Document and Entity Information
Document and Entity Information - USD ($) | 12 Months Ended | ||
Dec. 31, 2017 | Mar. 14, 2018 | Jun. 30, 2017 | |
Document And Entity Information | |||
Entity Registrant Name | GULF RESOURCES, INC. | ||
Entity Central Index Key | 885,462 | ||
Document Type | 10-K/A | ||
Document Period End Date | Dec. 31, 2017 | ||
Amendment Flag | true | ||
Amendment Description | This Amendment no. 2 on Form 10-K/A is being filed to reflect the correction of an error in the previously reported fiscal year 2017 financial statements as filed on March 16, 2018 related to the one-time mandatory federal transition tax on accumulated foreign earnings. See Note 2 to the Consolidated Financial Statements included in item 8 for additional information and a reconciliation of the previously reported amounts to the restated amounts. Items that have not been amended have been omitted from this amendment.</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0"> </p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0">The following are the sections that are impacted by the correction of the error:</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0"> </p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0">Part 1, Item 1 - Business</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0"> </p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0">Part II, Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0"> </p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0">Part II, Item 8 - Financial Statements and Supplementary Data</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0"> </p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0">Part II, Item 9A - Controls and Procedures</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0"> </p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0">The Company is also concurrently filing amended Quarterly Reports for the quarterly periods ended March 31, 2018 and June 30, 2018 to restate the previously issued interim financial statements due to the error described above.</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0"> </p>" id="sjs-B9"><p style="font: 8pt Times New Roman, Times, Serif; margin: 0">This Amendment no. 2 on Form 10-K/A is being filed to reflect the correction of an error in the previously reported fiscal year 2017 financial statements as filed on March 16, 2018 related to the one-time mandatory federal transition tax on accumulated foreign earnings. See Note 2 to the Consolidated Financial Statements included in item 8 for additional information and a reconciliation of the previously reported amounts to the restated amounts. Items that have not been amended have been omitted from this amendment.</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0"> </p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0">The following are the sections that are impacted by the correction of the error:</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0"> </p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0">Part 1, Item 1 - Business</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0"> </p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0">Part II, Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0"> </p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0">Part II, Item 8 - Financial Statements and Supplementary Data</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0"> </p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0">Part II, Item 9A - Controls and Procedures</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0"> </p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0">The Company is also concurrently filing amended Quarterly Reports for the quarterly periods ended March 31, 2018 and June 30, 2018 to restate the previously issued interim financial statements due to the error described above.</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0"> </p> | ||
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 | Smaller Reporting Company | ||
Entity Public Float | $ 52,265,626 | ||
Entity Common Stock, Shares Outstanding | 46,803,791 | ||
Document Fiscal Period Focus | FY | ||
Document Fiscal Year Focus | 2,017 |
CONSOLIDATED BALANCE SHEETS
CONSOLIDATED BALANCE SHEETS - USD ($) | Dec. 31, 2017 | Dec. 31, 2016 |
Current Assets | ||
Cash | $ 208,906,759 | $ 163,884,574 |
Accounts receivable | 29,765,884 | 51,835,218 |
Inventories, net | 1,196,785 | 5,881,681 |
Prepayments and deposits | 1,395,289 | 117,338 |
Prepaid land leases | 246,640 | 47,255 |
Other receivables | 2,089 | 1,424 |
Total Current Assets | 241,513,446 | 221,767,490 |
Non-Current Assets | ||
Property, plant and equipment, net | 95,114,504 | 108,731,126 |
Property, plant and equipment under capital leases, net | 492,238 | 554,257 |
Prepaid land leases, net of current portion | 14,477,771 | 4,754,169 |
Deferred tax assets | 6,526,555 | 2,215,772 |
Goodwill | 29,374,909 | 27,668,539 |
Total non-current assets | 145,985,977 | 143,923,863 |
Total Assets | 387,499,423 | 365,691,353 |
Current Liabilities | ||
Accounts payable and accrued expenses | 1,032,083 | 8,682,318 |
Retention payable | 956,351 | 733,869 |
Capital lease obligation, current portion | 203,206 | 187,678 |
Taxes payable - current | 1,041,592 | 4,341,331 |
Total Current Liabilities | 3,233,232 | 13,945,196 |
Non-Current Liabilities | ||
Capital lease obligation, net of current portion | 2,303,995 | 2,284,959 |
Total non-Current Liabilities | 2,303,995 | 2,284,959 |
Total Liabilities | 5,537,227 | 16,230,155 |
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 and 47,052,940 shares issued; and 46,803,791 and 46,793,791 shares outstanding as of December 31, 2017 and 2016, respectively | 23,525 | 23,525 |
Treasury stock; 249,149 and 259,149 shares as of December 31, 2017 and 2016 | (554,870) | (577,141) |
Additional paid-in capital | 94,524,608 | 94,156,679 |
Retained earnings unappropriated | 255,572,431 | 248,941,696 |
Retained earnings appropriated | 24,233,544 | 22,910,966 |
Accumulated other comprehensive income(loss) | 8,162,958 | (15,994,527) |
Total Stockholders' Equity | 381,962,196 | 349,461,198 |
Total Liabilities and Stockholders' Equity | $ 387,499,423 | $ 365,691,353 |
CONSOLIDATED BALANCE SHEETS (Pa
CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares | Dec. 31, 2017 | Dec. 31, 2016 |
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 | 46,793,791 |
Treasury stock, shares | 249,149 | 259,149 |
CONSOLIDATED STATEMENTS OF INCO
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME - USD ($) | 12 Months Ended | |
Dec. 31, 2017 | Dec. 31, 2016 | |
NET REVENUE | ||
Net revenue | $ 107,522,441 | $ 149,275,002 |
OPERATING INCOME (EXPENSE) | ||
Cost of net revenue | (63,157,090) | (94,785,671) |
Sales, marketing and other operating expenses | (278,600) | (343,105) |
Research and development cost | (195,195) | (261,931) |
Write-off / Impairment on property, plant and equipment | (17,581,244) | (106,545) |
Loss on demolition of factory | 0 | (1,053,445) |
Direct labor and factory overheads incurred during plant shutdown | (6,883,557) | 0 |
General and administrative expenses | (8,536,757) | (5,434,755) |
Other operating income | 281,613 | 433,792 |
Total Costs and Expenses | (96,350,830) | (101,551,660) |
INCOME FROM OPERATIONS | 11,171,611 | 47,723,342 |
OTHER INCOME (EXPENSE) | ||
Interest expense | (164,321) | (174,921) |
Interest income | 556,163 | 487,617 |
Other income/expense | 391,842 | 312,696 |
INCOME BEFORE TAXES | 11,563,453 | 48,036,038 |
INCOME TAXES | (3,610,140) | (11,810,207) |
NET INCOME | 7,953,313 | 36,225,831 |
COMPREHENSIVE INCOME: | ||
NET INCOME | 7,953,313 | 36,225,831 |
OTHER COMPREHENSIVE INCOME | ||
- Foreign currency translation adjustments | 24,157,485 | (24,930,808) |
COMPREHENSIVE INCOME | $ 32,110,798 | $ 11,295,023 |
EARNINGS PER SHARE | ||
BASIC | $ 0.17 | $ 0.78 |
DILUTED | $ 0.17 | $ 0.78 |
WEIGHTED AVERAGE NUMBER OF SHARES | ||
BASIC | 46,796,476 | 46,279,033 |
DILUTED | 46,835,830 | 46,625,663 |
CONSOLIDATED STATEMENTS OF STOC
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY - USD ($) | Common Stock | Treasury Stock | Additional Paid-In Capital | Retained Earnings Unappropriated | Retained Earnings Appropriated | Cumulative Translation Adjustment | Total |
Begning Balance, Amount at Dec. 31, 2015 | $ 23,139 | $ (599,441) | $ 94,124,065 | $ 215,286,395 | $ 20,340,436 | $ 8,936,281 | $ 338,110,875 |
Begning Balance, Number of shares issued at Dec. 31, 2015 | 46,276,269 | ||||||
Begning Balance, Number of shares outstanding at Dec. 31, 2015 | 46,007,120 | ||||||
Begning Balance, Number of shares treasury stock at Dec. 31, 2015 | 269,149 | ||||||
Translation adjustment | (24,930,808) | (24,930,808) | |||||
Common stock issued, Shares | 10,000 | (10,000) | |||||
Common stock issued, Amount | $ 22,300 | (7,300) | 15,000 | ||||
Cashless exercise of stock options, Amount | $ 386 | (386) | |||||
Cashless exercise of stock options, Number of shares issued | 776,671 | ||||||
Cashless exercise of stock options, Number of shares outstanding | 776,671 | ||||||
Issuance of stock options to employees and directors | 40,300 | 40,300 | |||||
Net income for year ended | 36,225,831 | 36,225,831 | |||||
Transfer to statutory common reserve fund | (2,570,530) | 2,570,530 | |||||
Ending Balance, Amount at Dec. 31, 2016 | $ 23,525 | $ (577,141) | 94,156,679 | 248,941,696 | 22,910,966 | (15,994,527) | 349,461,198 |
Ending Balance, Number of shares issued at Dec. 31, 2016 | 47,052,940 | ||||||
Ending Balance, Number of shares outstanding at Dec. 31, 2016 | 46,793,791 | ||||||
Ending Balance, Number of shares treasury stock at Dec. 31, 2016 | 259,149 | ||||||
Translation adjustment | 24,157,485 | 24,157,485 | |||||
Common stock issued, Shares | 10,000 | (10,000) | |||||
Common stock issued, Amount | $ 22,271 | (4,471) | 17,800 | ||||
Issuance of stock options to employees and directors | 372,400 | 372,400 | |||||
Net income for year ended | 7,953,313 | 7,953,313 | |||||
Transfer to statutory common reserve fund | (1,322,578) | 1,322,578 | |||||
Ending Balance, Amount at Dec. 31, 2017 | $ 23,525 | $ (554,870) | $ 94,524,608 | $ 255,572,431 | $ 24,233,544 | $ 8,162,958 | $ 381,962,196 |
Ending Balance, Number of shares issued at Dec. 31, 2017 | 47,052,940 | ||||||
Ending Balance, Number of shares outstanding at Dec. 31, 2017 | 46,803,791 | ||||||
Ending Balance, Number of shares treasury stock at Dec. 31, 2017 | 249,149 |
CONSOLIDATED STATEMENTS OF CASH
CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) | 12 Months Ended | |
Dec. 31, 2017 | Dec. 31, 2016 | |
CASH FLOWS FROM OPERATING ACTIVITIES | ||
Net income | $ 7,953,313 | $ 36,225,831 |
Adjustments to reconcile net income to net cash provided by operating activities: | ||
Interest on capital lease obligation | 163,184 | 174,167 |
Amortization of prepaid land leases | 982,108 | 774,250 |
Depreciation and amortization | 20,197,313 | 24,880,246 |
Allowance for obsolete and slow-moving inventories | 43,921 | (12,691) |
Write-off / Impairment loss on property, plant and equipment | 17,581,244 | 106,545 |
Loss on demolition of factory | 0 | 1,053,445 |
Unrealized translation difference | 1,557,759 | (1,702,728) |
Deferred tax asset | (4,126,947) | 3,013 |
Stock-based compensation expense -options | 372,400 | 40,300 |
Treasury stock issued for services | 17,800 | 15,000 |
Changes in assets and liabilities | ||
Accounts receivable | 26,110,087 | (6,167,996) |
Other receivables | (580) | (877) |
Inventories | 4,883,850 | 901,528 |
Prepayment and deposits | (1,389,367) | (128,384) |
Accounts payable and accrued expenses | (8,203,290) | (503,015) |
Retention payable | 206,211 | (365,150) |
Taxes payable | (3,597,390) | (76,886) |
Net cash provided by operating activities | 62,751,616 | 55,216,598 |
CASH FLOWS FROM INVESTING ACTIVITIES | ||
Additions of prepaid land leases | (10,481,323) | (673,934) |
Compensation received from government on property disposition | 0 | 2,708,417 |
Purchase of property, plant and equipment | (17,938,652) | (16,995,862) |
Net cash used in investing activities | (28,419,975) | (14,961,379) |
CASH FLOWS FROM FINANCING ACTIVITIES | ||
Repayment of capital lease obligation | (273,873) | (287,387) |
Net cash used in financing activities | (273,873) | (287,387) |
EFFECTS OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS | 10,964,417 | (9,689,650) |
NET INCREASE IN CASH AND CASH EQUIVALENTS | 45,022,185 | 30,278,182 |
CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR | 163,884,574 | 133,606,392 |
CASH AND CASH EQUIVALENTS - END OF YEAR | 208,906,759 | 163,884,574 |
Cash paid during the year for: | ||
Income taxes | 11,113,143 | 12,140,763 |
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES | ||
Par value of common stock issued upon cashless exercise of options | $ 0 | $ 386 |
1. NATURE OF BUSINESS AND SUMMA
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | 12 Months Ended |
Dec. 31, 2017 | |
Accounting Policies [Abstract] | |
