to employees or non-employees. The following table summarizes all Company stock option transactions between January 1, 2018 and March 31, 2018. Number of Option and Warrants Outstanding and exercisable Weighted- Average Exercise price of Option and Warrants Range of Exercise Price per Common Share Balance, January 1, 2018 808,500 $1.61 $1.44 - $4.80 Granted and vested during the period ended March 31, 2018 - - - Expired during the period ended March 31, 2018 - - - Balance, March 31, 2018 808,500 $1.61 $1.44 - $4.80 Stock and Warrants Options Exercisable and Outstanding Weighted Average Remaining Outstanding at March 31, 2018 Range of Exercise Prices Contractual Life (Years) Exercisable and outstanding 808,500 $1.44 - $4.80 2.86 The aggregate intrinsic value of options outstanding and exercisable as of March 31, 2018 was $0. |
12. INCOME TAXES
12. INCOME TAXES | 3 Months Ended |
Mar. 31, 2018 | |
Income Tax Disclosure [Abstract] | |
12. INCOME TAXES | The Company utilizes the asset and liability method of accounting for income taxes in accordance with FASB ASC 740-10. (a) United States (“US”) Gulf Resources, Inc. may be subject to the United States of America Tax laws at a tax rate of 21%. No provision for the US federal income taxes has been made as the Company had no US taxable income for the three-month periods ended March 31, 2018 and 2017, and management believes that its earnings are permanently invested in the PRC. On December 22, 2017, the Tax Cuts and Jobs Act (“TCJA”) was enacted in law. With the new tax law, the corporation income tax rate is reduced from 35% to 21% and there is a one-time mandatory transition tax on accumulated foreign earnings. The Company is allowed under TCJA to settle the tax liabilities over a period of eight years. The Company accrued a provisional amount of $5,402,000 (See Note 8) for the one-time mandatory transition as of and for the year ended December 31, 2017. On December 22, 2017, the Securities and Exchange Commission (“SEC”), staff issued Staff Accounting Bulletin (SAB) 118 which allows the Company to record a provisional amount of the one-time mandatory transition tax on accumulated foreign earning during a measurement period not to exceed one year of the enactment date. (b) British Virgin Islands (“BVI”) Upper Class Group Limited, a subsidiary of Gulf Resources, Inc., was incorporated in the BVI and, under the current laws of the BVI, it is not subject to tax on income or capital gain in the BVI. Upper Class Group Limited did not generate assessable profit for the three-month periods ended March 31, 2018 and 2017. (c) Hong Kong Hong Kong Jiaxing Industrial Limited, a subsidiary of Upper Class Group Limited, was incorporated in Hong Kong and is subject to Hong Kong profits tax. The Company is subject to Hong Kong taxation on its activities conducted in Hong Kong and income arising in or derived from Hong Kong. No provision for profits tax has been made as the Company has no assessable income for the three-month periods ended March 31, 2018 and 2017. The applicable statutory tax rates for the three-month periods ended March 31, 2018 and 2017 are 16.5%. (d) PRC Enterprise income tax (“EIT”) for SCHC, SYCI and DCHC in the PRC is charged at 25% of the assessable profits. The operating subsidiaries SCHC, SYCI and DCHC are wholly foreign-owned enterprises (“FIE”) incorporated in the PRC and are subject to PRC Local Income Tax Law. On February 22, 2008, the Ministry of Finance (“MOF”) and the State Administration of Taxation (“SAT”) jointly issued Cai Shui [2008] Circular 1 (“Circular 1”). According to Article 4 of Circular 1, distributions of accumulated profits earned by a FIE prior to January 1, 2008 to foreign investor(s) in 2008 will be exempted from withholding tax (“WHT”) while distribution of the profit earned by an FIE after January 1, 2008 to its foreign investor(s) shall be subject to WHT at 5% effective tax rate. As of March 31, 2018 and December 31, 2017, the accumulated distributable earnings under the Generally Accepted Accounting Principles (GAAP”) of PRC that are subject to WHT are $286,732,938 and $282,660,981, respectively. Since the Company intends to reinvest its earnings to further expand its businesses in mainland China, its foreign invested enterprises do not intend to declare dividends to their immediate foreign holding companies in the foreseeable future. Accordingly, as of March 31, 2018 and December 31, 2017, the Company has not recorded any WHT on the cumulative amount of distributable retained earnings of its foreign invested enterprises that are subject to WHT in China. As of March 31, 2018 and December 31, 2017, the unrecognized WHT are $14,336,647 and $14,133,049, respectively. The Company’s tax returns are subject to the various tax authorities’ examination. The federal, state and local authorities of the United States may examine the Company’s tax returns filed in the United States for three years from the date of filing. The Company’s US tax returns since 2014 are currently subject to examination. Inland Revenue Department of Hong Kong may examine the Company’s tax returns filed in Hong Kong for seven years from date of filing. The Company’s Hong Kong tax returns since incorporation in year 2010 are currently subject to examination. The tax authorities of the PRC may examine the Company’s PRC tax returns for three years from the date of filing. The components of the provision for income tax expense (benefit) from continuing operations are: Three-Month Period Ended March 31, 2018 2017 Current taxes – PR C $ - $ 2,821,826 Deferred tax – PRC (1,193,746 ) - $ (1,193,746 ) $ 2,821,826 The effective income tax expenses differ from the PRC statutory income tax rate of 25% from continuing operations in the PRC as follows: Three-Month Period Ended March 31, Reconciliations 2018 2017 Statutory income tax rate 25 % 25 % Non-deductible expense and change in valuation allowance (7 %) 1 % Non-taxable items (3 %) - Effective tax rate 15 % 26 % Significant components of the Company’s deferred tax assets and liabilities at March 31, 2018 and December 31, 2017 are as follows: March 31, December 31, 2018 2017 Deferred tax liabilities $ - $ - Deferred tax assets: Allowance for obsolete and slow-moving inventories $ 1,368 $ 10,980 Impairment on property, plant and equipment 4,076,604 4,610,228 Exploration costs 1,979,924 1,905,347 Compensation costs of unexercised stock options 98,088 98,092 PRC tax losses 1,931,983 - US federal net operating loss 7,106,400 7,080,000 Total deferred tax assets 15,194,367 13,704,647 Valuation allowance (7,204,488 ) (7,178,092 ) Net deferred tax asset $ 7,989,879 $ 6,526,555 The increase in valuation allowance for the three-month period ended March 31, 2018 is $26,396. The increase in valuation allowance for the three-month period ended March 31, 2017 is $40,800. There were no unrecognized tax benefits and accrual for uncertain tax positions as of March 31, 2018 and December 31, 2017. |
13. BUSINESS SEGMENTS
13. BUSINESS SEGMENTS | 3 Months Ended |
Mar. 31, 2018 | |
Segment Reporting [Abstract] | |
13. BUSINESS SEGMENTS | The Company has four reportable segments: bromine, crude salt, chemical products and natural gas. The reportable segments are consistent with how management views the markets served by the Company and the financial information that is reviewed by its chief operating decision maker. An operating segment’s performance is primarily evaluated based on segment operating income, which excludes share-based compensation expense, certain corporate costs and other income not associated with the operations of the segment. These corporate costs (income) are separately stated below and also include costs that are related to functional areas such as accounting, treasury, information technology, legal, human resources, and internal audit. The Company believes that segment operating income, as defined above, is an appropriate measure for evaluating the operating performance of its segments. All the customers are located in PRC. Three-Month Period Ended March 31, 2018 Bromine * Crude Salt * Chemical Products Natural Gas Segment Total Corporate Total Net revenue (external customers) $ - $ 1,638,493 $ 608,774 $ - $ 2,247,267 $ - $ 2,247,267 Net revenue (intersegment) - - - - - - - Income (loss) from operations before income taxes (benefit) (5,590,555 ) (807,884 ) (674,771 ) (35,655 ) (7,108,865 ) (1,188,115 ) (8,296,980 ) Income tax expense (benefit) (1,391,152 ) (201,971 ) 399,377 - (1,193,746 ) - (1,193,746 ) Income (loss) from operations after income taxes (benefit) (4,199,403 ) (605,913 ) (1,074,148 ) (35,655 ) (5,915,119 ) (1,188,115 ) (7,103,234 ) Total assets 149,458,703 52,746,108 192,807,722 2,162,119 397,174,652 165,315 397,339,967 Depreciation and amortization 3,719,712 913,350 124,468 - 4,757,530 - 4,757,530 Capital expenditures 93,174 14,179 - 14,357 121,710 - 121,710 Goodwill - - 30,524,646 - 30,524,646 - 30,524,646 Three-Month Period Ended March 31, 2017 Bromine * Crude Salt * Chemical Products Natural Gas Segment Total Corporate Total Net revenue (external customers) $ 13,922,394 $ 1,813,778 $ 17,052,321 $ - $ 32,788,493 $ - $ 32,788,493 Net revenue (intersegment) 2,178,493 - - - 2,178,493 - 2,178,493 Income (loss) from operations before income taxes 5,271,933 885,888 4,946,177 (23,758 ) 11,080,240 (267,243 ) 10,812,997 Income taxes 1,330,103 223,582 1,268,141 - 2,821,826 - 2,821,826 Income (loss) from operations after income taxes 3,941,830 662,306 3,678,036 (23,758 ) 8,258,414 (267,243 ) 7,991,171 Total assets 155,178,113 28,641,633 192,675,503 1,802,854 378,298,103 37,109 378,335,212 Depreciation and amortization 3,998,581 454,447 986,070 - 5,439,098 - 5,439,098 Capital expenditures - - - 59,975 59,975 - 59,975 Goodwill - - 27,820,174 - 27,820,174 - 27,820,174 * Certain common production overheads, operating and administrative expenses and asset items (mainly cash and certain office equipment) of bromine and crude salt segments in SCHC were split by reference to the average selling price and production volume of respective segment. Three-Month Period Ended March 31, Reconciliations 2018 2017 Total segment operating income (loss) $ (7,108,865 ) $ 11,080,240 Corporate costs (129,263 ) (129,988 ) Unrealized loss on translation of intercompany balance (1,058,852 ) (137,255 ) Income (loss) from operations (8,296,980 ) 10,812,997 Other income 126,134 83,949 Income (loss) before income taxes $ (8,170,846 ) $ 10,896,946 The following table shows the major customer(s) (10% or more) for the three-month period ended March 31, 2018. Number Customer Bromine (000’s) Crude Salt (000’s) Chemical Products (000’s) Total Revenue (000’s) Percentage of Total Revenue (%) 1 Shandong Morui Chemical Company Limited $ - $ 534 $ 155 $ 689 30.6% 2 Shandong Brother Technology Limited, Kuerle Xingdong Trading Limited $ - $ 670 $ - $ 670 29.8% 3 Shouguang Weidong Chemical Company Limited $ - $ 435 $ - $ 435 19.3% The following table shows the major customer(s) (10% or more) for the three-month period ended March 31, 2017. Number Customer Bromine (000’s) Crude Salt (000’s) Chemical Products (000’s) Total Revenue (000’s) Percentage of Total Revenue (%) 1 Shandong Morui Chemical Company Limited $ 2,594 $ 497 $ 1,085 $ 4,176 12.7% |
14. CUSTOMER CONCENTRATION
14. CUSTOMER CONCENTRATION | 3 Months Ended |
Mar. 31, 2018 | |
Risks and Uncertainties [Abstract] | |
14. CUSTOMER CONCENTRATION | During the three-month periods ended March 31, 2018 and 2017, the Company sold 88.8% and 36.4% of its products to its top five customers, respectively. As of March 31, 2018 and 2017, amounts due from these customers were $8,831,030 and $30,263,356, respectively. This concentration makes the Company vulnerable to a near-term severe impact, should the relationships be terminated. |
15. MAJOR SUPPLIERS
15. MAJOR SUPPLIERS | 3 Months Ended |
Mar. 31, 2018 | |
Notes to Financial Statements | |
15. MAJOR SUPPLIERS | During the three-month period ended March 31, 2018 and 2017, the Company purchased 0% and 69.7% of its raw materials from its top five suppliers, respectively. As of March 31, 2018 and 2017, amounts due to those suppliers included in accounts payable were $0 and $5,639,164, respectively. This concentration makes the Company vulnerable to a near-term severe impact, should the relationships be terminated. |
16. FAIR VALUE OF FINANCIAL INS
16. FAIR VALUE OF FINANCIAL INSTRUMENTS | 3 Months Ended |
Mar. 31, 2018 | |
Fair Value Disclosures [Abstract] | |
16. FAIR VALUE OF FINANCIAL INSTRUMENTS | The carrying values of financial instruments, which consist of cash, accounts receivable and accounts payable and other payables, approximate their fair values due to the short-term nature of these instruments. There were no material unrecognized financial assets and liabilities as of March 31, 2018 and December 31, 2017. |
17. CAPITAL COMMITMENT AND OPER
17. CAPITAL COMMITMENT AND OPERATING LEASE COMMITMENTS | 3 Months Ended |
Mar. 31, 2018 | |
Commitments and Contingencies Disclosure [Abstract] | |
17. CAPITAL COMMITMENT AND OPERATING LEASE COMMITMENTS | As of March 31, 2018, the Company has leased a real property adjacent to Factory No. 1, with the related production facility, channels and ducts, other production equipment and the buildings located on the property, under a capital lease. The future minimum lease payments required under the capital lease, together with the present value of such payments, are included in the table show below. The Company has leased nine parcels of land under non-cancelable operating leases, which are fixed rentals and expire through December 2021, December 2023, December 2030, December 2031, December 2032, December 2040, February 2059, August 2059 and June 2060, respectively. The Company has no purchase commitments as of March 31, 2018. The following table sets forth the Company’s contractual obligations as of March 31, 2018: Capital Lease Obligations Operating Lease Obligations Property Management Fees Capital Expenditure Payable within: the next 12 months $ 298,499 $ 1,045,795 $ 99,213 $ 167,046 the next 13 to 24 months 298,499 1,069,473 99,213 - the next 25 to 36 months 298,499 1,094,416 99,213 - the next 37 to 48 months 298,499 942,133 99,213 - the next 49 to 60 months 298,499 960,539 99,213 - thereafter 2,387,996 16,951,287 - - Total $ 3,880,491 $ 22,063,643 $ 496,065 $ 167,016 Less: Amount representing interest (1,231,488) Present value of net minimum lease payments $ 2,649,003 Rental expenses related to operating leases of the Company amounted to $281,613 and $255,120, which were charged to the condensed consolidated statements of income for the three months ended March 31, 2018 and 2017, respectively. |
18. SUBSEQUENT EVENTS
18. SUBSEQUENT EVENTS | 3 Months Ended |
Mar. 31, 2018 | |
Subsequent Events [Abstract] | |
18. SUBSEQUENT EVENTS | In April 2018, SYCI signed several contracts (preliminary design, investigative work and assessment and evaluation of safety) related to the SYCI’s relocation project. The total of these contracts amounted to approximately $1.3 million (RMB8.0 million). In April 2018, SYCI and Shouguang City Rongyuan Pharmaceutical Co., Ltd signed a land lease contract for 20-year term commencing May 1, 2018 in the Bohai Park for an annual rent of approximately $13,000. This is for an area of 26.89mu (approximately 1.79 hectares) and for the construction of the new chemical factory. In April 2018, SCHC signed a purchase agreement for rectification equipment for an amount of approximately $260,000 (RMB1.7 million). |
1. BASIS OF PRESENTATION AND 25
1. BASIS OF PRESENTATION AND CONSOLIDATION (Policies) | 3 Months Ended |
Mar. 31, 2018 | |
Accounting Policies [Abstract] | |
Basis of Presentation and Consolidation | The accompanying condensed financial statements have been prepared by Gulf Resources, Inc (“Gulf Resources”) a Nevada corporation and its subsidiaries (collectively, the “Company”), without audit, in accordance with the instructions to Form 10-Q and, therefore, do not necessarily include all information and footnotes necessary for a fair statement of its financial position, results of operations and cash flows in accordance with accounting principles generally accepted in the United States (“US GAAP”). In the opinion of management, the unaudited financial information for the quarter ended March 31, 2018 presented reflects all adjustments, which are only normal and recurring, necessary for a fair statement of results of operations, financial position and cash flows. These condensed financial statements should be read in conjunction with the financial statements included in the Company’s 2017 Form 10-K. Operating results for the interim periods are not necessarily indicative of operating results for an entire fiscal year. The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the amounts that are reported in the financial statements and accompanying disclosures. Although these estimates are based on management’s best knowledge of current events and actions that the Company may undertake in the future, actual results may be different from the estimates. The Company also exercises judgments in the preparation of these condensed financial statements in the areas including classification of leases and related party transactions. On September 2, 2016, the Company announced the planned merger of two of its 100% owned subsidiaries, Shouguan Yuxin Chemical Co., Limited (“SYCI”) and Shouguan Rongyuan Chemical Co., Ltd (“SCRC”). On March 24, 2017, the legal process of the merger was completed and SCRC was officially deregistered on March 28, 2017. The results of these two subsidiaries were reported as SYCI in the three months ended March 31, 2018. The consolidated financial statements include the accounts of Gulf Resources, Inc. and its wholly-owned subsidiary, Upper Class Group Limited, a company incorporated in the British Virgin Islands, which owns 100% of Hong Kong Jiaxing Industrial Limited, a company incorporated in Hong Kong (“HKJI”). HKJI owns 100% of Shouguang City Haoyuan Chemical Company Limited ("SCHC") which owns 100% of Shouguang Yuxin Chemical Industry Co., Limited (“SYCI”) and Daying County Haoyuan Chemical Company Limited (“DCHC”). All material intercompany transactions have been eliminated on consolidation. |