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | (a) Basis of Presentation and Consolidation The accompanying audited consolidated financial statements have been prepared by Gulf Resources, Inc (“Gulf Resources”). a Nevada corporation and its subsidiaries (collectively, the “Company”). On November 24, 2015, Gulf Resources, Inc., a Delaware corporation consummated a merger with and into its wholly-owned subsidiary, Gulf Resources, Inc., a Nevada corporation. As a result of the reincorporation, the Company is now a Nevada corporation. 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. Upper Class Group Limited was incorporated with limited liability in the British Virgin Islands on July 28, 2006 and was inactive until October 9, 2006 when Upper Class Group Limited acquired all the issued and outstanding stock of Shouguang City Haoyuan Chemical Company Limited (“SCHC”). SCHC is an operating company incorporated in Shouguang City, Shangdong Province, the People’s Republic of China (the “PRC”) on May 18, 2005. SCHC is engaged in manufacturing and trading bromine and crude salt in China. Since the ownership of Upper Class Group Limited and SCHC were the same, the merger was accounted for as a transaction between entities under common control, whereby Upper Class Group Limited recognized the assets and liabilities transferred at their carrying amounts. On December 12, 2006, Gulf Resources, Inc. (formerly Diversifax, Inc.), a public “shell” company, acquired Upper Class Group Limited and its wholly-owned subsidiary, SCHC (together “Upper Class”). Under the terms of the agreement, all stockholders of Upper Class received a total amount of 13,250,000 (restated for the 2-for-1 stock split in 2007 and the 1-for-4 stock split in 2009) shares of voting common stock of Gulf Resources, Inc. in exchange for all shares of Upper Class’ common stock held by all stockholders. Under accounting principles generally accepted in the United States, the share exchange is considered to be a capital transaction in substance, rather than a business combination. That is, the share exchange is equivalent to the issuance of stock by Upper Class for the net monetary assets of Gulf Resources, Inc., accompanied by a recapitalization, and is accounted for as a change in capital structure. Accordingly, the accounting for the share exchange will be identical to that resulting from a reverse acquisition, except no goodwill will be recorded. Under reverse takeover accounting, the post reverse acquisition comparative historical financial statements of the legal acquirer, Gulf Resources, Inc., are those of the legal acquiree, Upper Class, which is considered to be the accounting acquirer. Share and per share amounts stated have been retroactively adjusted to reflect the merger. On February 5, 2007, SCHC acquired Shouguang Yuxin Chemical Industry Co., Limited (“SYCI”), a company incorporated in PRC on October 30, 2000. SYCI manufactures chemical products utilized in oil and gas field explorations and as papermaking chemical agents. Under the terms of the merger agreement, all stockholders of SYCI received a total amount of 8,094,059 (restated for the 2-for-1 stock split in 2007 and the 1-for-4 stock split in 2009) shares of voting common stock of Gulf Resources, Inc. in exchange for all shares of SYCI’s common stock held by all stockholders. Also, upon the completion of the merger, Gulf Resources, Inc. paid a $2,550,000 dividend to the original stockholders of SYCI. Since the ownership of Gulf Resources, Inc. and SYCI are substantially the same, the merger was accounted for as a transaction between entities under common control, whereby Gulf Resources, Inc. recognized the assets and liabilities of the Company transferred at their carrying amounts. Share and per share amounts stated have been retroactively adjusted to reflect the merger. On November 11, 2007, Upper Class formed Hong Kong Jiaxing Industrial Limited (formerly known as Jiaxing Technology Limited) (“HKJI”), a wholly-owned subsidiary of Upper Class, in Hong Kong. Upper Class transferred its equity interest in SCHC to HKJI. On January 12, 2015, Gulf Resources and SCHC, a wholly owned subsidiary of the Company, entered into an Equity Interest Transfer Agreement (the “Agreement”) with Shouguang City Rongyuan Chemical Co., Ltd (“SCRC”). On February 4, 2015 the Company closed the transactions contemplated by the Agreement between the Company, SCHC and SCRC. On the Closing Date, the Company issued 7,268,011shares of its common stock, par value $0.0005 per share (the “Shares”), at the closing market price of $1.84 per Share on the Closing Date to the four former equity owners of SCRC .The issuance of the Shares was exempt from registration pursuant to Regulation S of the Securities Act of 1933, as amended. On the Closing Date, the Company entered into a lock-up agreement with the four former equity owners of SCRC. In accordance with the terms of the lock-up agreement, the shareholders have agreed not to sell or transfer the Shares for five years from the date the stock certificates evidencing the Shares are issued. The sellers of SCRC agreed as part of the purchase price to accept 7,268,011 shares of Gulf Resources stock, based on a valuation of $2.00, which was a 73% premium to the price on the day the agreement was reached. For accounting purposes, these shares are now being valued at $1.84, which was the closing price of Gulf Resources' stock on the day of the closing of the agreement. The price difference between the original $2.00 and the current $1.84 is solely for accounting purposes. There has been no change in the number of shares issued. On December 15, 2015, the Company registered a new subsidiary in the Sichuan Province of the PRC named Daying County Haoyuan Chemical Company Limited (“DCHC”) with registered Capital of RMB50,000,000, and there has been RMB13,848,730 capital contributed by SCHC as of December 31, 2017. DCHC was established to further explore and develop natural gas and brine resources (including bromine and crude salt) in China. On September 2, 2016, the Company announced the planned merger of two of its 100% owned subsidiaries, ShouguanYuxin Chemical Co., Limited (“SYCI”) and ShouguanRongyuan 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 fiscal year 2017. (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"), manufactures chemical products for use in the oil industry, pesticides, paper manufacturing industry and manufacturer of materials for human and animal antibiotics through its wholly-owned subsidiary, ShouguangYuxin 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 PRC. The business is not fully operational as of December 31, 2017. On September 1, 2017, the Company received notification from the Government of Yangkou County, Shouguang City of PRC that production at all its factories 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 $17,938,652 as of December 31, 2017. The Company expects to complete the rectification and improvements of the bromine and crude salt factories and be ready for the government inspection in the first half of 2018, and will resume operations upon receipt of approval from the government. 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. This is because the two plants are located in a residential area and their production activities will have certain impact on 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 accident effectively, and ensure the quality of 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 December 31, 2017 and estimated that the new factory will be fully operational by the beginning of 2020. The Company had been working with Xinan Shiyou Daxue (Southwest Petroleum University) and found the way to solve the technical drilling problem of DCHC and ordered custom equipment. The natural gas project may commence production gradually once such equipment arrives and are being installed. The Company will strive for completion in the first half of 2018. (c) Use of Estimates The Company’s consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and this requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. The most significant accounting estimates with regard to these consolidated financial statements that require the most significant and subjective judgments include, but are not limited to, useful lives of property, plant and equipment, recoverability of long-lived assets, determination of impairment losses, assessment of market value of inventories and provision for inventory obsolescence, allowance for doubtful accounts, recognition and measurement of current and deferred income taxes, valuation allowance for deferred tax assets, and assumptions used for the valuation of share based payments. Accordingly, actual results may differ significantly from these estimates under different assumptions or conditions. (d) Cash and Cash Equivalents Cash and cash equivalents consist of all cash balances and highly liquid investments with original maturities of three months or less. Because of short maturity of these investments, the carrying amounts approximate their fair values. (e) Accounts Receivable and Allowance of Doubtful Accounts Accounts receivable is stated at cost, net of allowance for doubtful accounts. The normal credit term extended to customers ranges between 90 and 240 days. The company reviews all receivables that exceed the term. The Company establishes an allowance for doubtful accounts based on management’s assessment of the collectability of trade and other receivables. A considerable amount of judgment is required in assessing the amount of allowance and the Company considers the historical level of credit losses. The Company makes judgments about the credit worthiness of each customer based on ongoing credit evaluations, and monitors current economic trends that might impact the level of credit losses in the future. If the financial condition of the customer begins to deteriorate, resulting in their inability to make payments within credit term provided, a larger allowance may be required. As of December 31, 2017 and 2016, allowances for doubtful accounts were nil. No allowances for doubtful accounts were charged to the income statement for the years ended December 31, 2017 and 2016. (f) 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 $208,906,759 and $163,884,574 with these institutions as of December 31, 2017 and 2016, 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 and extends credit terms as and when appropriate. Approximately 13% and 62% of the balances of accounts receivable as of December 31, 2017 and December 31, 2016, respectively, were 90 days old or less. Approximately 57% of the accounts receivable as of December 31, 2017 was collected by February 28, 2018. Approximately 66% of the accounts receivable as of December 31, 2017 more than 90 days old were collected by February 28, 2018. The rate of collection in February 2018 for accounts receivable aged more than 90 days as of December 31, 2017 was analyzed as follows: Accounts Receivable Aging Percent Collected 90-120 days 49% 121-150 days 42% 151-180 days 52% 181-210 days 100% 211-240 days 100% (g) Inventories Inventories are stated at the lower of cost, determined on a first-in first-out cost basis, or net realizable value. Costs of work-in-progress and finished goods comprise direct materials, direct labor and an attributable portion of manufacturing overhead. Net realizable value is based on estimated selling price less costs to complete and selling expenses. (h) 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 (in tonnes) of production method, whichever is shorter. Construction in process primarily represents direct costs of construction of property, plant and equipment. Costs incurred are capitalized and transferred to property, plant 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. (i) Asset Retirement Obligation The Company follows Financial Accounting Standards Board Accounting Standards Codification (“FASB ASC”), which established a uniform methodology for accounting for estimated reclamation and abandonment costs. FASB ASC 410 requires the fair value of a liability for an asset retirement obligation to be recognized in the period in which the legal obligation associated with the retirement of the long-lived asset is incurred. When the liability is initially recorded, the offset is capitalized by increasing the carrying amount of the related long-lived asset. Over time, the liability is accreted to its present value each period, and the capitalized cost is depreciated over the useful life of the related asset. To settle the liability, the obligation is paid, and to the extent there is a difference between the liability and the amount of cash paid, a gain or loss upon settlement is recorded. Currently, there are no reclamation or abandonment obligations associated with the land being utilized for exploitation by the bromine and crude salt factories. Also, for the two chemical plants that are to be relocated, currently, there are no obligations to restore the land to its original condition. (j) Recoverability of Long Lived Assets In accordance with FASB ASC 360-10-35 “Impairment or Disposal of Long-lived Assets”, long-lived assets to be held and used are analyzed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be fully recoverable or that the useful lives of those assets are no longer appropriate. The Company evaluates at each balance sheet date whether events and circumstances have occurred that indicate possible impairment. 