Nature of the Business | The Company manufactures and trades bromine and crude salt through its wholly-owned subsidiary, Shouguang City Haoyuan Chemical Company Limited ("SCHC") and manufactures chemical products for use in the oil industry, pesticides, paper manufacturing industry and for human and animal antibiotics through its wholly-owned subsidiary, Shouguang Yuxin Chemical Industry Co., Limited ("SYCI") in the People’s Republic of China (“PRC”). DCHC was established to further explore and develop natural gas and brine resources (including bromine and crude salt) in the PRC. DCHC’s business was not fully operational as of March 31, 2018. On September 1, 2017, the Company received notification from the Government of Yangkou County, Shouguang City of PRC that production at all its factories should be halted with immediate effect in order for the Company to perform rectification and improvement in accordance with the county’s new safety and environmental protection requirements. The Company has been working closely with the county authorities to develop rectification plans for both its bromine and crude salt businesses and had agreed on a plan in October 2017. SCHC is currently under rectification process. The Company believes this rectification and improvement process will cost approximately $35 million in total. The Company incurred rectification and improvements in the amount of $18,046,005 and $17,938,652 as of March 31, 2018 and December 31, 2017. Originally, six bromine factories completed their rectification process and passed the inspection by local governments and were scheduled for production commencement by April 2018. Subsequently, the Provincial government required the local government to conduct “four rating and one comprehensive evaluation” for all of the chemical companies within its jurisdiction. This has delayed the production commencement schedule of the six factories. The Company is currently actively working on the rectification of the remaining four factories. The Company expects to complete the rectification and improvements of the bromine and crude salt factories and be ready for the government inspection, rating and evaluation by June 2018, and will resume operation for those when they have approval from the government. Four of the remaining bromine and crude salt factories have a slightly more complex issue that needs to be resolved. All bromine factories now require paired crude salt pans to prevent the halogen water resulting from the production process from flowing into the sea. Four of these bromine factories do not have a designated crude salt pan where the wastewater could be channeled. The Company has four alternatives for these four factories which do not have paired crude salt pans: 1. It can form partnerships with adjacent bromine facilities that do have crude salt pans The nature of these partnerships could take many forms. 2. The company could petition the government for a zoning change so that additional land for salt pans could be obtained. This might be difficult but is worth pursuing. 3. The Company could negotiate a different method of dealing with this issue. 4. Or these factories could conceivably be forced to close. At the present time, the Company is working with the government on these issues and did not reach the final solution yet. On November 24, 2017, the Company received a letter from the Government of Yangkou County, Shouguang City notifying the Company to relocate its two chemical production plants located in the second living area of the Qinghe Oil Extraction Plant to the Bohai Marine Fine Chemical Industrial Park (“Bohai Park”). This is because the two plants are located in a residential area and their production activities will impact the living environment of the residents. This is as a result of the country’s effort to improve the development of the chemical industry, manage safe production and curb environmental pollution accidents effectively, and ensure the quality of the living environment of residents. All chemical enterprises which do not comply with the requirements of the safety and environmental protection regulations will be ordered to shut down. The Company believes this relocation process will cost approximately $60 million in total. The Company incurred relocation cost in the amount of $9,732,118 as of March 31, 2018 and December 31, 2017 and estimated that the new factory will be fully operational by the beginning of 2020. During the first quarter, the Company continued its related environmental and planning preparation work for the new factory. Since the Company has paid for the lease of a piece of land at the Bohai Park, it does not see any potential delay with the construction of the new factory. The Company has signed several contracts for the new factory (see subsequent event in Note 18). As previously disclosed, during the course of drilling for more bromine and crude salt resources, the Company found natural gas resources under our bromine well in the Sichuan area. DCHC was established to further explore and develop natural gas and brine resources (including bromine and crude salt). On January 2017, the Company completed the first brine water and natural gas well field construction in Sichuan Province and announced the commencement of trial production. The Company has been working with Xinan Shiyou Daxue (Southwest Petroleum University) and developed a solution to DHCH’s technical drilling problem. In resolving the problem, the Company needs customized equipment. The customized equipment has been ordered and is now being manufactured. Once the equipment arrives, it will be installed and production will commence. While the Company hopes this will occur during the second quarter of 2018, the company has no control over the exact timing of the delivery of the equipment. It is possible the commencement of production might not occur until early in the third quarter in 2018. |
Allowance for Doubtful Accounts | As of March 31, 2018 and December 31, 2017, allowances for doubtful accounts were nil. No allowances for doubtful accounts were charged to the condensed consolidated statements of income for the three-month periods ended March 31, 2018 and 2017. |
Concentration of Credit Risk | The Company is exposed to credit risk in the normal course of business, primarily related to accounts receivable and cash and cash equivalents. Substantially all of the Company’s cash and cash equivalents are maintained with financial institutions in the PRC, namely, Industrial and Commercial Bank of China Limited, China Merchants Bank Company Limited and Sichuan Rural Credit Union, which are not insured or otherwise protected. The Company placed $236,720,969 and $208,906,759 with these institutions as of March 31, 2018 and December 31, 2017, respectively. The Company has not experienced any losses in such accounts in the PRC. Concentrations of credit risk with respect to accounts receivable exists as the Company sells a substantial portion of its products to a limited number of customers. However, such concentrations of credit risks are limited since the Company performs ongoing credit evaluations of its customers’ financial condition. Approximately 24% and 13% of the balance of accounts receivable as of March 31, 2018 and December 31, 2017, respectively, are outstanding for less than three months. For the balances of accounts receivable aged more than 90 days as of March 31, 2018, approximately 41% were collected by April 30, 2018. The rate of collection in April 2018 for accounts receivable aged more than 90 days as of March 31, 2018 was analyzed as follows: Accounts Receivable Aging Percent Collected 90-120 days 0% 121-150 days 12% 151-180 days 0% 181-210 days 16% 211-240 days 100% |
Property, Plant and Equipment | Property, plant and equipment are stated at cost less accumulated depreciation and any impairment losses. Expenditures for new facilities or equipment, and major expenditures for betterment of existing facilities or equipment are capitalized and depreciated using the straight-line method at rates sufficient to depreciate such costs less 5% residual value over the estimated productive lives. All other ordinary repair and maintenance costs are expensed as incurred. Mineral rights are recorded at cost less accumulated depreciation and any impairment losses. Mineral rights are amortized ratably over the term of the lease, or the equivalent term under the units of production method, whichever is shorter. Construction in process primarily represents direct costs of construction of plant, machinery and equipment. Costs incurred are capitalized and transferred to property and equipment upon completion, at which time depreciation commences. The Company’s depreciation and amortization policies on property, plant and equipment, other than mineral rights and construction in process, are as follows: Useful life (in years) Buildings (including salt pans) 8 - 20 Plant and machinery (including protective shells, transmission channels and ducts) 3 - 8 Motor vehicles 5 Furniture, fixtures and equipment 3-8 Property, plant and equipment under the capital lease are depreciated over their expected useful lives on the same basis as owned assets, or where shorter, the term of the lease, which is 20 years. Producing oil and gas properties are depreciated on a unit-of-production basis over the proved developed reserves. Common facilities that are built specifically to service production directly attributed to designated oil and gas properties are depreciated based on the proved developed reserves of the respective oil and gas properties on a pro-rata basis. Common facilities that are not built specifically to service identified oil and gas properties are depreciated using the straight-line method over their estimated useful lives. Costs associated with significant development projects are not depreciated until commercial production commences and the reserves related to those costs are excluded from the calculation of depreciation. |
Retirement Benefits | Pursuant to the relevant laws and regulations in the PRC, the Company participates in a defined contribution retirement plan for its employees arranged by a governmental organization. The Company makes contributions to the retirement plan at the applicable rate based on the employees’ salaries. The required contributions under the retirement plans are charged to the condensed consolidated statement of income on an accrual basis when they are due. The Company’s contributions totaled $302,418 and $255,216 for the three-month periods ended March 31, 2018 and 2017, respectively. |
Revenue Recognition | Net revenue is net of discount and value added tax and comprises the sale of bromine, crude salt and chemical products. Revenue is recognized when the control of the promised goods is transferred to the customers in an amount that reflects the consideration that the Company expects to receive from the customers in exchange for those goods. The acknowledgement of receipt of goods by the customers is when control of the product is deemed to be transferred. Invoicing occurs upon acknowledgement of receipt of the goods by the customers. Customers have no rights to return the goods upon acknowledgement of receipt of goods. |
Recoverability of Long-lived Assets | In accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 360-10-35 “Impairment or Disposal of Long-lived Assets” The Company determines the existence of such impairment by measuring the expected future cash flows (undiscounted and without interest charges) and comparing such amount to the carrying amount of the assets. An impairment loss, if one exists, is then measured as the amount by which the carrying amount of the asset exceeds the discounted estimated future cash flows. Assets to be disposed of are reported at the lower of the carrying amount or fair value of such assets less costs to sell. Asset impairment charges are recorded to reduce the carrying amount of the long-lived asset that will be sold or disposed of to their estimated fair values. Charges for the asset impairment reduce the carrying amount of the long-lived assets to their estimated salvage value in connection with the decision to dispose of such assets. To comply with the new safety and environmental regulations (see Note 1 (b)), the Company started the rectification and improvement program for the bromine and crude salt factories towards the end of the third quarter of fiscal year 2017, and as a result recorded an impairment loss of $216,181 and a write-off of $728,740 for certain property, plant and equipment in the year ended December 31, 2017. With the relocation of the chemical factories and the length of time required to set up the new factory building in the Bohai Marine Fine Chemical Industrial Park (see Note 1 (b)), the Company believes that it is not beneficial to move the existing plant and equipment to the new premises. This is because of the age of the plant and equipment and the impact on the production efficiency at the new plant using plant and equipment that are idle for a substantial amount of time. In addition, the Company also risks the possibility of not passing the inspection by the government at the new plant if existing plant and equipment are used. Therefore, an impairment loss of $16,636,322 equivalent to the net book values of all the property, plant and equipment at the two chemical factories was recorded in the year ended December 31, 2017. For the three-month period ended March 31, 2018 and 2017, the Company determined that there were no events or circumstances indicating possible additional impairment of its long-lived assets. |
Basic and Diluted Net Income per Share of Common Stock | Basic earnings per common share are based on the weighted average number of shares outstanding during the periods presented. Diluted earnings per share are computed using weighted average number of common shares plus dilutive common share equivalents outstanding during the period. Potential common shares that would have the effect of increasing diluted earnings per share are considered to be anti-dilutive, i.e. the exercise prices of the outstanding stock options were greater than the market price of the common stock. Anti-dilutive common stock equivalents which were excluded from the calculation of number of dilutive common stock equivalents amounted to 75,614 and 25,000 shares for the three-month periods ended March 31, 2018 and 2017, respectively. The following table sets forth the computation of basic and diluted earnings per share: Three-Month Period Ended March 31, 2018 2017 Numerator Net income/(loss) $ (6,977,100 ) $ 8,075,120 Denominator Basic: Weighted-average common shares outstanding during the period 46,803,791 46,793,791 Add: Dilutive effect of stock options 22,597 10,450 Diluted 46,826,388 46,804,241 Net income/(loss) per share Basic $ (0.15 ) $ 0.17 Diluted $ (0.15 ) $ 0.17 |
Reporting Currency and Translation | The financial statements of the Company’s foreign subsidiaries are measured using the local currency, Renminbi (“RMB”), as the functional currency; whereas the functional currency and reporting currency of the Company is the United States dollar (“USD” or “$”). As such, the Company uses the “current rate method” to translate its PRC operations from RMB into USD, as required under FASB ASC 830 “Foreign Currency Matters”. The assets and liabilities of its PRC operations are translated into USD using the rate of exchange prevailing at the balance sheet date. The capital accounts are translated at the historical rate. Adjustments resulting from the translation of the balance sheets of the Company’s PRC subsidiaries are recorded in stockholders’ equity as part of accumulated other comprehensive income. The statement of income and comprehensive income is translated at average rate during the reporting period. Gains or losses resulting from transactions in currencies other than the functional currencies are recognized in net income for the reporting periods as part of general and administrative expense. The statement of cash flows is translated at average rate during the reporting period, with the exception of the consideration paid for the acquisition of business which is translated at historical rates. |
Foreign Operations | All of the Company’s operations and assets are located in PRC. The Company may be adversely affected by possible political or economic events in this country. The effect of these factors cannot be accurately predicted. |
Exploration Costs | Exploration costs, which included the cost of researching appropriate places to drill wells and the cost of well drilling in search of potential natural brine or other resources, are charged to the income statement as incurred. Once the commercial viability of a project has been confirmed, all subsequent costs are capitalized. For oil and gas properties, the successful efforts method of accounting is adopted. The Company carries exploratory well costs as an asset when the well has found a sufficient quantity of reserves to justify its completion as a producing well and where the Company is making sufficient progress assessing the reserves and the economic and operating viability of the project. Exploratory well costs not meeting these criteria are charged to expenses. Exploratory wells that discover potentially economic reserves in areas where major capital expenditure will be required before production would begin and when the major capital expenditure depends upon the successful completion of further exploratory work remain capitalized and are reviewed periodically for impairment. |