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 with 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 were recorded in the year ended December 31, 2017. For the year ended December 31, 2016, certain property, plant and machinery, with net book values of $106,545 were replaced during the enhancement project to protective shells for transmission channels. Write-offs of the same amounts were made and included in write-off/impairment on property, plant and equipment. (k) 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 consolidated statement of income on an accrual basis when they are due. The Company’s contributions totaled $1,093,716 and $1,039,096 for the years ended December 31, 2017 and 2016, respectively. (l) Mineral Rights The Company follows FASB ASC 805 “Business Combinations” that certain mineral rights are considered tangible assets and that mineral rights should be accounted for based on their substance. Mineral rights are included in property, plant and equipment. (m) Leasing arrangements Rentals payable under operating leases are charged to the consolidated statement of income on a straight line basis over the term of the relevant lease. For capital leases, the present value of future minimum lease payments at the inception of the lease is reflected as an asset and a liability in the consolidated balance sheet. Amounts due within one year are classified as short-term liabilities and the remaining balance as long-term liabilities. (n) Reporting Currency and Translation The financial statements of the Company’s foreign subsidiaries are measured using the local currency, Renminbi (“RMB”), as the functional currency; whereas the functional currency and reporting currency of the Company is the United States dollar (“USD” or “$”). 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 consolidated statement of income and comprehensive income is translated at average rates 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. Included in the general and administrative expense is a foreign exchange loss of $1,557,759 and a foreign exchange gain $1,702,728 for the years ended December 31, 2017 and 2016. The consolidated statement of cash flows is translated at average rates during the reporting period, with the exception of issuance of shares and payment of dividends which are translated at historical rates. (o) 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. (p) Revenue Recognition The Company recognizes revenue, net of value-added tax, when persuasive evidence of an arrangement exists, delivery of the goods has occurred, customer acceptance has been obtained, which means the significant risks and ownership have been transferred to the customer, the price is fixed or determinable and collectability is reasonably assured. (q) Income Taxes The Company accounts for income taxes in accordance with the Income Taxes Topic of the FASB ASC, which requires the use of the liability method of accounting for deferred income taxes. Under this method, deferred income taxes are recorded to reflect the tax consequences on future years of temporary differences between the tax basis of assets and liabilities and their reported amounts at each period end. Deferred tax assets and liabilities are measured using tax rates that are expected to apply to taxable income for the years in which those tax assets and liabilities are expected to be realized or settled. The deferred income tax effects of a change in tax rates are recognized in the period of enactment. If it is more likely than not that some portion or all of a deferred tax asset will not be realized, a valuation allowance is recognized. The guidance also provides criteria for the recognition, measurement, presentation and disclosures of uncertain tax positions. A tax benefit from an uncertain tax position may be recognized if it is “more likely than not” that the position is sustainable based solely on its technical merits. (r) Exploration Costs Exploration costs, which included the cost of researching for 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. (s) Contingencies The Company accrues for costs relating to litigation, including litigation defense costs, claims and other contingent matters, including liquidated damage liabilities, when such liabilities become probable and reasonably estimable. Such estimates may be based on advice from third parties or on management’s judgment, as appropriate. Revisions to accruals are reflected in earnings (loss) in the period in which different facts or information become known or circumstances change that affect the Company’s previous assumptions with respect to the likelihood or amount of loss. Amounts paid upon the ultimate resolution of such liabilities may be materially different from previous estimates. (t) Stock-based Compensation Common stock, stock options and stock warrants issued to employees or directors are recorded at their fair values estimated at grant date using the Black-Scholes model and the portion that is ultimately expected to vest is recognized as compensation cost over the requisite service period. Common stock, stock options and stock warrants issued to other than employees or directors are recorded on the basis of their fair value using the Black-Scholes option-pricing model on the basis of the market price of the underlying common stock on the “valuation date,” which for options and warrants related to contracts that have substantial disincentives to non-performance is the date of the contract, and for all other contracts the measurement date is the date that the service is complete. Expense related to the options and warrants is recognized on a straight-line basis over the period in which services are to be received. Where expense must be recognized prior to a valuation date, the expense is computed under the Black-Scholes model on the basis of the market price of the underlying common stock at the end of the period, and any subsequent changes in the market price of the underlying common stock up through the valuation date is reflected in the expense recorded in the subsequent period in which that change occurs. (u) Basic and Diluted Earnings 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 43,541 and 135,938 shares for the years ended December 31, 2017 and 2016, respectively. The following table sets forth the computation of basic and diluted earnings per share: Years ended December 31, 2017 Restated 2016 Numerator Net income $ 7,953,313 $ 36,225,831 Denominator Basic: Weighted-average common shares outstanding during the year 46,796,476 46,279,033 Add: Dilutive effect of stock options 39,354 346,630 Diluted 46,835,830 46,625,663 Earnings per share Basic $ 0.17 $ 0.78 Diluted $ 0.17 $ 0.78 (v) 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 carry 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 carry amount, the two-step goodwill impairment test will be performed. As of December 31, 2017, the Company performed the qualitative assessment and determined that it is not more likely than not that the fair value of goodwill is less than its carrying amount and therefore deemed a full impairment loss to be unnecessary. Management believes there has been no impairment to the value of recorded goodwill as of December 31, 2017. (w) New Accounting Pronouncements Recently Adopted Accounting Pronouncements In March 2016, the FASB issued ASU No. 2016-09, Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, which simplifies several aspects of the accounting for share-based payment award transactions, including: (1) income tax consequences; (2) classification of awards as either equity or liabilities, and (3) classification on the statement of cash flows. For public companies, the amendments in this ASU are effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. The Company adopted the amendments in this Update as of January 1, 2017.There is no impact on the financial statements since any excess tax benefits were fully offset by a valuation allowance and not recognized for financial statement purposes. Recently Issued Accounting Pronouncements Not Yet Adopted In May 2014, the FASB issued ASU No. 2014-09, 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. Early application is permitted only as of annual reporting periods beginning after December 15, 2016. The Company expects to adopt the new standard in the first quarter of 2018. The Company does not expect the adoption of this Update to have a material effect on the financial statements. 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 fisca |
2. RESTATEMENT OF PREVIOUSLY IS
2. RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS | 12 Months Ended |
Dec. 31, 2017 | |
Restatement Of Previously Issued Financial Statements | |
2. RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS | The Company determined that the entire amount of the one-time mandatory federal transition tax on accumulated foreign earnings can be offset against a portion of the Company’s US federal net operating loss carryovers and foreign tax credit carryovers. As a result, the Company did not need to accrue the $5,402,000 of income taxes and is restating the consolidated financial statements as of and for the year ended December 31, 2017 to correct this error. The table below sets forth the effect of the restatement on the consolidated statements of income and comprehensive income for the year ended December 31, 2017. Years Ended December 31,2017 As Reported Correction As Restated INCOME TAXES $ (9,012,140 ) $ 5,402,000 $ (3,610,140 ) NET INCOME $ 2,551,313 $ 5,402,000 $ 7,953,313 COMPREHENSIVE INCOME $ 26,708,798 $ 5,402,000 $ 32,110,798 EARNINGS PER SHARE BASIC $ 0.05 $ 0.12 $ 0.17 DILUTED $ 0.05 $ 0.12 $ 0.17 The table below sets forth the effect of the restatement on the consolidated balance sheet for the year ended December 31, 2017. As of December 31, 2017 As Reported Correction As Restated Taxes payable-current $ 1,474,592 $ (433,000 ) $ 1,041,592 Total Current Liabilities 3,666,232 (433,000 ) 3,233,232 Taxes payable-non-current 4,969,000 (4,969,000 ) — Total non-Current Liabilities 7,272,995 (4,969,000 ) 2,303,995 Total Liabilities 10,939,227 (5,402,000 ) 5,537,227 Retained earnings unappropriated 250,170,431 5,402,000 255,572,431 Total Stockholders’ Equity $ 376,560,196 5,402,000 $ 381,962,196 The restatement has no impact on cash flows from operating, investing and financing activities for the year ended December 31, 2017 except for the following disclosure: Years Ended December 31,2017 As Report Correction Restated CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 2,551,313 $ 5,402,000 $ 7,953,313 Taxes payable $ 1,804,610 $ (5,402,000 ) $ (3,597,390 ) The table below sets forth the effect of the restatement on the consolidated statements of stockholders’ equity for the year ended December 31, 2017. Years Ended December 31, Retained earnings unappropriated Total Net income for year ended December 31,2017, as reported $ 2,551,313 $ 2,551,313 Correction $ 5,402,000 $ 5,402,000 Net income for year ended December 31,2017, as restated $ 7,953,313 $ 7,953,313 Balance at December 31,2017, as reported $ 250,170,431 $ 376,560,196 Correction $ 5,402,000 $ 5,402,000 Balance at December 31,2017, as restated $ 255,572,431 $ 381,962,196 |
3. INVENTORIES
3. INVENTORIES | 12 Months Ended |
Dec. 31, 2017 | |
Inventory Disclosure [Abstract] | |
3. INVENTORIES | Inventories consist of: As of December 31, 2017 2016 Raw materials $ 396,482 $ 818,500 Finished goods 844,224 4,370,331 Work-in-process — 692,850 Allowance for obsolete and slow-moving inventories (43,921 ) — $ 1,196,785 $ 5,881,681 |
4. PREPAID LAND LEASE
4. PREPAID LAND LEASE | 12 Months Ended |
Dec. 31, 2017 | |
Property Management Fees | |
4. PREPAID LAND LEASE | 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 piece 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 year ended December 31, 2017, amortization of prepaid land lease totaled $989,816, of which $634,535 and $355,281 were recorded as cost of net revenue and direct labor and factory overheads incurred during plant shutdown. During the year ended December 31, 2016, amortization of prepaid land lease totaled $774,250, which 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 $645,761 and approximately 54.97 square kilometers of aggregate carrying value of $620,978 as at December 31, 2017 and 2016, respectively. |
5. PROPERTY, PLANT AND EQUIPMEN
5. PROPERTY, PLANT AND EQUIPMENT, NET | 12 Months Ended |
Dec. 31, 2017 | |
Property, Plant and Equipment [Abstract] | |
5. PROPERTY, PLANT AND EQUIPMENT, NET | Property, plant and equipment, net consist of the following: As of December 31, 2017 2016 At cost: Mineral rights $ 4,711,822 $ 4,438,115 Buildings 67,748,512 61,656,398 Plant and machinery 200,742,652 186,228,562 Motor vehicles 8,792 8,282 Furniture, fixtures and office equipment 4,150,588 4,553,473 Construction in progress 183,036 374,790 Total 277,545,402 257,259,620 Less: accumulated depreciation and amortization (163,597,407 ) (146,844,072 ) Impairment (18,833,491 ) (1,684,422 ) Net book value $ 95,114,504 $ 108,731,126 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. 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 $27,432,351 and $35,184,613 as at December 31, 2017 and 2016, respectively. During the year ended December 31, 2017, depreciation and amortization expense totaled $19,930,786 of which $13,443,298 and $1,213,010 were recorded as cost of net revenue and administrative expenses, respectively. During the year ended December 31, 2017, depreciation and amortization expense related to property, plant and equipment of $5,274,478 was recorded in direct labor and factory overheads incurred during plant shutdown. During the year ended December 31, 2016, depreciation and amortization expense totaled $24,552,507 of which $23,220,525 and $1,331,982 were recorded as cost of net revenue and administrative expenses, respectively. In the third quarter of 2017, the Company incurred enhancement works for rectification and improvement in order to meet the new environmental rules in China at costs of approximately $0.6 million. In the fourth quarter of 2017, the Company incurred enhancement works for rectification and improvement in order to meet the new environmental rules in China at costs of approximately $17.3 million. In the third quarter of 2016, the Company incurred enhancement works in our existing bromine extraction and crude salt production facilities at costs of approximately $15.23 million. The above enhancement projects have estimated useful lives of 5 to 8 years and are capitalized as buildings and plant and machinery. At the end of November 2016, the Company has signed the demolition compensation agreement for its Factory No. 6 with the Yangzi Street Office of Weifang City Binhai Economic-Technological Development Zone for the Taiwan Island Ecological Culture City Project. The operation of the original Factory No.6 was stopped at the end of November 2016 to allow for the demolition of the factory by the government collection unit. The total written off during the demolition period was $3,761,862. Upon the completion of demolition and clearance of all ground fixtures in December 2016, a total sum of $2,708,417 was received from government. The write-off and demolition costs were offset against the compensation proceeds resulting in a net loss on demolition of factory of $1,053,445. This is included in the income statement for the year ended December 31, 2016 as loss on demolition of factory. This is accounted for in accordance with FASB ASC 605-40 “Revenue Recognition – Gains and Losses”. In the fiscal year 2016, the company incurred $1,747,316 for the construction of roads and related infrastructure needed to begin operations in the remote and mountainous region of Daying county. For the years ended December 31, 2017 and 2016, ordinary repair and maintenance expenses were $130,842 and $463,156, respectively. |