Goodwill | Goodwill represents the excess of the purchase price over the net of the fair value of the identifiable tangible and intangible assets acquired and the fair value of liabilities assumed in business acquisitions. Goodwill impairment is assessed based on qualitative factors to determine whether it is more likely than not that the fair value of a reporting entity is less than its carrying amount, including goodwill. If the Company determines that it is more likely than not that the fair value of a reporting entity is less than its carrying amount, the two-step goodwill impairment test will be performed. The Company performs its impairment assessment annually and between annual tests in certain circumstances and determined that the two-step goodwill impairment test is not required to be carried out as of March 31, 2018. |
New Accounting Pronouncements | Recently Adopted Accounting Pronouncements In May 2014 and April 2016, the FASB issued ASU No. 2014-09 and ASU No. 2016-10, Revenue from Contracts with Customers (Topic 606). The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In August 2015, FASB issued ASU 2015-14, which deferred the effective date of Update 2014-09 to annual reporting periods beginning after December 15, 2017. The Company adopted this Update as of January 1, 2018. This adoption did not have a material impact on the Company’s condensed consolidated financial statements as of and for the three months ended March 31, 2018 as the amount and timing of all the Company’s revenue will continue to be recognized at a point in time. As required by the Update, the Company disclosed its revenues from contracts with customers into disaggregated categories in Note 13. In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230), Classification of Certain Cash Receipts and Cash Payments. The Update addresses eight specific changes to how cash receipts and cash payments are presented and classified in the statement of cash flows. The amendments in this Update are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted. An entity that elects early adoption must adopt all of the amendments in the same period. The amendments in this Update should be applied using a retrospective transition method to each period presented. If it is impracticable to apply the amendments retrospectively for some of the issues, the amendments for those issues would be applied prospectively as of the earliest date practicable. The Company adopted this Update as of January 1, 2018 with no material impact on the condensed consolidated financial statements as of and for the three months ended March 31, 2018. In May 2017, the FASB issued ASU No. 2017-09, Compensation – Stock Compensation (Topic 718), Scope of Modification Accounting. The amendments in this Update provide guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting. The amendments in this Update are effective for all entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. The amendments in this Update should be applied prospectively to an award modified on or after the adoption date. The Company adopted this Update as of January 1, 2018 with no material impact on the condensed consolidated financial statements as of and for the three months ended March 31, 2018. Recently Issued Accounting Pronouncements Not Yet Adopted In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). The amendments in this Update specify the accounting for leases. The core principle of Topic 842 is that a lessee should recognize the assets and liabilities that arise from leases. For public business entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company is currently evaluating the effect of this on the consolidated financial statements and related disclosure. In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments. The amendments in this Update affect loans, debt securities, trade receivables, and any other financial assets that have the contractual right to receive cash. The ASU requires an entity to recognize expected credit losses rather than incurred losses for financial assets. For public entities, the amendments are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The Company is currently evaluating the effect of this on the consolidated financial statements and related disclosure. In January 2017, the FASB issued ASU No. 2017-04, Intangibles – Goodwill and Other (Topic 350), Simplifying the Test for Goodwill Impairment. To simplify the subsequent measurement of goodwill, the Board eliminated Step 2 from the goodwill impairment test. Instead, under the amendments in this Update, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. A public business entity that is a U.S. Securities and Exchange Commission (SEC) filer should adopt the amendments in this Update for its annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. The Company is currently evaluating effect of this on the consolidated financial statements and related disclosure. |
1. BASIS OF PRESENTATION AND 26
1. BASIS OF PRESENTATION AND CONSOLIDATION (Tables) | 3 Months Ended |
Mar. 31, 2018 | |
Accounting Policies [Abstract] | |
Rate of collection for accounts receivable | Accounts Receivable Aging Percent Collected 90-120 days 0% 121-150 days 12% 151-180 days 0% 181-210 days 16% 211-240 days 100% |
Schedule of property plant and equipment useful life | Useful life (in years) Buildings (including salt pans) 8 - 20 Plant and machinery (including protective shells, transmission channels and ducts) 3 - 8 Motor vehicles 5 Furniture, fixtures and equipment 3-8 |
Schedule of earnings per share | Three-Month Period Ended March 31, 2018 2017 Numerator Net income/(loss) $ (6,977,100 ) $ 8,075,120 Denominator Basic: Weighted-average common shares outstanding during the period 46,803,791 46,793,791 Add: Dilutive effect of stock options 22,597 10,450 Diluted 46,826,388 46,804,241 Net income/(loss) per share Basic $ (0.15 ) $ 0.17 Diluted $ (0.15 ) $ 0.17 |
2. INVENTORIES (Tables)
2. INVENTORIES (Tables) | 3 Months Ended |
Mar. 31, 2018 | |
Inventory Disclosure [Abstract] | |
Inventories | March 31, 2018 December 31, 2017 Raw materials $ 23,893 $ 396,482 Finished goods 175,381 844,224 Allowance for obsolete and slow-moving inventory (5,473 ) (43,921 ) $ 193,801 $ 1,196,785 |
4. PROPERTY, PLANT AND EQUIPM28
4. PROPERTY, PLANT AND EQUIPMENT, NET (Tables) | 3 Months Ended |
Mar. 31, 2018 | |
Property, Plant and Equipment [Abstract] | |
Property, plant and equipment | March 31, 2018 December 31, 2017 At cost: Mineral rights $ 4,896,244 $ 4,711,822 Buildings 70,400,195 67,748,512 Plant and machinery 208,538,996 200,742,652 Motor vehicles 9,136 8,792 Furniture, fixtures and office equipment 4,313,043 4,150,588 Construction in process 190,200 183,036 Total 288,347,814 277,545,402 Less: Accumulated depreciation and amortization (174,767,162 ) (163,597,407 ) Impairment (19,528,775 ) (18,833,491 ) Net book value $ 94,051,877 $ 95,114,504 |
5. PROPERTY, PLANT AND EQUIPM29
5. PROPERTY, PLANT AND EQUIPMENT UNDER CAPITAL LEASES, NET (Tables) | 3 Months Ended |
Mar. 31, 2018 | |
Property Plant And Equipment Under Capital Leases Net Tables | |
Property, plant and equipment under capital leases | March 31, 2018 December 31, 2017 At cost: Buildings $ 130,868 $ 125,939 Plant and machinery 2,404,774 2,314,196 Total 2,535,642 2,440,135 Less: Accumulated depreciation and amortization (2,050,782 ) (1,947,897 ) Net book value $ 484,860 $ 492,238 |
6. ACCOUNTS PAYABLE AND ACCRU30
6. ACCOUNTS PAYABLE AND ACCRUED EXPENSE (Tables) | 3 Months Ended |
Mar. 31, 2018 | |
Payables and Accruals [Abstract] | |
Accounts payable and accrued expenses | March 31, December 31, 2018 2017 Accounts payable $ - $ - Salary payable 270,901 393,617 Social security insurance contribution payable 140,671 135,203 Other payables 579,649 503,263 Total $ 991,221 $ 1,032,083 |
8. TAXES PAYABLE (Tables)
8. TAXES PAYABLE (Tables) | 3 Months Ended |
Mar. 31, 2018 | |
Income Tax Disclosure [Abstract] | |
Schedule of Taxes payable | March 31, December 31, 2018 2017 Income tax payable $ 433,000 $ 433,000 Natural resource tax - 156,147 Land use tax payable 1,698,290 810,841 Other tax payables 73,664 74,604 Total current taxes payable 2,204,954 1,474,592 Non-current taxes payable 4,969,000 4,969,000 Total $ 7,173,954 $ 6,443,592 Year ending December 31 Current 2018 $ 433,000 Non-current 2019 $ 433,000 2020 433,000 2021 433,000 2022 433,000 2023 and after 3,237,000 4,969,000 Total $ 5,402,000 |
9. CAPITAL LEASE OBLIGATIONS (T
9. CAPITAL LEASE OBLIGATIONS (Tables) | 3 Months Ended |
Mar. 31, 2018 | |
Leases [Abstract] | |
Capital lease obligations | Imputed March 31, December 31, Interest rate 2018 2017 Total capital lease obligations 6.7% $ 2,649,003 $ 2,507,201 Less: Current portion (254,829 ) (203,206 ) Capital lease obligations, net of current portion $ 2,394,174 $ 2,303,995 |
11. STOCK-BASED COMPENSATION (T
11. STOCK-BASED COMPENSATION (Tables) | 3 Months Ended |
Mar. 31, 2018 | |
Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | |
Schedule of stock option transactions | Number of Option and Warrants Outstanding and exercisable Weighted- Average Exercise price of Option and Warrants Range of Exercise Price per Common Share Balance, January 1, 2018 808,500 $1.61 $1.44 - $4.80 Granted and vested during the period ended March 31, 2018 - - - Expired during the period ended March 31, 2018 - - - Balance, March 31, 2018 808,500 $1.61 $1.44 - $4.80 |
Schedule Stock and Warrants Options Outstanding | Stock and Warrants Options Exercisable and Outstanding Weighted Average Remaining Outstanding at March 31, 2018 Range of Exercise Prices Contractual Life (Years) Exercisable and outstanding 808,500 $1.44 - $4.80 2.86 |
12. INCOME TAXES (Tables)
12. INCOME TAXES (Tables) | 3 Months Ended |
Mar. 31, 2018 | |
Income Tax Disclosure [Abstract] | |
Schedule of components of the provision for income taxes | Three-Month Period Ended March 31, 2018 2017 Current taxes – PR C $ - $ 2,821,826 Deferred tax – PRC (1,193,746 ) - $ (1,193,746 ) $ 2,821,826 |
Schedule of income tax expenses reconciliation | Three-Month Period Ended March 31, Reconciliations 2018 2017 Statutory income tax rate 25 % 25 % Non-deductible expense and change in valuation allowance (7 %) 1 % Non-taxable items (3 %) - Effective tax rate 15 % 26 % |
Schedule of deferred tax assets and liabilities | March 31, December 31, 2018 2017 Deferred tax liabilities $ - $ - Deferred tax assets: Allowance for obsolete and slow-moving inventories $ 1,368 $ 10,980 Impairment on property, plant and equipment 4,076,604 4,610,228 Exploration costs 1,979,924 1,905,347 Compensation costs of unexercised stock options 98,088 98,092 PRC tax losses 1,931,983 - US federal net operating loss 7,106,400 7,080,000 Total deferred tax assets 15,194,367 13,704,647 Valuation allowance (7,204,488 ) (7,178,092 ) Net deferred tax asset $ 7,989,879 $ 6,526,555 |
13. BUSINESS SEGMENTS (Tables)
13. BUSINESS SEGMENTS (Tables) | 3 Months Ended |
Mar. 31, 2018 | |
Segment Reporting [Abstract] | |
Schedule of segment operating income | Three-Month Period Ended March 31, 2018 Bromine * Crude Salt * Chemical Products Natural Gas Segment Total Corporate Total Net revenue (external customers) $ - $ 1,638,493 $ 608,774 $ - $ 2,247,267 $ - $ 2,247,267 Net revenue (intersegment) - - - - - - - Income (loss) from operations before income taxes (benefit) (5,590,555 ) (807,884 ) (674,771 ) (35,655 ) (7,108,865 ) (1,188,115 ) (8,296,980 ) Income tax expense (benefit) (1,391,152 ) (201,971 ) 399,377 - (1,193,746 ) - (1,193,746 ) Income (loss) from operations after income taxes (benefit) (4,199,403 ) (605,913 ) (1,074,148 ) (35,655 ) (5,915,119 ) (1,188,115 ) (7,103,234 ) Total assets 149,458,703 52,746,108 192,807,722 2,162,119 397,174,652 165,315 397,339,967 Depreciation and amortization 3,719,712 913,350 124,468 - 4,757,530 - 4,757,530 Capital expenditures 93,174 14,179 - 14,357 121,710 - 121,710 Goodwill - - 30,524,646 - 30,524,646 - 30,524,646 Three-Month Period Ended March 31, 2017 Bromine * Crude Salt * Chemical Products Natural Gas Segment Total Corporate Total Net revenue (external customers) $ 13,922,394 $ 1,813,778 $ 17,052,321 $ - $ 32,788,493 $ - $ 32,788,493 Net revenue (intersegment) 2,178,493 - - - 2,178,493 - 2,178,493 Income (loss) from operations before income taxes 5,271,933 885,888 4,946,177 (23,758 ) 11,080,240 (267,243 ) 10,812,997 Income taxes 1,330,103 223,582 1,268,141 - 2,821,826 - 2,821,826 Income (loss) from operations after income taxes 3,941,830 662,306 3,678,036 (23,758 ) 8,258,414 (267,243 ) 7,991,171 Total assets 155,178,113 28,641,633 192,675,503 1,802,854 378,298,103 37,109 378,335,212 Depreciation and amortization 3,998,581 454,447 986,070 - 5,439,098 - 5,439,098 Capital expenditures - - - 59,975 59,975 - 59,975 Goodwill - - 27,820,174 - 27,820,174 - 27,820,174 * Certain common production overheads, operating and administrative expenses and asset items (mainly cash and certain office equipment) of bromine and crude salt segments in SCHC were split by reference to the average selling price and production volume of respective segment. |
Schedule of segment costs | Three-Month Period Ended March 31, Reconciliations 2018 2017 Total segment operating income (loss) $ (7,108,865 ) $ 11,080,240 Corporate costs (129,263 ) (129,988 ) Unrealized loss on translation of intercompany balance (1,058,852 ) (137,255 ) Income (loss) from operations (8,296,980 ) 10,812,997 Other income 126,134 83,949 Income (loss) before income taxes $ (8,170,846 ) $ 10,896,946 |
Schedule of major customers | The following table shows the major customer(s) (10% or more) for the three-month period ended March 31, 2018. Number Customer Bromine (000’s) Crude Salt (000’s) Chemical Products (000’s) Total Revenue (000’s) Percentage of Total Revenue (%) 1 Shandong Morui Chemical Company Limited $ - $ 534 $ 155 $ 689 30.6% 2 Shandong Brother Technology Limited, Kuerle Xingdong Trading Limited $ - $ 670 $ - $ 670 29.8% 3 Shouguang Weidong Chemical Company Limited $ - $ 435 $ - $ 435 19.3% The following table shows the major customer(s) (10% or more) for the three-month period ended March 31, 2017. Number Customer Bromine (000’s) Crude Salt (000’s) Chemical Products (000’s) Total Revenue (000’s) Percentage of Total Revenue (%) 1 Shandong Morui Chemical Company Limited $ 2,594 $ 497 $ 1,085 $ 4,176 12.7% |
17. CAPITAL COMMITMENT AND OP36
17. CAPITAL COMMITMENT AND OPERATING LEASE COMMITMENTS (Tables) | 3 Months Ended |
Mar. 31, 2018 | |
Commitments and Contingencies Disclosure [Abstract] | |
Schedule of contractual obligations | Capital Lease Obligations Operating Lease Obligations Property Management Fees Capital Expenditure Payable within: the next 12 months $ 298,499 $ 1,045,795 $ 99,213 $ 167,046 the next 13 to 24 months 298,499 1,069,473 99,213 - the next 25 to 36 months 298,499 1,094,416 99,213 - the next 37 to 48 months 298,499 942,133 99,213 - the next 49 to 60 months 298,499 960,539 99,213 - thereafter 2,387,996 16,951,287 - - Total $ 3,880,491 $ 22,063,643 $ 496,065 $ 167,016 Less: Amount representing interest (1,231,488) Present value of net minimum lease payments $ 2,649,003 |
1. BASIS OF PRESENTATION AND SU
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details) | Mar. 31, 2018 |
90-120 days | |
Accounts receivable collection | 0.00% |
121-150 days | |
Accounts receivable collection | 12.00% |
151-180 days | |
Accounts receivable collection | 0.00% |
181-210 days | |
Accounts receivable collection | 16.00% |
211-240 days | |
Accounts receivable collection | 100.00% |
1. BASIS OF PRESENTATION AND 38
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details 1) | 3 Months Ended |
Mar. 31, 2018 | |
Building [Member] | Minimum [Member] | |
Property, Plant and Equipment [Line Items] | |
Property, plant and equipment, useful life | 8 years |
Building [Member] | Maximum [Member] | |
Property, Plant and Equipment [Line Items] | |
Property, plant and equipment, useful life | 20 years |
Plant And Machinery [Member] | Minimum [Member] | |
Property, Plant and Equipment [Line Items] | |
Property, plant and equipment, useful life | 3 years |
Plant And Machinery [Member] | Maximum [Member] | |
Property, Plant and Equipment [Line Items] | |
Property, plant and equipment, useful life | 8 years |
Vehicles [Member] | |
Property, Plant and Equipment [Line Items] | |
Property, plant and equipment, useful life | 5 years |
Furniture, Fixtures And Equipment [Member] | Minimum [Member] | |
Property, Plant and Equipment [Line Items] | |
Property, plant and equipment, useful life | 3 years |
Furniture, Fixtures And Equipment [Member] | Maximum [Member] | |
Property, Plant and Equipment [Line Items] | |
Property, plant and equipment, useful life | 8 years |
1. BASIS OF PRESENTATION AND 39
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details 2) - USD ($) | 3 Months Ended | |
Mar. 31, 2018 | Mar. 31, 2017 | |
Numerator | ||
Net income/(loss) | $ (6,977,100) | $ 8,075,120 |
Denominator | ||
Basic: Weighted-average common shares outstanding during the period | 46,803,791 | 46,793,791 |
Add: Dilutive effect of stock options | 22,597 | 10,450 |
Diluted | 46,826,388 | 46,804,241 |
Net income per share | ||
Basic | $ (0.15) | $ 0.17 |
Diluted | $ (0.15) | $ 0.17 |
1. BASIS OF PRESENTATION AND 40
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details Narrative) - USD ($) | 3 Months Ended | ||
Mar. 31, 2018 | Mar. 31, 2017 | Dec. 31, 2017 | |
Basis Of Presentation And Summary Of Significant Accounting Policies Details Narrative | |||
Allowances for doubtful accounts | $ 0 | $ 0 | |
Contributions to the retirement plan | $ 302,418 | $ 255,216 | |
Anti-dilutive common stock equivalents which were excluded | 75,614 | 25,000 |
2. INVENTORIES (Details)
2. INVENTORIES (Details) - USD ($) | Mar. 31, 2018 | Dec. 31, 2017 |
Inventory Disclosure [Abstract] | ||
Raw materials | $ 23,893 | $ 396,482 |
Finished goods | 175,381 | 844,224 |
Allowance for obsolete and slow-moving inventory | (5,473) | (43,921) |
Inventories | $ 193,801 | $ 1,196,785 |
3. PREPAID LAND LEASE (Details
3. PREPAID LAND LEASE (Details Narrative) - USD ($) | 3 Months Ended | 12 Months Ended | |
Mar. 31, 2018 | Mar. 31, 2017 | Dec. 31, 2017 | |
Prepaid Land Lease Details Narrative | |||