6. PROPERTY, PLANT AND EQUIPMEN
6. PROPERTY, PLANT AND EQUIPMENT UNDER CAPITAL LEASES, NET | 12 Months Ended |
Dec. 31, 2017 | |
Leases [Abstract] | |
6. PROPERTY, PLANT AND EQUIPMENT UNDER CAPITAL LEASES, NET | Property, plant and equipment under capital leases, net consist of the following: As of December 31, 2017 2016 At cost: Buildings $ 125,939 $ 118,623 Plant and machinery 2,314,196 2,229,775 Total 2,440,135 2,348,398 Less: accumulated depreciation and amortization (1,947,897 ) (1,794,141 ) Net book value $ 492,238 $ 554,257 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 year ended December 31, 2017, depreciation and amortization expense totaled $266,527, of which $198,998 and $67,529 were recorded as cost of net revenue and administrative expenses, respectively. During the year ended December 31, 2016, depreciation and amortization expense totaled $327,738, which was recorded as cost of sales. |
7. ACCOUNTS PAYABLE AND ACCRUED
7. ACCOUNTS PAYABLE AND ACCRUED EXPENSE | 12 Months Ended |
Dec. 31, 2017 | |
Payables and Accruals [Abstract] | |
7. ACCOUNTS PAYABLE AND ACCRUED EXPENSE | Accounts payable and accrued expenses consist of the following: As of December 31, 2017 2016 Accounts payable $ — $ 7,513,075 Salary payable 393,617 319,489 Social security insurance contribution payable 135,203 119,444 Other payables 503,263 730,310 Total $ 1,032,083 $ 8,682,318 |
8. DUE TO A RELATED PARTY AND R
8. DUE TO A RELATED PARTY AND RELATED PARTY TRANSACTIONS | 12 Months Ended |
Dec. 31, 2017 | |
Related Party Transactions [Abstract] | |
8. DUE TO A RELATED PARTY AND RELATED PARTY TRANSACTIONS | On September 25, 2012, the Company purchased five stories 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. The cost of the five stories of the commercial building was valued by an independent appraiser on September 17, 2012 to its fair value and recorded as property, plant and equipment. The Company commenced using the property as the new headquarters for the office in early January, 2013. During the fiscal year 2013, the Company entered into an agreement with the Seller to provide property management services for an annual amount of $100,704 for five years from January 1, 2013 to December 31, 2017. The company recorded in general and administrative expense an amount of $100,704 in the years ended December 31, 2017 and 2016. The amount owed to the Seller as of December 31, 2017 and 2016 was $95,454 and $89,933 and was recorded in accounts payable and accrued expenses. During the fiscal year 2017 and 2016, the Company borrowed $450,000 and $655,369, and fully repaid later during the same period, 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 amounts due to Jiaxing Lighting were unsecured, interest free and repayable on demand. |
9. TAXES PAYABLE (Restated)
9. TAXES PAYABLE (Restated) | 12 Months Ended |
Dec. 31, 2017 | |
Income Tax Disclosure [Abstract] | |
9. TAXES PAYABLE (Restated) | Taxes payable consists of the following: As of December 31, 2017 Restated 2016 Income tax payable $ — $ 1,849,535 Natural resource tax 156,147 651,230 Value added tax payable — 887,913 Land use tax payable 810,841 818,921 Other tax payables 74,604 133,732 Total current taxes payable $ 1,041,592 $ 4,341,331 |
10. CAPITAL LEASE OBLIGATIONS
10. CAPITAL LEASE OBLIGATIONS | 12 Months Ended |
Dec. 31, 2017 | |
Leases [Abstract] | |
10. CAPITAL LEASE OBLIGATIONS | The components of capital lease obligations are as follows: Imputed As of December 31, Interest rate 2017 2016 Total capital lease obligations 6.7% $ 2,507,201 $ 2,472,637 Less: Current portion (203,206 ) (187,678 ) Capital lease obligations, net of current portion $ 2,303,995 $ 2,284,959 Interest expense from capital lease obligations amounted to $163,184 and $174,167, which were charged to the consolidated statement of income for the years ended December 31, 2017 and 2016. See Note 19 for future minimum lease payments disclosure. |
11. EQUITY
11. EQUITY | 12 Months Ended |
Dec. 31, 2017 | |
Equity [Abstract] | |
11. 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 has completed the filing of the amendment and restatement of the 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 sheet as of 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 a portion of 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 for SCHC, SYCI and DCHC is 46%, 14% and 0% of its registered capital as of December 31, 2017. The Statutory Common Reserve Fund for SCHC, SYCI, SCRC and DCHC is 43%, 50%, 11% and 0% of its registered capital as of December 31, 2016. |
12. TREASURY STOCK
12. TREASURY STOCK | 12 Months Ended |
Dec. 31, 2017 | |
Equity [Abstract] | |
12.TREASURY STOCK | In September 2017, the Company issued 10,000 shares of common stock from the treasury shares to one of its consultants. The shares were valued at the closing market price on the date of the agreement and recorded as general and administrative expense in the condensed consolidated statements of income and comprehensive income for the fiscal year 2017. The shares issued were deducted from the treasury shares at weighted average cost and the excess of the cost over the closing market price was charged to additional paid-in-capital. In July 2016, the Company issued 10,000 shares of common stock from the treasury shares to one of its consultants. The shares were valued at the closing market price on the date of the agreement and recorded as general and administrative expense in the consolidated statements of income and comprehensive income for the year ended December 31, 2016. The shares issued were deducted from the treasury shares at weighted average cost and the excess of the cost over the closing market price was charged to additional paid-in-capital. |
13. STOCK-BASED COMPENSATION
13. STOCK-BASED COMPENSATION | 12 Months Ended |
Dec. 31, 2017 | |
Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | |
13. STOCK-BASED COMPENSATION | Pursuant to the Company’s Amended and Restated 2007 Equity Incentive Plan approved in 2011(“Plan”), the aggregate number of shares of the Company’s common stock available for grant and issuance of stock options 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 December 31, 2017, 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 below 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. On March 2, 2017, the Company granted to an independent director an option to purchase 12,500 shares of the Company’s common stock at an exercise price of $1.98 per share and the options vested immediately. The options were valued at $9,000 fair value, with assumed 57.42% volatility, a three-year expiration term, with an expected tenor of 1.69 years, a risk free rate of 1.59% and no dividend yield. On May 7, 2017, the Company granted to an independent director an option to purchase 12,500 shares of the Company’s common stock at an exercise price of $1.90 per share and the options vested immediately. The options were valued at $5,700 fair value, with assumed 45.71% volatility, a three-year expiration term with an expected tenor of 1.70 years, a risk free rate of 1.25% and no dividend yield. On July 1, 2017, the Company granted to an independent director an option to purchase 12,500 shares of the Company’s common stock at an exercise price of $1.62 per share and the options vested immediately. The options were valued at $4,500 fair value, with assumed 43.45% volatility, a three-year expiration term with expected tenor of 1.70 years, a risk free rate of 1.34% and no dividend yield. On August 23, 2017, the Company granted to 18 members of the management staff options to purchase 281,000 shares of the Company’s common stock, at an exercise price of $1.454 per share and the options vested immediately. The options were valued at $146,700 fair value, with assumed 42.65% volatility, a four-year expiration term with an expected tenor of 1.41 years, a risk free rate of 1.26% and no dividend yield. On August 23, 2017, the Company granted to three directors options to purchase 300,000 shares of the Company’s common stock, at an exercise price of $1.454 per share and the options vested immediately. The options were valued at $191,800 fair value, with assumed 46.47% volatility, a four-year expiration term with an expected tenor of 2.26 years, a risk free rate of 1.34% and no dividend yield. On December 18, 2017, the Company granted to an independent director an option to purchase 12,500 shares of the Company’s common stock at an exercise price of $1.44 per share and the options vested immediately. The options were valued at $4,350 fair value, with assumed 44.16% volatility, a three-year expiration term with expected tenor of 1.66 years, a risk free rate of 1.78% and no dividend yield. On December 18, 2017, the Company granted to a consultant to purchase 30,000 shares of the Company’s common stock, respectively, at an exercise price of $1.44 per share and the options vested immediately. The options were valued at $10,350 fair value, respectively, with assumed 44.16% volatility, a three-year expiration term with expected tenor of 1.66 years, a risk free rate of 1.78% and no dividend yield. For the year ended December 31, 2017 and 2016, total compensation costs for options issued recorded in the consolidated statement of income were $372,400 and $40,300. There were no related tax benefits as a full valuation allowance was recorded in the years ended December 31, 2017 and 2016. During the year ended December 31, 2016, 776,671 shares of common stock were issued upon cashless exercise of 1,831,500 options. The following table summarizes all Company stock option transactions between January 1, 2016 and December 31, 2017. Number of Option and Warrants Outstanding and exercisable Weighted- Average Exercise price of Option and Warrants Range of Exercise Price per Common Share Balance, December 31, 2015 2,399,000 $ 1.39 $0.95 - $12.60 Granted and vested during the year ended December 31, 2016 80,000 $ 1.87 $1.45 - $2.17 Exercised during the year ended December 31, 2016 (1,831,500 ) $ 1.11 $0.95-$1.45 Expired during the year ended December 31, 2016 (462,500 ) $ 2.24 $0.95 - $12.60 Balance, December 31, 2016 185,000 $ 2.19 $1.54 - $4.80 Granted and vested during the year ended December 31, 2017 661,000 $ 1.47 $1.44 - $1.98 Exercised during the year ended December 31, 2017 — — — Expired during the year ended December 31, 2017 (37,500 ) $ 2.18 $1.83-$2.55 Balance, December 31, 2017 808,500 $ 1.61 $1.44 - $4.80 Stock and Warrants Options Exercisable and Outstanding Weighted Average Weighted Average Outstanding Remaining Exercise Price of at December 31, 2017 Range of Exercise Prices Contractual Life (Years) Options Currently Outstanding Exercisable and outstanding 808,500 $1.44 - $4.80 3.11 $1.61 All options exercisable and outstanding at December 31, 2017 are fully vested. The aggregate intrinsic value of options outstanding and exercisable as of December 31, 2017 was $10,571. The total intrinsic value of options exercised during the years ended December 31, 2016 was $1,479,042. |
14. INCOME TAXES (Restated)
14. INCOME TAXES (Restated) | 12 Months Ended |
Dec. 31, 2017 | |
Income Tax Disclosure [Abstract] | |
14. INCOME TAXES (Restated) | 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 law at tax rate of 35%. No provision for the US federal income taxes has been made as the Company had no US taxable income for the years ended December 31, 2017 and 2016, 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 computed this one-time mandatory transition tax on accumulated foreign earnings to be approximately $5.4 million. However, as the Company has available US federal net operating loss carry forwards and foreign tax credit to fully offset the mandatory inclusion of the accumulated foreign earnings, no net tax liability arose from the inclusion of these accumulated foreign earnings. (b) British Virgin Islands (“BVI”) Upper Class Group Limited 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 years ended 31 December 31, 2017 and 2016. (c) Hong Kong Hong Kong Jiaxing Industrial 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 years ended December 31, 2017 and 2016. The applicable statutory tax rates for the years ended December 31, 2017 and 2016 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 December 31, 2017 and 2016, the accumulated distributable earnings under the Generally Accepted Accounting Principles (“GAAP”) of PRC that are subject to WHT are $282,660,981 and $255,133,960, 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 December 31, 2017 and 2016, 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 December 31, 2017 and 2016, the unrecognized WHT are $14,133,049 and $12,756,698, 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 from year 2010 are currently subject to examination. The components of the provision for income taxes from continuing operations are: Years ended December 31, 2017 Restated 2016 Current taxes – PRC $ 7,737,087 11,807,194 Deferred tax – PRC (4,126,947 ) 3,013 $ 3,610,140 $ 11,810,207 The effective income tax expenses differ from the PRC statutory income tax rate of 25% from continuing operations in the PRC as follows:- Years ended December 31, 2017 Restated 2016 Statutory income tax rate-PRC 25 % 25 % Non-deductible (Non-taxable) items 4 % (1 %) Change in valuation allowance-US federal net operating loss 2 % 1 % Effective tax rate 31 % 25 % As of December 31, 2017 and 2016, the Company had a US federal net operating loss (“NOL”) of approximately $15.3 million and $33.1 million. The NOL can be carried forward up to 20 years from the year the loss is incurred and will begin to expire after 2019. It is however subject to limitation of the US tax regulations arising from previous changes in ownership and business of the Company. Due to these limitations, the NOL carryovers as of December 31, 2017 are no longer available for use to offset against future US federal taxable income. Differences between the application of accounting principles and tax laws cause differences between the bases of certain assets and liabilities for financial reporting purposes and tax purposes. The tax effects of these differences, to the extent they are temporary, are recorded as deferred tax assets and liabilities. Significant components of the Company’s deferred tax assets and liabilities at December 31, 2017 and 2016 are as follows: As of December 31, 2017 Restated 2016 Deferred tax assets: Allowance for obsolete and slow-moving inventories $ 10,980 $ — Impairment on property, plant and equipment 4,610,228 421,105 Exploration costs 1,905,347 1,794,667 Compensation costs of unexercised stock options 98,092 120,986 US federal tax net operating loss — 11,575,000 Total deferred tax assets 6,624,647 13,911,758 Valuation allowance (98,092 ) (11,695,986 ) Net deferred tax asset $ 6,526,555 $ 2,215,772 The decrease in valuation allowance for the year ended December 31, 2017 was $11,597,894. This was mainly due to the change in tax rate in the amount of $4,681,528, the utilization of NOL to offset the one-time mandatory transition tax on accumulated foreign earnings in the amount of $3,721,336 and the NOL limitation adjustment in the amount of $3,220,530. The increases in valuation allowance for the year ended December 31, 2016 was $231,824. There were no unrecognized tax benefits and accrual for uncertain tax positions as of December 31, 2017 and 2016. |
15. BUSINESS SEGMENTS
15. BUSINESS SEGMENTS | 12 Months Ended |
Dec. 31, 2017 | |
Segment Reporting [Abstract] | |
15. 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. All intersegment transactions have been eliminated. 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. Year Ended December 31, 2017 (Restated) Bromine * Crude Salt * Chemical Products Natural Gas Segment Total Corporate Total Net revenue (external customers) $ 42,224,901 $ 8,986,080 $ 56,311,460 $ — $ 107,522,441 $ — $ 107,522,441 Net revenue (intersegment) 6,305,642 — — — 6,305,642 — 6,305,642 Income from operations before income taxes 12,460,230 2,426,137 (1,024,569 ) (116,465 ) 13,745,333 (2,573,722 ) 11,171,611 Income taxes 3,156,016 585,521 (131,397 ) — 3,610,140 — 3,610,140 Income from operations after income taxes 9,304,214 1,840,616 (893,172 ) (116,465 ) 10,135,193 (2,573,722 ) 7,561,471 Total assets 147,124,127 51,512,530 186,677,501 2,119,756 387,433,914 65,509 387,499,423 Depreciation and amortization 14,533,169 2,452,737 3,211,407 — 20,197,313 — 20,197,313 Capital expenditures 465,655 17,411,762 — 61,235 17,938,652 — 17,938,652 Goodwill — — 29,374,909 — 29,374,909 — 29,374,909 Year Ended December 31, 2016 Bromine * Crude Salt * Chemical Products Natural Gas Segment Total Corporate Total Net revenue (external customers) $ 56,811,730 $ 8,985,852 $ 83,477,420 $ — $ 149,275,002 $ — $ 149,275,002 Net revenue (intersegment) 8,484,617 — — — 8,484,617 — 8,484,617 Income from operations before income taxes 21,224,862 9,076 25,473,792 (4,906 ) 46,702,824 1,020,518 47,723,342 Income taxes 5,306,216 9,022 6,494,969 — 11,810,207 — 11,810,207 Income from operations after income taxes 15,918,646 54 18,978,823 (4,906 ) 34,892,617 1,020,518 35,913,135 Total assets 143,145,960 33,980,033 186,676,983 1,799,094 365,602,070 89,283 365,691,353 Depreciation and amortization 15,056,980 5,221,667 4,601,599 — 24,880,246 — 24,880,246 Capital expenditures 12,912,583 2,335,963 — 1,747,316 16,995,862 — 16,995,862 Goodwill — — 27,668,539 — 27,668,539 — 27,668,539 * 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. Years ended December 31, Reconciliations 2017 2016 Total segment operating income $ 13,745,333 $ 46,702,824 Corporate costs (1,015,963 ) (682,210 ) Unrealized translation difference (1,557,759 ) 1,702,728 Income from operations 11,171,611 47,723,342 Other income 391,842 312,696 Income before income taxes $ 11,563,453 $ 48,036,038 The following table shows the major customer(s) (10% or more) for the year ended December 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 $ 7,852 $ 2,952 $ 3,463 $ 14,267 13.3 % The following table shows the major customer(s) (10% or more) for the year ended December 31, 2016. 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 $ 9,823 $ 2,678 $ 5,347 $ 17,848 12.0 % |
16. CUSTOMER CONCENTRATION
16. CUSTOMER CONCENTRATION | 12 Months Ended |
Dec. 31, 2017 | |
Risks and Uncertainties [Abstract] | |
16. CUSTOMER CONCENTRATION | The Company sells a substantial portion of its products to a limited number of customers. During the year ended December 31, 2017, the Company sold 36.7% of its products to its top five customers. At December 31, 2017, amount due from these customers were $22,804,914. The Company sells a substantial portion of its products to a limited number of customers. During the year ended December 31, 2016, the Company sold 30.9% of its products to its top five customers. At December 31, 2016, amount due from these customers were $25,111,129. |
17. MAJOR SUPPLIERS
17. MAJOR SUPPLIERS | 12 Months Ended |
Dec. 31, 2017 | |
Property Management Fees | |
17. MAJOR SUPPLIERS | During the year ended December 31, 2017, the Company purchased 68.2% of its raw materials from its top five suppliers. At December 31, 2017, amounts due to those suppliers included in accounts payable were $0. During the year ended December 31, 2016, the Company purchased 54.4% of its raw materials from its top five suppliers. At December 31, 2016, amounts due to those suppliers included in accounts payable were $3,598,861. |
18. FAIR VALUE OF FINANCIAL INS
18. FAIR VALUE OF FINANCIAL INSTRUMENTS | 12 Months Ended |
Dec. 31, 2017 | |
Fair Value Disclosures [Abstract] | |
18. 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 December 31, 2017 and 2016. |
19. CAPITAL COMMITMENT AND OPER
19. CAPITAL COMMITMENT AND OPERATING LEASE COMMITMENTS | 12 Months Ended |
Dec. 31, 2017 | |
Commitments and Contingencies Disclosure [Abstract] | |
19. CAPITAL COMMITMENT AND OPERATING LEASE COMMITMENTS | As of December 31, 2017, the Company 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 parcel 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 following table sets forth the Company’s contractual obligations as of December 31, 2017: Capital Lease Obligations Operating Lease Obligations Property Management Fees Payable within: the next 12 months $ 287,256 $ 988,859 $ 95,476 the next 13 to 24 months 287,256 1,012,360 95,476 the next 25 to 36 months 287,256 1,033,929 95,476 the next 37 to 48 months 287,256 1,059,600 95,476 the next 49 to 60 months 287,256 911,781 95,476 thereafter 2,298,049 16,583,556 — Total $ 3,734,329 $ 21,590,085 $ 477,380 Less: Amount representing interest (1,227,128 ) Present value of net minimum lease payments $ 2,507,201 Rental expenses related to operating leases of the Company amounted to $1,044,611 and $1,043,615 were charged to the consolidated statements of income for the years ended December 31, 2017 and 2016, respectively. |
1. NATURE OF BUSINESS AND SUM_2
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies) | 12 Months Ended |
Dec. 31, 2017 | |
Accounting Policies [Abstract] | |
Basis of Presentation and Consolidation | The accompanying audited consolidated financial statements have been prepared by Gulf Resources, Inc (“Gulf Resources”). a Nevada corporation and its subsidiaries (collectively, the “Company”). On November 24, 2015, Gulf Resources, Inc., a Delaware corporation consummated a merger with and into its wholly-owned subsidiary, Gulf Resources, Inc., a Nevada corporation. As a result of the reincorporation, the Company is now a Nevada corporation. 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. Upper Class Group Limited was incorporated with limited liability in the British Virgin Islands on July 28, 2006 and was inactive until October 9, 2006 when Upper Class Group Limited acquired all the issued and outstanding stock of Shouguang City Haoyuan Chemical Company Limited (“SCHC”). SCHC is an operating company incorporated in Shouguang City, Shangdong Province, the People’s Republic of China (the “PRC”) on May 18, 2005. SCHC is engaged in manufacturing and trading bromine and crude salt in China. Since the ownership of Upper Class Group Limited and SCHC were the same, the merger was accounted for as a transaction between entities under common control, whereby Upper Class Group Limited recognized the assets and liabilities transferred at their carrying amounts. On December 12, 2006, Gulf Resources, Inc. (formerly Diversifax, Inc.), a public “shell” company, acquired Upper Class Group Limited and its wholly-owned subsidiary, SCHC (together “Upper Class”). Under the terms of the agreement, all stockholders of Upper Class received a total amount of 13,250,000 (restated for the 2-for-1 stock split in 2007 and the 1-for-4 stock split in 2009) shares of voting common stock of Gulf Resources, Inc. in exchange for all shares of Upper Class’ common stock held by all stockholders. Under accounting principles generally accepted in the United States, the share exchange is considered to be a capital transaction in substance, rather than a business combination. That is, the share exchange is equivalent to the issuance of stock by Upper Class for the net monetary assets of Gulf Resources, Inc., accompanied by a recapitalization, and is accounted for as a change in capital structure. Accordingly, the accounting for the share exchange will be identical to that resulting from a reverse acquisition, except no goodwill will be recorded. Under reverse takeover accounting, the post reverse acquisition comparative historical financial statements of the legal acquirer, Gulf Resources, Inc., are those of the legal acquiree, Upper Class, which is considered to be the accounting acquirer. Share and per share amounts stated have been retroactively adjusted to reflect the merger. On February 5, 2007, SCHC acquired Shouguang Yuxin Chemical Industry Co., Limited (“SYCI”), a company incorporated in PRC on October 30, 2000. SYCI manufactures chemical products utilized in oil and gas field explorations and as papermaking chemical agents. Under the terms of the merger agreement, all stockholders of SYCI received a total amount of 8,094,059 (restated for the 2-for-1 stock split in 2007 and the 1-for-4 stock split in 2009) shares of voting common stock of Gulf Resources, Inc. in exchange for all shares of SYCI’s common stock held by all stockholders. Also, upon the completion of the merger, Gulf Resources, Inc. paid a $2,550,000 dividend to the original stockholders of SYCI. Since the ownership of Gulf Resources, Inc. and SYCI are substantially the same, the merger was accounted for as a transaction between entities under common control, whereby Gulf Resources, Inc. recognized the assets and liabilities of the Company transferred at their carrying amounts. Share and per share amounts stated have been retroactively adjusted to reflect the merger. On November 11, 2007, Upper Class formed Hong Kong Jiaxing Industrial Limited (formerly known as Jiaxing Technology Limited) (“HKJI”), a wholly-owned subsidiary of Upper Class, in Hong Kong. Upper Class transferred its equity interest in SCHC to HKJI. On January 12, 2015, Gulf Resources and SCHC, a wholly owned subsidiary of the Company, entered into an Equity Interest Transfer Agreement (the “Agreement”) with Shouguang City Rongyuan Chemical Co., Ltd (“SCRC”). On February 4, 2015 the Company closed the transactions contemplated by the Agreement between the Company, SCHC and SCRC. On the Closing Date, the Company issued 7,268,011shares of its common stock, par value $0.0005 per share (the “Shares”), at the closing market price of $1.84 per Share on the Closing Date to the four former equity owners of SCRC .The issuance of the Shares was exempt from registration pursuant to Regulation S of the Securities Act of 1933, as amended. On the Closing Date, the Company entered into a lock-up agreement with the four former equity owners of SCRC. In accordance with the terms of the lock-up agreement, the shareholders have agreed not to sell or transfer the Shares for five years from the date the stock certificates evidencing the Shares are issued. The sellers of SCRC agreed as part of the purchase price to accept 7,268,011 shares of Gulf Resources stock, based on a valuation of $2.00, which was a 73% premium to the price on the day the agreement was reached. For accounting purposes, these shares are now being valued at $1.84, which was the closing price of Gulf Resources' stock on the day of the closing of the agreement. The price difference between the original $2.00 and the current $1.84 is solely for accounting purposes. There has been no change in the number of shares issued. On December 15, 2015, the Company registered a new subsidiary in the Sichuan Province of the PRC named Daying County Haoyuan Chemical Company Limited (“DCHC”) with registered Capital of RMB50,000,000, and there has been RMB13,848,730 capital contributed by SCHC as of December 31, 2017. DCHC was established to further explore and develop natural gas and brine resources (including bromine and crude salt) in China. On September 2, 2016, the Company announced the planned merger of two of its 100% owned subsidiaries, ShouguanYuxin Chemical Co., Limited (“SYCI”) and ShouguanRongyuan 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 fiscal year 2017. |