Amortization of prepaid land lease | $ 144,097 | $ 107,461 | |
Parcels of land of which the Company could not obtain land use rights certificates | Approximately 54.97 square kilometers of aggregate carrying value of $916,059 | Approximately 54.97 square kilometers of aggregate carrying value of $645,761 |
4. PROPERTY, PLANT AND EQUIPM43
4. PROPERTY, PLANT AND EQUIPMENT, NET (Details) - USD ($) | 3 Months Ended | 12 Months Ended |
Mar. 31, 2018 | Dec. 31, 2017 | |
Property, Plant and Equipment [Abstract] | ||
Mineral rights | $ 4,896,244 | $ 4,711,822 |
Buildings | 70,400,195 | 67,748,512 |
Plant and machinery | 208,538,996 | 200,742,652 |
Motor vehicles | 9,136 | 8,792 |
Furniture, fixtures and office equipment | 4,313,043 | 4,150,588 |
Construction in progress | 190,200 | 183,036 |
Total | 288,347,814 | 277,545,402 |
Less: Accumulated depreciation and amortization | (174,767,162) | (163,597,407) |
Impairment | (19,528,775) | (18,833,491) |
Net book value | $ 94,051,877 | $ 95,114,504 |
4. PROPERTY, PLANT AND EQUIPM44
4. PROPERTY, PLANT AND EQUIPMENT, NET (Details Narrative) - USD ($) | 3 Months Ended | ||
Mar. 31, 2018 | Mar. 31, 2017 | Dec. 31, 2017 | |
Land | $ 28,025,014 | $ 27,432,351 | |
Sales and administrative expenses [Member] | |||
Depreciation and amortization expense | 4,688,248 | $ 5,360,103 | |
Cost of net revenue | 4,504,249 | 5,068,503 | |
Cost of administrative expenses | $ 183,999 | $ 291,600 |
5. PROPERTY, PLANT AND EQUIPM45
5. PROPERTY, PLANT AND EQUIPMENT UNDER CAPITAL LEASES, NET (Details) - USD ($) | Mar. 31, 2018 | Dec. 31, 2017 |
At cost: | $ 2,535,642 | $ 2,440,135 |
Less: accumulated depreciation and amortization | (2,050,782) | (1,947,897) |
Net book value | 484,860 | 492,238 |
Building [Member] | ||
At cost: | 130,868 | 125,939 |
Plant and machinery | ||
At cost: | $ 2,404,774 | $ 2,314,196 |
5. PROPERTY, PLANT AND EQUIPM46
5. PROPERTY, PLANT AND EQUIPMENT UNDER CAPITAL LEASES, NET (Details Narrative) - USD ($) | 3 Months Ended | |
Mar. 31, 2018 | Mar. 31, 2017 | |
Property Plant And Equipment Under Capital Leases Net Details Narrative | ||
Depreciation and amortization expense | $ 69,282 | $ 78,996 |
6. ACCOUNTS PAYABLE AND ACCRU47
6. ACCOUNTS PAYABLE AND ACCRUED EXPENSE (Details) - USD ($) | Mar. 31, 2018 | Dec. 31, 2017 |
Accounts Payable And Accrued Expense Details | ||
Accounts payable | $ 0 | $ 0 |
Salary payable | 270,901 | 393,617 |
Social security insurance contribution payable | 140,671 | 135,203 |
Other payables | 579,649 | 503,263 |
Total | $ 991,221 | $ 1,032,083 |
7. RELATED PARTY TRANSACTIONS (
7. RELATED PARTY TRANSACTIONS (Details Narrative) | 3 Months Ended |
Mar. 31, 2018USD ($) | |
Related Party Transactions Details Narrative | |
Company borrowed from Jiaxing Lighting Appliance Company Limited | $ 185,912 |
Property management services provided by Shandong Shouguang Vegetable Seed Industry Group Co., Ltd | $ 24,500 |
8. TAXES PAYABLE (Details)
8. TAXES PAYABLE (Details) - USD ($) | Mar. 31, 2018 | Dec. 31, 2017 |
Taxes Payable Details | ||
Income tax payable | $ 433,000 | $ 433,000 |
Natural resource tax | 0 | 156,147 |
Land use right tax payable | 1,698,290 | 810,841 |
Other tax payables | 73,664 | 74,604 |
Total current taxes payable | 2,204,954 | 1,474,592 |
Non-current taxes payable | 4,969,000 | 4,969,000 |
Total taxes payable | $ 7,173,954 | $ 6,443,592 |
8. TAXES PAYABLE (Details 1)
8. TAXES PAYABLE (Details 1) - USD ($) | Mar. 31, 2018 | Dec. 31, 2017 |
Income tax payable, current | $ 433,000 | $ 433,000 |
Income tax payable, noncurrent | 4,969,000 | |
Income tax payable | 5,402,000 | |
2,018 | ||
Income tax payable, current | 433,000 | |
2,019 | ||
Income tax payable, noncurrent | 433,000 | |
2,020 | ||
Income tax payable, noncurrent | 433,000 | |
2,021 | ||
Income tax payable, noncurrent | 433,000 | |
2,022 | ||
Income tax payable, noncurrent | 433,000 | |
2023 and after | ||
Income tax payable, noncurrent | $ 3,237,000 |
9. CAPITAL LEASE OBLIGATIONS (D
9. CAPITAL LEASE OBLIGATIONS (Details) - USD ($) | Mar. 31, 2018 | Dec. 31, 2017 |
Capital Lease Obligations Details | ||
Imputed interest rate on capital lease obligations | 6.70% | 6.70% |
Total capital lease obligations | $ 2,649,003 | $ 2,507,201 |
Less: Current portion | (254,829) | (203,206) |
Capital lease obligations, net of current portion | $ 2,394,174 | $ 2,303,995 |
9. CAPITAL LEASE OBLIGATIONS 52
9. CAPITAL LEASE OBLIGATIONS (Details Narrative) - USD ($) | 3 Months Ended | |
Mar. 31, 2018 | Mar. 31, 2017 | |
Capital Lease Obligations Details Narrative | ||
Interest expense from capital lease obligations | $ 41,797 | $ 41,753 |
10. EQUITY (Details Narrative)
10. EQUITY (Details Narrative) | 3 Months Ended |
Mar. 31, 2018 | |
Equity Details Narrative | |
Statutory Common Reserve Funds Description | SCHC, SYCI and DCHC are required each year to transfer at least 10% of the profit after tax as reported under the PRC statutory financial statements to the Statutory Common Reserve Funds until the balance reaches 50% of the registered share capital. This reserve can be used to make up any loss incurred or to increase share capital. Except for the reduction of losses incurred, any other application should not result in this reserve balance falling below 25% of the registered capital. The Statutory Common Reserve Fund as of March 31, 2018 for SCHC, SYCI and DCHC is 46%, 14% and 0% of its registered capital respectively. |
11. STOCK-BASED COMPENSATION (D
11. STOCK-BASED COMPENSATION (Details) | 3 Months Ended |
Mar. 31, 2018$ / sharesshares | |
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |
Number of Option and Warrants Outstanding, Beginning balance | shares | 808,500 |
Number of Option and Warrants Granted and Vested | shares | 0 |
Number of Option and Warrants Expired | shares | 0 |
Number of Option and Warrants Outstanding, Ending Balance | shares | 808,500 |
Weighted- Average Exercise price of Option and Warrants, Beginning balance | $ / shares | $ 1.61 |
Weighted- Average Exercise price of Option and Warrants, Granted and vested during the period | $ / shares | .00 |
Weighted- Average Exercise price of Option and Warrants, Expired | $ / shares | .00 |
Weighted- Average Exercise price of Option and Warrants, Ending Balance | $ / shares | $ 1.61 |
Range of Exercise Price per Common Share, Granted and Vested | 0 |
Range of Exercise Price per Common Share, Expired | 0 |
Minimum [Member] | |
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |
Range of Exercise Price per Common Share, Beginning Balance | 1.44 |
Range of Exercise Price per Common Share, Ending Balance | 1.44 |
Maximum [Member] | |
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |
Range of Exercise Price per Common Share, Beginning Balance | 4.80 |
Range of Exercise Price per Common Share, Ending Balance | 4.80 |
11. STOCK-BASED COMPENSATION 55
11. STOCK-BASED COMPENSATION (Details 1) - $ / shares | 3 Months Ended | |
Mar. 31, 2018 | Dec. 31, 2017 | |
Share-based Compensation [Abstract] | ||
Outstanding | 808,500 | 808,500 |
Range of Exercise Prices, Lower Limit | $ 1.44 | |
Range of Exercise Prices, Upper Limit | $ 4.80 | |
Weighted Average Remaining Contractual Life (Years) | 2 years 10 months 10 days |
11. STOCK-BASED COMPENSATION 56
11. STOCK-BASED COMPENSATION (Details Narrative) | 3 Months Ended |
Mar. 31, 2018USD ($)shares | |
Stock-based Compensation Details Narrative | |
Common stock available for issuance | shares | 6,714,989 |
Aggregate intrinsic value of options outstanding and exercisable | $ | $ 0 |
12. INCOME TAXES (Details)
12. INCOME TAXES (Details) - USD ($) | 3 Months Ended | |
Mar. 31, 2018 | Mar. 31, 2017 | |
Income Tax Disclosure [Abstract] | ||
Current taxes - PRC | $ 0 | $ 2,821,826 |
Deferred taxes - PRC | (1,193,746) | 0 |
Income taxes | $ (1,193,746) | $ 2,821,826 |
12. INCOME TAXES (Details 1)
12. INCOME TAXES (Details 1) | 3 Months Ended | |
Mar. 31, 2018 | Mar. 31, 2017 | |
Income Tax Disclosure [Abstract] | ||
Statutory income tax rate | 25.00% | 25.00% |
Non-deductible expense and change in valuation allowance | (7.00%) | 1.00% |
Change in valuation allowance - US federal net operating loss | (3.00%) | 0.00% |
Effective tax rate | 15.00% | 26.00% |
12. INCOME TAXES (Details 2)
12. INCOME TAXES (Details 2) - USD ($) | Mar. 31, 2018 | Dec. 31, 2017 |
Income Tax Disclosure [Abstract] | ||
Deferred tax liabilities | $ 0 | $ 0 |
Deferred tax assets: | ||
Allowance for obsolete and slow-moving inventories | 1,368 | 10,980 |
Impairment on property, plant and equipment | 4,076,604 | 4,610,228 |
Exploration costs | 1,979,924 | 1,905,347 |
Compensation costs of unexercised stock options | 98,088 | 98,092 |
PRC tax losses | 1,931,983 | 0 |
US federal net operating loss | 7,106,400 | 7,080,000 |
Total deferred tax assets | 15,194,367 | 13,704,647 |
Valuation allowance | (7,204,488) | (7,178,092) |
Net deferred tax asset | $ 7,989,879 | $ 6,526,555 |
13. BUSINESS SEGMENTS (Details)
13. BUSINESS SEGMENTS (Details) - USD ($) | 3 Months Ended | ||
Mar. 31, 2018 | Mar. 31, 2017 | ||