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"), manufactures chemical products for use in the oil industry, pesticides, paper manufacturing industry and manufacturer of materials for human and animal antibiotics through its wholly-owned subsidiary, ShouguangYuxin 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 PRC. The business is not fully operational as of December 31, 2017. On September 1, 2017, the Company received notification from the Government of Yangkou County, Shouguang City of PRC that production at all its factories 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 $17,938,652 as of December 31, 2017. The Company expects to complete the rectification and improvements of the bromine and crude salt factories and be ready for the government inspection in the first half of 2018, and will resume operations upon receipt of approval from the government. 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. This is because the two plants are located in a residential area and their production activities will have certain impact on 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 accident effectively, and ensure the quality of 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 December 31, 2017 and estimated that the new factory will be fully operational by the beginning of 2020. The Company had been working with Xinan Shiyou Daxue (Southwest Petroleum University) and found the way to solve the technical drilling problem of DCHC and ordered custom equipment. The natural gas project may commence production gradually once such equipment arrives and are being installed. The Company will strive for completion in the first half of 2018. |
Use of Estimates | The Company’s consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and this requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. The most significant accounting estimates with regard to these consolidated financial statements that require the most significant and subjective judgments include, but are not limited to, useful lives of property, plant and equipment, recoverability of long-lived assets, determination of impairment losses, assessment of market value of inventories and provision for inventory obsolescence, allowance for doubtful accounts, recognition and measurement of current and deferred income taxes, valuation allowance for deferred tax assets, and assumptions used for the valuation of share based payments. Accordingly, actual results may differ significantly from these estimates under different assumptions or conditions. |
Cash and Cash Equivalents | Cash and cash equivalents consist of all cash balances and highly liquid investments with original maturities of three months or less. Because of short maturity of these investments, the carrying amounts approximate their fair values. |
Accounts Receivable and Allowance of Doubtful Accounts | Accounts receivable is stated at cost, net of allowance for doubtful accounts. The normal credit term extended to customers ranges between 90 and 240 days. The company reviews all receivables that exceed the term. The Company establishes an allowance for doubtful accounts based on management’s assessment of the collectability of trade and other receivables. A considerable amount of judgment is required in assessing the amount of allowance and the Company considers the historical level of credit losses. The Company makes judgments about the credit worthiness of each customer based on ongoing credit evaluations, and monitors current economic trends that might impact the level of credit losses in the future. If the financial condition of the customer begins to deteriorate, resulting in their inability to make payments within credit term provided, a larger allowance may be required. As of December 31, 2017 and 2016, allowances for doubtful accounts were nil. No allowances for doubtful accounts were charged to the income statement for the years ended December 31, 2017 and 2016. |
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 $208,906,759 and $163,884,574 with these institutions as of December 31, 2017 and 2016, 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 and extends credit terms as and when appropriate. Approximately 13% and 62% of the balances of accounts receivable as of December 31, 2017 and December 31, 2016, respectively, were 90 days old or less. Approximately 57% of the accounts receivable as of December 31, 2017 was collected by February 28, 2018. Approximately 66% of the accounts receivable as of December 31, 2017 more than 90 days old were collected by February 28, 2018. The rate of collection in February 2018 for accounts receivable aged more than 90 days as of December 31, 2017 was analyzed as follows: Accounts Receivable Aging Percent Collected 90-120 days 49% 121-150 days 42% 151-180 days 52% 181-210 days 100% 211-240 days 100% |
Inventories | Inventories are stated at the lower of cost, determined on a first-in first-out cost basis, or net realizable value. Costs of work-in-progress and finished goods comprise direct materials, direct labor and an attributable portion of manufacturing overhead. Net realizable value is based on estimated selling price less costs to complete and selling expenses. |
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 (in tonnes) of production method, whichever is shorter. Construction in process primarily represents direct costs of construction of property, plant and equipment. Costs incurred are capitalized and transferred to property, plant 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. |
Asset Retirement Obligation | The Company follows Financial Accounting Standards Board Accounting Standards Codification (“FASB ASC”), which established a uniform methodology for accounting for estimated reclamation and abandonment costs. FASB ASC 410 requires the fair value of a liability for an asset retirement obligation to be recognized in the period in which the legal obligation associated with the retirement of the long-lived asset is incurred. When the liability is initially recorded, the offset is capitalized by increasing the carrying amount of the related long-lived asset. Over time, the liability is accreted to its present value each period, and the capitalized cost is depreciated over the useful life of the related asset. To settle the liability, the obligation is paid, and to the extent there is a difference between the liability and the amount of cash paid, a gain or loss upon settlement is recorded. Currently, there are no reclamation or abandonment obligations associated with the land being utilized for exploitation by the bromine and crude salt factories. Also, for the two chemical plants that are to be relocated, currently, there are no obligations to restore the land to its original condition. |
Recoverability of Long Lived Assets | In accordance with FASB ASC 360-10-35 “Impairment or Disposal of Long-lived Assets”, long-lived assets to be held and used are analyzed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be fully recoverable or that the useful lives of those assets are no longer appropriate. The Company evaluates at each balance sheet date whether events and circumstances have occurred that indicate possible impairment. 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 with 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 were recorded in the year ended December 31, 2017. For the year ended December 31, 2016, certain property, plant and machinery, with net book values of $106,545 were replaced during the enhancement project to protective shells for transmission channels. Write-offs of the same amounts were made and included in write-off/impairment on property, plant and equipment. |
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 consolidated statement of income on an accrual basis when they are due. The Company’s contributions totaled $1,093,716 and $1,039,096 for the years ended December 31, 2017 and 2016, respectively. |
Mineral Rights | The Company follows FASB ASC 805 “Business Combinations” that certain mineral rights are considered tangible assets and that mineral rights should be accounted for based on their substance. Mineral rights are included in property, plant and equipment. |
Leasing arrangements | Rentals payable under operating leases are charged to the consolidated statement of income on a straight line basis over the term of the relevant lease. For capital leases, the present value of future minimum lease payments at the inception of the lease is reflected as an asset and a liability in the consolidated balance sheet. Amounts due within one year are classified as short-term liabilities and the remaining balance as long-term liabilities. |
Reporting Currency and Translation | The financial statements of the Company’s foreign subsidiaries are measured using the local currency, Renminbi (“RMB”), as the functional currency; whereas the functional currency and reporting currency of the Company is the United States dollar (“USD” or “$”). 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 consolidated statement of income and comprehensive income is translated at average rates 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. Included in the general and administrative expense is a foreign exchange loss of $1,557,759 and a foreign exchange gain $1,702,728 for the years ended December 31, 2017 and 2016. The consolidated statement of cash flows is translated at average rates during the reporting period, with the exception of issuance of shares and payment of dividends which are 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. |
Revenue Recognition | The Company recognizes revenue, net of value-added tax, when persuasive evidence of an arrangement exists, delivery of the goods has occurred, customer acceptance has been obtained, which means the significant risks and ownership have been transferred to the customer, the price is fixed or determinable and collectability is reasonably assured. |
Income Taxes | The Company accounts for income taxes in accordance with the Income Taxes Topic of the FASB ASC, which requires the use of the liability method of accounting for deferred income taxes. Under this method, deferred income taxes are recorded to reflect the tax consequences on future years of temporary differences between the tax basis of assets and liabilities and their reported amounts at each period end. Deferred tax assets and liabilities are measured using tax rates that are expected to apply to taxable income for the years in which those tax assets and liabilities are expected to be realized or settled. The deferred income tax effects of a change in tax rates are recognized in the period of enactment. If it is more likely than not that some portion or all of a deferred tax asset will not be realized, a valuation allowance is recognized. The guidance also provides criteria for the recognition, measurement, presentation and disclosures of uncertain tax positions. A tax benefit from an uncertain tax position may be recognized if it is “more likely than not” that the position is sustainable based solely on its technical merits. |
Exploration Costs | Exploration costs, which included the cost of researching for 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. |
Contingencies | The Company accrues for costs relating to litigation, including litigation defense costs, claims and other contingent matters, including liquidated damage liabilities, when such liabilities become probable and reasonably estimable. Such estimates may be based on advice from third parties or on management’s judgment, as appropriate. Revisions to accruals are reflected in earnings (loss) in the period in which different facts or information become known or circumstances change that affect the Company’s previous assumptions with respect to the likelihood or amount of loss. Amounts paid upon the ultimate resolution of such liabilities may be materially different from previous estimates. |
Stock-based Compensation | Common stock, stock options and stock warrants issued to employees or directors are recorded at their fair values estimated at grant date using the Black-Scholes model and the portion that is ultimately expected to vest is recognized as compensation cost over the requisite service period. Common stock, stock options and stock warrants issued to other than employees or directors are recorded on the basis of their fair value using the Black-Scholes option-pricing model on the basis of the market price of the underlying common stock on the “valuation date,” which for options and warrants related to contracts that have substantial disincentives to non-performance is the date of the contract, and for all other contracts the measurement date is the date that the service is complete. Expense related to the options and warrants is recognized on a straight-line basis over the period in which services are to be received. Where expense must be recognized prior to a valuation date, the expense is computed under the Black-Scholes model on the basis of the market price of the underlying common stock at the end of the period, and any subsequent changes in the market price of the underlying common stock up through the valuation date is reflected in the expense recorded in the subsequent period in which that change occurs. |
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 43,541 and 135,938 shares for the years ended December 31, 2017 and 2016, respectively. The following table sets forth the computation of basic and diluted earnings per share: Years ended December 31, 2017 Restated 2016 Numerator Net income $ 7,953,313 $ 36,225,831 Denominator Basic: Weighted-average common shares outstanding during the year 46,796,476 46,279,033 Add: Dilutive effect of stock options 39,354 346,630 Diluted 46,835,830 46,625,663 Earnings per share Basic $ 0.17 $ 0.78 Diluted $ 0.17 $ 0.78 |
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 carry 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 carry amount, the two-step goodwill impairment test will be performed. As of December 31, 2017, the Company performed the qualitative assessment and determined that it is not more likely than not that the fair value of goodwill is less than its carrying amount and therefore deemed a full impairment loss to be unnecessary. Management believes there has been no impairment to the value of recorded goodwill as of December 31, 2017. |
New Accounting Pronouncements | Recently Adopted Accounting Pronouncements In March 2016, the FASB issued ASU No. 2016-09, Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, which simplifies several aspects of the accounting for share-based payment award transactions, including: (1) income tax consequences; (2) classification of awards as either equity or liabilities, and (3) classification on the statement of cash flows. For public companies, the amendments in this ASU are effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. The Company adopted the amendments in this Update as of January 1, 2017.There is no impact on the financial statements since any excess tax benefits were fully offset by a valuation allowance and not recognized for financial statement purposes. Recently Issued Accounting Pronouncements Not Yet Adopted In May 2014, the FASB issued ASU No. 2014-09, 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. Early application is permitted only as of annual reporting periods beginning after December 15, 2016. The Company expects to adopt the new standard in the first quarter of 2018. The Company does not expect the adoption of this Update to have a material effect on the financial statements. 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 evaluating the impact of this on the consolidated financial statements and related disclosures. 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 and 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 impact of this on the consolidated financial statements and disclosures. 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 does not expect the adoption of this Update to have a material effect on the financial statements. In January 2017, the FASB issued ASU No. 2017-01, Business Combinations (Topic 805), Clarifying the Definition of a Business. The amendments in this Update provide a more robust framework to use in determining when a set of assets and activities is a business. The amendments in this Update are effective for annual periods beginning after December 15, 2017, including interim periods within those periods. The Company does not expect the adoption of this Update to have a material effect on the financial statements. 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 the effect of the adoption of this Update. In May 2017, the FASB issued ASU 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. |
1. NATURE OF BUSINESS AND SUM_3
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables) | 12 Months Ended |
Dec. 31, 2017 | |
Accounting Policies [Abstract] | |
Accounts receivable aging | Accounts Receivable Aging Percent Collected 90-120 days 49% 121-150 days 42% 151-180 days 52% 181-210 days 100% 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 computation of basic and diluted earnings per share | Years ended December 31, 2017 Restated 2016 Numerator Net income $ 7,953,313 $ 36,225,831 Denominator Basic: Weighted-average common shares outstanding during the year 46,796,476 46,279,033 Add: Dilutive effect of stock options 39,354 346,630 Diluted 46,835,830 46,625,663 Earnings per share Basic $ 0.17 $ 0.78 Diluted $ 0.17 $ 0.78 |
2. RESTATEMENT OF PREVIOUSLY _2
2. RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS (Tables) | 12 Months Ended |
Dec. 31, 2017 | |
Restatement Of Previously Issued Financial Statements Tables Abstract | |
Restatement | Years Ended December 31,2017 As Reported Correction As Restated INCOME TAXES $ (9,012,140 ) $ 5,402,000 $ (3,610,140 ) NET INCOME $ 2,551,313 $ 5,402,000 $ 7,953,313 COMPREHENSIVE INCOME $ 26,708,798 $ 5,402,000 $ 32,110,798 EARNINGS PER SHARE BASIC $ 0.05 $ 0.12 $ 0.17 DILUTED $ 0.05 $ 0.12 $ 0.17 As of December 31, 2017 As Reported Correction As Restated Taxes payable-current $ 1,474,592 $ (433,000 ) $ 1,041,592 Total Current Liabilities 3,666,232 (433,000 ) 3,233,232 Taxes payable-non-current 4,969,000 (4,969,000 ) — Total non-Current Liabilities 7,272,995 (4,969,000 ) 2,303,995 Total Liabilities 10,939,227 (5,402,000 ) 5,537,227 Retained earnings unappropriated 250,170,431 5,402,000 255,572,431 Total Stockholders’ Equity $ 376,560,196 5,402,000 $ 381,962,196 Years Ended December 31,2017 As Report Correction Restated CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 2,551,313 $ 5,402,000 $ 7,953,313 Taxes payable $ 1,804,610 $ (5,402,000 ) $ (3,597,390 ) Years Ended December 31, Retained earnings unappropriated Total Net income for year ended December 31,2017, as reported $ 2,551,313 $ 2,551,313 Correction $ 5,402,000 $ 5,402,000 Net income for year ended December 31,2017, as restated $ 7,953,313 $ 7,953,313 Balance at December 31,2017, as reported $ 250,170,431 $ 376,560,196 Correction $ 5,402,000 $ 5,402,000 Balance at December 31,2017, as restated $ 255,572,431 $ 381,962,196 |
3. INVENTORIES (Tables)
3. INVENTORIES (Tables) | 12 Months Ended |
Dec. 31, 2017 | |
Inventory Disclosure [Abstract] | |
INVENTORIES | As of December 31, 2017 2016 Raw materials $ 396,482 $ 818,500 Finished goods 844,224 4,370,331 Work-in-process — 692,850 Allowance for obsolete and slow-moving inventories (43,921 ) — $ 1,196,785 $ 5,881,681 |
5. PROPERTY, PLANT AND EQUIPM_2
5. PROPERTY, PLANT AND EQUIPMENT, NET (Tables) | 12 Months Ended |
Dec. 31, 2017 | |
Property, Plant and Equipment [Abstract] | |
Property, plant and equipment | As of December 31, 2017 2016 At cost: Mineral rights $ 4,711,822 $ 4,438,115 Buildings 67,748,512 61,656,398 Plant and machinery 200,742,652 186,228,562 Motor vehicles 8,792 8,282 Furniture, fixtures and office equipment 4,150,588 4,553,473 Construction in progress 183,036 374,790 Total 277,545,402 257,259,620 Less: accumulated depreciation and amortization (163,597,407 ) (146,844,072 ) Impairment (18,833,491 ) (1,684,422 ) Net book value $ 95,114,504 $ 108,731,126 |
6. PROPERTY, PLANT AND EQUIPM_2
6. PROPERTY, PLANT AND EQUIPMENT UNDER CAPITAL LEASES, NET (Tables) | 12 Months Ended |
Dec. 31, 2017 | |
Property Plant And Equipment Under Capital Leases Net | |
Property, plant and equipment under capital leases | As of December 31, 2017 2016 At cost: Buildings $ 125,939 $ 118,623 Plant and machinery 2,314,196 2,229,775 Total 2,440,135 2,348,398 Less: accumulated depreciation and amortization (1,947,897 ) (1,794,141 ) Net book value $ 492,238 $ 554,257 |
7. ACCOUNTS PAYABLE AND ACCRU_2
7. ACCOUNTS PAYABLE AND ACCRUED EXPENSE (Tables) | 12 Months Ended |
Dec. 31, 2017 | |
Payables and Accruals [Abstract] | |
Accounts payable and accrued expenses | As of December 31, 2017 2016 Accounts payable $ — $ 7,513,075 Salary payable 393,617 319,489 Social security insurance contribution payable 135,203 119,444 Other payables 503,263 730,310 Total $ 1,032,083 $ 8,682,318 |
9. TAXES PAYABLE (Restated) (Ta
9. TAXES PAYABLE (Restated) (Tables) | 12 Months Ended |
Dec. 31, 2017 | |
Income Tax Disclosure [Abstract] | |
Schedule of Taxes payable | Taxes payable consists of the following: As of December 31, 2017 Restated 2016 Income tax payable $ — $ 1,849,535 Natural resource tax 156,147 651,230 Value added tax payable — 887,913 Land use tax payable 810,841 818,921 Other tax payables 74,604 133,732 Total current taxes payable $ 1,041,592 $ 4,341,331 |
10. CAPITAL LEASE OBLIGATIONS (
10. CAPITAL LEASE OBLIGATIONS (Tables) | 12 Months Ended |
Dec. 31, 2017 | |
Leases [Abstract] | |
Capital lease obligations | Imputed As of December 31, Interest rate 2017 2016 Total capital lease obligations 6.7% $ 2,507,201 $ 2,472,637 Less: Current portion (203,206 ) (187,678 ) Capital lease obligations, net of current portion $ 2,303,995 $ 2,284,959 |
13. STOCK-BASED COMPENSATION (T
13. STOCK-BASED COMPENSATION (Tables) | 12 Months Ended |
Dec. 31, 2017 | |
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, December 31, 2015 2,399,000 $ 1.39 $0.95 - $12.60 Granted and vested during the year ended December 31, 2016 80,000 $ 1.87 $1.45 - $2.17 Exercised during the year ended December 31, 2016 (1,831,500 ) $ 1.11 $0.95-$1.45 Expired during the year ended December 31, 2016 (462,500 ) $ 2.24 $0.95 - $12.60 Balance, December 31, 2016 185,000 $ 2.19 $1.54 - $4.80 Granted and vested during the year ended December 31, 2017 661,000 $ 1.47 $1.44 - $1.98 Exercised during the year ended December 31, 2017 — — — Expired during the year ended December 31, 2017 (37,500 ) $ 2.18 $1.83-$2.55 Balance, December 31, 2017 808,500 $ 1.61 $1.44 - $4.80 |
Schedule Stock and Warrants Options Outstanding | Stock and Warrants Options Exercisable and Outstanding Weighted Average Weighted Average Outstanding Remaining Exercise Price of at December 31, 2017 Range of Exercise Prices Contractual Life (Years) Options Currently Outstanding Exercisable and outstanding 808,500 $1.44 - $4.80 3.11 $1.61 |
14. INCOME TAXES (Restated) (Ta
14. INCOME TAXES (Restated) (Tables) | 12 Months Ended |
Dec. 31, 2017 | |
Income Tax Disclosure [Abstract] | |
Schedule of components of the provision for income taxes | Years ended December 31, 2017 Restated 2016 Current taxes – PRC $ 7,737,087 11,807,194 Deferred tax – PRC (4,126,947 ) 3,013 $ 3,610,140 $ 11,810,207 |
Schedule of income tax expenses reconciliation | Years ended December 31, 2017 Restated 2016 Statutory income tax rate-PRC 25 % 25 % Non-deductible (Non-taxable) items 4 % (1 %) Change in valuation allowance-US federal net operating loss 2 % 1 % Effective tax rate 31 % 25 % |
Schedule of deferred tax assets and liabilities | As of December 31, 2017 Restated 2016 Deferred tax assets: Allowance for obsolete and slow-moving inventories $ 10,980 $ — Impairment on property, plant and equipment 4,610,228 421,105 Exploration costs 1,905,347 1,794,667 Compensation costs of unexercised stock options 98,092 120,986 US federal tax net operating loss — 11,575,000 Total deferred tax assets 6,624,647 13,911,758 Valuation allowance (98,092 ) (11,695,986 ) Net deferred tax asset $ 6,526,555 $ 2,215,772 |
15. BUSINESS SEGMENTS (Tables)
15. BUSINESS SEGMENTS (Tables) | 12 Months Ended |
Dec. 31, 2017 | |
Segment Reporting [Abstract] | |
Schedule of segment operating income | Year Ended December 31, 2017 (Restated) Bromine * Crude Salt * Chemical Products Natural Gas Segment Total Corporate Total Net revenue (external customers) $ 42,224,901 $ 8,986,080 $ 56,311,460 $ — $ 107,522,441 $ — $ 107,522,441 Net revenue (intersegment) 6,305,642 — — — 6,305,642 — 6,305,642 Income from operations before income taxes 12,460,230 2,426,137 (1,024,569 ) (116,465 ) 13,745,333 (2,573,722 ) 11,171,611 Income taxes 3,156,016 585,521 (131,397 ) — 3,610,140 — 3,610,140 Income from operations after income taxes 9,304,214 1,840,616 (893,172 ) (116,465 ) 10,135,193 (2,573,722 ) 7,561,471 Total assets 147,124,127 51,512,530 186,677,501 2,119,756 387,433,914 65,509 387,499,423 Depreciation and amortization 14,533,169 2,452,737 3,211,407 — 20,197,313 — 20,197,313 Capital expenditures 465,655 17,411,762 — 61,235 17,938,652 — 17,938,652 Goodwill — — 29,374,909 — 29,374,909 — 29,374,909 Year Ended December 31, 2016 Bromine * Crude Salt * Chemical Products Natural Gas Segment Total Corporate Total Net revenue (external customers) $ 56,811,730 $ 8,985,852 $ 83,477,420 $ — $ 149,275,002 $ — $ 149,275,002 Net revenue (intersegment) 8,484,617 — — — 8,484,617 — 8,484,617 Income from operations before income taxes 21,224,862 9,076 25,473,792 (4,906 ) 46,702,824 1,020,518 47,723,342 Income taxes 5,306,216 9,022 6,494,969 — 11,810,207 — 11,810,207 Income from operations after income taxes 15,918,646 54 18,978,823 (4,906 ) 34,892,617 1,020,518 35,913,135 Total assets 143,145,960 33,980,033 186,676,983 1,799,094 365,602,070 89,283 365,691,353 Depreciation and amortization 15,056,980 5,221,667 4,601,599 — 24,880,246 — 24,880,246 Capital expenditures 12,912,583 2,335,963 — 1,747,316 16,995,862 — 16,995,862 Goodwill — — 27,668,539 — 27,668,539 — 27,668,539 * 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 | Years ended December 31, Reconciliations 2017 2016 Total segment operating income $ 13,745,333 $ 46,702,824 Corporate costs (1,015,963 ) (682,210 ) Unrealized translation difference (1,557,759 ) 1,702,728 Income from operations 11,171,611 47,723,342 Other income 391,842 312,696 Income before income taxes $ 11,563,453 $ 48,036,038 |