Segment Reporting Information [Line Items] | |||
Net revenue (external customers) | $ 2,247,267 | $ 32,788,493 | |
Net revenue (intersegment) | 0 | 2,178,493 | |
Income (loss) from operations before taxes (benefit) | (8,296,980) | 10,812,997 | |
Income tax expense (benefit) | (1,193,746) | 2,821,826 | |
Income (loss) from operations after income taxes (benefit) | (7,103,234) | 7,991,171 | |
Total assets | 397,339,967 | 378,335,212 | |
Depreciation and amortization | 4,757,530 | 5,439,098 | |
Capital expenditures | 121,710 | 59,975 | |
Goodwill | 30,524,646 | 27,820,174 | |
Bromine Segment [Member] | |||
Segment Reporting Information [Line Items] | |||
Net revenue (external customers) | [1] | 0 | 13,922,394 |
Net revenue (intersegment) | [1] | 0 | 2,178,493 |
Income (loss) from operations before taxes (benefit) | [1] | (5,590,555) | 5,271,933 |
Income tax expense (benefit) | [1] | (1,391,152) | 1,330,103 |
Income (loss) from operations after income taxes (benefit) | [1] | (4,199,403) | 3,941,830 |
Total assets | [1] | 149,458,703 | 155,178,113 |
Depreciation and amortization | [1] | 3,719,712 | 3,998,581 |
Capital expenditures | [1] | 93,174 | 0 |
Goodwill | [1] | 0 | 0 |
Crude Salt Segment [Member] | |||
Segment Reporting Information [Line Items] | |||
Net revenue (external customers) | [1] | 1,638,493 | 1,813,778 |
Net revenue (intersegment) | [1] | 0 | 0 |
Income (loss) from operations before taxes (benefit) | [1] | (807,884) | 885,888 |
Income tax expense (benefit) | [1] | (201,971) | 223,582 |
Income (loss) from operations after income taxes (benefit) | [1] | (605,913) | 662,306 |
Total assets | [1] | 52,746,108 | 28,641,633 |
Depreciation and amortization | [1] | 913,350 | 454,447 |
Capital expenditures | [1] | 14,179 | 0 |
Goodwill | [1] | 0 | 0 |
Chemical Products Segment [Member] | |||
Segment Reporting Information [Line Items] | |||
Net revenue (external customers) | 608,774 | 17,052,321 | |
Net revenue (intersegment) | 0 | 0 | |
Income (loss) from operations before taxes (benefit) | (674,771) | 4,946,177 | |
Income tax expense (benefit) | 399,377 | 1,268,141 | |
Income (loss) from operations after income taxes (benefit) | (1,074,148) | 3,678,036 | |
Total assets | 192,807,722 | 192,675,503 | |
Depreciation and amortization | 124,468 | 986,070 | |
Capital expenditures | 0 | 0 | |
Goodwill | 30,524,646 | 27,820,174 | |
Natural Gas [Member] | |||
Segment Reporting Information [Line Items] | |||
Net revenue (external customers) | 0 | 0 | |
Net revenue (intersegment) | 0 | 0 | |
Income (loss) from operations before taxes (benefit) | (35,655) | (23,758) | |
Income tax expense (benefit) | 0 | 0 | |
Income (loss) from operations after income taxes (benefit) | (35,655) | (23,758) | |
Total assets | 2,162,119 | 1,802,854 | |
Depreciation and amortization | 0 | 0 | |
Capital expenditures | 14,357 | 59,975 | |
Goodwill | 0 | 0 | |
Segment Total [Member] | |||
Segment Reporting Information [Line Items] | |||
Net revenue (external customers) | 2,247,267 | 32,788,493 | |
Net revenue (intersegment) | 0 | 2,178,493 | |
Income (loss) from operations before taxes (benefit) | (7,108,865) | 11,080,240 | |
Income tax expense (benefit) | (1,193,746) | 2,821,826 | |
Income (loss) from operations after income taxes (benefit) | (5,915,119) | 8,258,414 | |
Total assets | 397,174,652 | 378,298,103 | |
Depreciation and amortization | 4,757,530 | 5,439,098 | |
Capital expenditures | 121,710 | 59,975 | |
Goodwill | 30,524,646 | 27,820,174 | |
Corporate [Member] | |||
Segment Reporting Information [Line Items] | |||
Net revenue (external customers) | 0 | 0 | |
Net revenue (intersegment) | 0 | 0 | |
Income (loss) from operations before taxes (benefit) | (1,188,115) | (267,243) | |
Income tax expense (benefit) | 0 | 0 | |
Income (loss) from operations after income taxes (benefit) | (1,188,115) | (267,243) | |
Total assets | 165,315 | 37,109 | |
Depreciation and amortization | 0 | 0 | |
Capital expenditures | 0 | 0 | |
Goodwill | $ 0 | $ 0 | |
[1] | Certain common production overheads, operating and administrative expenses and asset items (mainly cash and certain office equipment) of bromine and crude salt segments in SCHC were split by reference to the average selling price and production volume of respective segment. |
13. BUSINESS SEGMENTS (Details
13. BUSINESS SEGMENTS (Details 1) - USD ($) | 3 Months Ended | |
Mar. 31, 2018 | Mar. 31, 2017 | |
Business Segments Details 1 | ||
Total segment operating income (loss) | $ (7,108,865) | $ 11,080,240 |
Corporate costs | (129,263) | (129,988) |
Unrealized loss on translation of intercompany balance | (1,058,852) | (137,255) |
Income (loss) from operations | (8,296,980) | 10,812,997 |
Other income | 126,134 | 83,949 |
Income (loss) before income taxes | $ (8,170,846) | $ 10,896,946 |
13. BUSINESS SEGMENTS (Detail62
13. BUSINESS SEGMENTS (Details 2) - USD ($) | 3 Months Ended | |
Mar. 31, 2018 | Mar. 31, 2017 | |
Revenue, Major Customer [Line Items] | ||
Revenues | $ 2,247,267 | $ 32,788,493 |
Shandong Morui Chemical Company Limited [Member] | ||
Revenue, Major Customer [Line Items] | ||
Revenues | $ 689,000 | $ 4,176,000 |
Percentage of Total Revenue (%) | 30.60% | 12.70% |
Shandong Morui Chemical Company Limited [Member] | Bromine Segment [Member] | ||
Revenue, Major Customer [Line Items] | ||
Revenues | $ 0 | $ 2,594,000 |
Shandong Morui Chemical Company Limited [Member] | Crude Salt Segment [Member] | ||
Revenue, Major Customer [Line Items] | ||
Revenues | 534,000 | 497,000 |
Shandong Morui Chemical Company Limited [Member] | Chemical Products Segment [Member] | ||
Revenue, Major Customer [Line Items] | ||
Revenues | 155,000 | $ 1,085,000 |
Shandong Brother Technology Limited, Kuerle Xingdong Trading Limited | ||
Revenue, Major Customer [Line Items] | ||
Revenues | $ 670,000 | |
Percentage of Total Revenue (%) | 29.80% | |
Shandong Brother Technology Limited, Kuerle Xingdong Trading Limited | Bromine Segment [Member] | ||
Revenue, Major Customer [Line Items] | ||
Revenues | $ 0 | |
Shandong Brother Technology Limited, Kuerle Xingdong Trading Limited | Crude Salt Segment [Member] | ||
Revenue, Major Customer [Line Items] | ||
Revenues | 670,000 | |
Shandong Brother Technology Limited, Kuerle Xingdong Trading Limited | Chemical Products Segment [Member] | ||
Revenue, Major Customer [Line Items] | ||
Revenues | 0 | |
Shouguang Weidong Chemical Company Limited | ||
Revenue, Major Customer [Line Items] | ||
Revenues | $ 435,000 | |
Percentage of Total Revenue (%) | 19.30% | |
Shouguang Weidong Chemical Company Limited | Bromine Segment [Member] | ||
Revenue, Major Customer [Line Items] | ||
Revenues | $ 0 | |
Shouguang Weidong Chemical Company Limited | Crude Salt Segment [Member] | ||
Revenue, Major Customer [Line Items] | ||
Revenues | 435,000 | |
Shouguang Weidong Chemical Company Limited | Chemical Products Segment [Member] | ||
Revenue, Major Customer [Line Items] | ||
Revenues | $ 0 |
14. CUSTOMER CONCENTRATION (Det
14. CUSTOMER CONCENTRATION (Details Narrative) - USD ($) | 3 Months Ended | |
Mar. 31, 2018 | Mar. 31, 2017 | |
Amounts due from major customers | $ 8,831,030 | $ 30,263,356 |
Top 5 customers | ||
Percent products sold to top five customers | 88.80% | 36.40% |
15. MAJOR SUPPLIERS (Details Na
15. MAJOR SUPPLIERS (Details Narrative) - USD ($) | 3 Months Ended | |
Mar. 31, 2018 | Mar. 31, 2017 | |
Major Suppliers Details Narrative | ||
Top five suppliers percentage raw materials supplied | 0.00% | 69.70% |
Amount due top five suppliers | $ 0 | $ 5,639,164 |
17. CAPITAL COMMITMENT AND OP65
17. CAPITAL COMMITMENT AND OPERATING LEASE COMMITMENTS (Details) | Mar. 31, 2018USD ($) |
Capital Lease Obligations Payable within: | |
the next 12 months | $ 298,499 |
the next 13 to 24 months | 298,499 |
the next 25 to 36 months | 298,499 |
the next 37 to 48 months | 298,499 |
the next 49 to 60 months | 298,499 |
thereafter | 2,387,996 |
Total | 3,880,491 |
Less: Amount representing interest | (1,231,488) |
Present value of net minimum lease payments | 2,649,003 |
Operating Lease Obligations | |
the next 12 months | 1,045,795 |
the next 13 to 24 months | 1,069,473 |
the next 25 to 36 months | 1,094,416 |
the next 37 to 48 months | 942,133 |
the next 49 to 60 months | 960,539 |
thereafter | 16,951,287 |
Total | 22,063,643 |
Property Management Fees | |
the next 12 months | 99,213 |
the next 13 to 24 months | 99,213 |
the next 25 to 36 months | 99,213 |
the next 37 to 48 months | 99,213 |
the next 49 to 60 months | 99,213 |
thereafter | 0 |
Total | 496,065 |
Capital Expenditure | |
the next 12 months | 167,016 |
the next 13 to 24 months | 0 |
the next 25 to 36 months | 0 |
the next 37 to 48 months | 0 |
the next 49 to 60 months | 0 |
thereafter | 0 |
Total | $ 167,016 |
17. CAPITAL COMMITMENT AND OP66
17. CAPITAL COMMITMENT AND OPERATING LEASE COMMITMENTS (Details Narrative) - USD ($) | 3 Months Ended | |
Mar. 31, 2018 | Mar. 31, 2017 | |
Capital Commitment And Operating Lease Commitments Details Narrative | ||
Rental expenses related to operating leases | $ 281,613 | $ 255,120 |