Schedule of major customers | 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 $ 7,852 $ 2,952 $ 3,463 $ 14,267 13.3 % 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 $ 9,823 $ 2,678 $ 5,347 $ 17,848 12.0 % |
19. CAPITAL COMMITMENT AND OP_2
19. CAPITAL COMMITMENT AND OPERATING LEASE COMMITMENTS (Tables) | 12 Months Ended |
Dec. 31, 2017 | |
Commitments and Contingencies Disclosure [Abstract] | |
Schedule of contractual obligations | Capital Lease Obligations Operating Lease Obligations Property Management Fees Payable within: the next 12 months $ 287,256 $ 988,859 $ 95,476 the next 13 to 24 months 287,256 1,012,360 95,476 the next 25 to 36 months 287,256 1,033,929 95,476 the next 37 to 48 months 287,256 1,059,600 95,476 the next 49 to 60 months 287,256 911,781 95,476 thereafter 2,298,049 16,583,556 — Total $ 3,734,329 $ 21,590,085 $ 477,380 Less: Amount representing interest (1,227,128 ) Present value of net minimum lease payments $ 2,507,201 |
1. NATURE OF BUSINESS AND SUM_4
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details) | 12 Months Ended |
Dec. 31, 2017 | |
90-120 days | |
Percent collected | 49.00% |
121-150 days | |
Percent collected | 42.00% |
151-180 days | |
Percent collected | 52.00% |
181-210 days | |
Percent collected | 100.00% |
211-240 days | |
Percent collected | 100.00% |
1. NATURE OF BUSINESS AND SUM_5
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details 1) | 12 Months Ended |
Dec. 31, 2017 | |
Buildings [Member] | Minimum [Member] | |
Property, Plant and Equipment [Line Items] | |
Property, plant and equipment, useful life | 8 years |
Buildings [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 |
Motor 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. NATURE OF BUSINESS AND SUM_6
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details 2) - USD ($) | 12 Months Ended | |
Dec. 31, 2017 | Dec. 31, 2016 | |
Numerator | ||
Net income | $ 7,953,313 | $ 36,225,831 |
Denominator | ||
Basic: Weighted-average common shares outstanding during the year | 46,796,476 | 46,279,033 |
Add: Dilutive effect of stock options | 39,354 | 346,630 |
Diluted | 46,835,830 | 46,625,663 |
Net income per share | ||
Basic | $ 0.17 | $ 0.78 |
Diluted | $ 0.17 | $ 0.78 |
1. NATURE OF BUSINESS AND SUM_7
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details Narrative) - USD ($) | 12 Months Ended | ||
Dec. 31, 2017 | Dec. 31, 2016 | Dec. 31, 2015 | |
Accounting Policies [Abstract] | |||
Cash | $ 208,906,759 | $ 163,884,574 | $ 133,606,392 |
Concentrations of credit risk, percentage | 13.00% | 61.60% | |
Plant and machinery, net book value | $ 17,581,244 | $ 106,545 | |
Retirement benefit | 1,093,716 | 1,039,096 | |
Foreign exchange gain | 1,557,759 | 1,702,728 | |
Anti-dilutive common stock equivalents amount | $ 43,541 | $ 135,938 |
2. RESTATEMENT OF PREVIOUSLY _3
2. RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS (Details) - USD ($) | 12 Months Ended | |
Dec. 31, 2017 | Dec. 31, 2016 | |
INCOME TAXES | $ (3,610,140) | $ (11,810,207) |
NET INCOME | 7,953,313 | 36,225,831 |
COMPREHENSIVE INCOME | $ 32,110,798 | $ 11,295,023 |
EARNINGS PER SHARE | ||
BASIC | $ 0.17 | $ 0.78 |
DILUTED | $ 0.17 | $ 0.78 |
As Reported | ||
INCOME TAXES | $ (9,012,140) | |
NET INCOME | 2,551,313 | |
COMPREHENSIVE INCOME | $ 26,708,798 | |
EARNINGS PER SHARE | ||
BASIC | $ 0.05 | |
DILUTED | $ 0.05 | |
Correction | ||
INCOME TAXES | $ 5,402,000 | |
NET INCOME | 5,402,000 | |
COMPREHENSIVE INCOME | $ 5,402,000 | |
EARNINGS PER SHARE | ||
BASIC | $ 0.12 | |
DILUTED | $ 0.12 |
2. RESTATEMENT OF PREVIOUSLY _4
2. RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS (Details 1) - USD ($) | Dec. 31, 2017 | Dec. 31, 2016 | Dec. 31, 2015 |
Taxes payable-current | $ 1,041,592 | $ 4,341,331 | |
Total Current Liabilities | 3,233,232 | 13,945,196 | |
Taxes payable-non-current | 0 | ||
Total Non-Current Liabilities | 2,303,995 | 2,284,959 | |
Total Liabilities | 5,537,227 | 16,230,155 | |
Retained earnings unappropriated | 255,572,431 | 248,941,696 | |
Total Stockholders Equity | 381,962,196 | $ 349,461,198 | $ 338,110,875 |
As Reported | |||
Taxes payable-current | 1,474,592 | ||
Total Current Liabilities | 3,666,232 | ||
Taxes payable-non-current | 4,969,000 | ||
Total Non-Current Liabilities | 7,272,995 | ||
Total Liabilities | 10,939,227 | ||
Retained earnings unappropriated | 250,170,431 | ||
Total Stockholders Equity | 376,560,196 | ||
Correction | |||
Taxes payable-current | (433,000) | ||
Total Current Liabilities | (433,000) | ||
Taxes payable-non-current | (4,969,000) | ||
Total Non-Current Liabilities | (4,969,000) | ||
Total Liabilities | (5,402,000) | ||
Retained earnings unappropriated | 5,402,000 | ||
Total Stockholders Equity | $ 5,402,000 |
2. RESTATEMENT OF PREVIOUSLY _5
2. RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS (Details 2) - USD ($) | 12 Months Ended | |
Dec. 31, 2017 | Dec. 31, 2016 | |
CASH FLOWS FROM OPERATING ACTIVITIES | ||
Net income | $ 7,953,313 | $ 36,225,831 |
Taxes payable | (3,597,390) | $ (76,886) |
As Reported | ||
CASH FLOWS FROM OPERATING ACTIVITIES | ||
Net income | 2,551,313 | |
Taxes payable | 1,804,610 | |
Correction | ||
CASH FLOWS FROM OPERATING ACTIVITIES | ||
Net income | 5,402,000 | |
Taxes payable | $ (5,402,000) |
2. RESTATEMENT OF PREVIOUSLY _6
2. RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS (Details 3) - USD ($) | 12 Months Ended | ||
Dec. 31, 2017 | Dec. 31, 2016 | Dec. 31, 2015 | |
Net income | $ 7,953,313 | $ 36,225,831 | |
Balance | 381,962,196 | 349,461,198 | $ 338,110,875 |
As Reported | |||
Net income | 2,551,313 | ||
Balance | 376,560,196 | ||
Correction | |||
Net income | 5,402,000 | ||
Balance | 5,402,000 | ||
Retained Earnings Unappropriated | |||
Net income | 7,953,313 | 36,225,831 | |
Balance | 255,572,431 | $ 248,941,696 | $ 215,286,395 |
Retained Earnings Unappropriated | As Reported | |||
Net income | 2,551,313 | ||
Balance | 250,170,431 | ||
Retained Earnings Unappropriated | Correction | |||
Net income | 5,402,000 | ||
Balance | $ 5,402,000 |
3. INVENTORIES (Details)
3. INVENTORIES (Details) - USD ($) | Dec. 31, 2017 | Dec. 31, 2016 |
Inventory Disclosure [Abstract] | ||
Raw materials | $ 396,482 | $ 818,500 |
Finished goods | 844,224 | 4,370,331 |
Work-in-process | 0 | 692,850 |
Allowance for obsolete and slow-moving inventories | (43,921) | 0 |
Inventories | $ 1,196,785 | $ 5,881,681 |
4. PREPAID LAND LEASE (Details
4. PREPAID LAND LEASE (Details Narrative) | 12 Months Ended | |
Dec. 31, 2017USD ($)km² | Dec. 31, 2016USD ($)km² | |
Property Management Fees | ||
Amortization of prepaid land lease | $ 982,108 | $ 774,250 |
Area of land | km² | 55 | 54.97 |
Aggregate carrying value | $ 645,761 | $ 620,978 |
5. PROPERTY, PLANT AND EQUIPM_3
5. PROPERTY, PLANT AND EQUIPMENT, NET (Details) - USD ($) | Dec. 31, 2017 | Dec. 31, 2016 |
Property, Plant and Equipment [Abstract] | ||
Mineral rights | $ 4,711,822 | $ 4,438,115 |
Buildings | 67,748,512 | 61,656,398 |
Plant and machinery | 200,742,652 | 186,228,562 |
Motor vehicles | 8,792 | 8,282 |
Furniture, fixtures and office equipment | 4,150,588 | 4,553,473 |
Construction in progress | 183,036 | 374,790 |
Total | 277,545,402 | 257,259,620 |
Less: Accumulated depreciation and amortization | (163,597,407) | (146,844,072) |
Impairment | (18,833,491) | (1,684,422) |
Net book value | $ 95,114,504 | $ 108,731,126 |
5. PROPERTY, PLANT AND EQUIPM_4
5. PROPERTY, PLANT AND EQUIPMENT, NET (Details Narrative) - USD ($) | 12 Months Ended | |
Dec. 31, 2017 | Dec. 31, 2016 | |
Property, Plant and Equipment [Abstract] | ||
Property ownership carrying value | $ 27,432,351 | $ 35,184,613 |
Depreciation and amortization expense | 19,930,786 | 24,552,507 |
Cost of net revenue | 13,443,298 | 23,220,525 |
Cost of administrative expenses | 1,213,010 | 1,331,982 |
Ordinary repair and maintenance expenses | $ 130,482 | $ 463,156 |
6. PROPERTY, PLANT AND EQUIPM_3
6. PROPERTY, PLANT AND EQUIPMENT UNDER CAPITAL LEASES, NET (Details) - USD ($) | Dec. 31, 2017 | Dec. 31, 2016 |
Total | $ 2,440,135 | $ 2,348,398 |
Less: accumulated depreciation and amortization | (1,947,897) | (1,794,141) |
Net book value | 492,238 | 554,257 |
Buildings [Member] | ||
Total | 125,939 | 118,623 |
Plant and machinery | ||
Total | $ 2,314,196 | $ 2,229,775 |
6. PROPERTY, PLANT AND EQUIPM_4
6. PROPERTY, PLANT AND EQUIPMENT UNDER CAPITAL LEASES, NET (Details Narrative) - USD ($) | 12 Months Ended | |
Dec. 31, 2017 | Dec. 31, 2016 | |
Leases [Abstract] | ||
Depreciation and amortization cost of sales | $ 266,527 | $ 327,738 |
7. ACCOUNTS PAYABLE AND ACCRU_3
7. ACCOUNTS PAYABLE AND ACCRUED EXPENSE (Details) - USD ($) | Dec. 31, 2017 | Dec. 31, 2016 |
Accounts Payable And Accrued Expense | ||
Accounts payable | $ 0 | $ 7,513,075 |
Salary payable | 393,617 | 319,489 |
Social security insurance contribution payable | 135,203 | 119,444 |
Other payables | 503,263 | 730,310 |
Total | $ 1,032,083 | $ 8,682,318 |
8. DUE TO A RELATED PARTY AND_2
8. DUE TO A RELATED PARTY AND RELATED PARTY TRANSACTIONS (Details Narrative) - USD ($) | 12 Months Ended | |
Dec. 31, 2017 | Dec. 31, 2016 | |
Related Party Transactions [Abstract] | ||
General and administrative expense | $ 100,704 | $ 100,704 |
Proceeds from long term borrowing | $ 450,000 | $ 655,369 |
Equity interest of Mr. Ming Yang | 100.00% | 100.00% |
9. TAXES PAYABLE (Restated) (De
9. TAXES PAYABLE (Restated) (Details) - USD ($) | Dec. 31, 2017 | Dec. 31, 2016 |
Income Tax Disclosure [Abstract] | ||
Income tax payable | $ 0 | $ 1,849,535 |
Natural resource tax | 156,147 | 651,230 |
Value added tax payable | 0 | 887,913 |
Land use tax payable | 810,841 | 818,921 |
Other tax payables | 74,604 | 133,732 |
Total current taxes payable | $ 1,041,592 | $ 4,341,331 |
9. TAXES PAYABLE (Restated) (_2
9. TAXES PAYABLE (Restated) (Details 1) | 12 Months Ended |
Dec. 31, 2017USD ($) | |
One Time Mandatory Transition Tax | $ 5,402,000 |
Current | |
One Time Mandatory Transition Tax | 433,000 |
Current | 2018 | |
One Time Mandatory Transition Tax | 433,000 |
Noncurrent | |
One Time Mandatory Transition Tax | 4,969,000 |
Noncurrent | 2019 | |
One Time Mandatory Transition Tax | 433,000 |
Noncurrent | 2020 | |
One Time Mandatory Transition Tax | 433,000 |
Noncurrent | 2021 | |
One Time Mandatory Transition Tax | 433,000 |
Noncurrent | 2022 | |
One Time Mandatory Transition Tax | 433,000 |
Noncurrent | 2023 and after | |
One Time Mandatory Transition Tax | $ 3,237,000 |
10. CAPITAL LEASE OBLIGATIONS_2
10. CAPITAL LEASE OBLIGATIONS (Details) - USD ($) | Dec. 31, 2017 | Dec. 31, 2016 |
Capital Lease Obligations | ||
Imputed interest rate on capital lease obligations | 6.70% | 6.70% |
Total capital lease obligations | $ 2,507,201 | $ 2,472,637 |
Less: Current portion | (203,206) | (187,678) |
Capital lease obligations, net of current portion | $ 2,303,995 | $ 2,284,959 |
10. CAPITAL LEASE OBLIGATIONS_3
10. CAPITAL LEASE OBLIGATIONS (Details Narrative) - USD ($) | 12 Months Ended | |
Dec. 31, 2017 | Dec. 31, 2016 | |
Capital Lease Obligations Details Narrative Abstract | ||
Interest expense from capital lease obligations | $ 163,184 | $ 174,167 |
11. EQUITY (Details Narrative)
11. EQUITY (Details Narrative) - shares | 12 Months Ended | |
Dec. 31, 2017 | Dec. 31, 2016 | |
Equity | ||
COMMON STOCK, shares authorized | 80,000,000 | 80,000,000 |
Statutory Common Reserve Funds Description | SCHC<font style="font: 8pt Times New Roman, Times, Serif">, 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. </font></p>" id="sjs-B5"><p style="margin: 0">SCHC<font style="font: 8pt Times New Roman, Times, Serif">, 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.  </font></p> | |
Statutory Common Reserve Fund | The Statutory Common Reserve Fund for SCHC, SYCI and DCHC is 46%, 14% and 0% of its registered capital as of December 31, 2017. The Statutory Common Reserve Fund for SCHC, SYCI, SCRC and DCHC is 43%, 50%, 11% and 0% of its registered capital as of December 31, 2016.</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>" id="sjs-B6"><p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The Statutory Common Reserve Fund for SCHC, SYCI and DCHC is 46%, 14% and 0% of its registered capital as of December 31, 2017. The Statutory Common Reserve Fund for SCHC, SYCI, SCRC and DCHC is 43%, 50%, 11% and 0% of its registered capital as of December 31, 2016.</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p> |
13. STOCK-BASED COMPENSATION (D
13. STOCK-BASED COMPENSATION (Details) - $ / shares | 12 Months Ended | |
Dec. 31, 2017 | Dec. 31, 2016 | |
Share-based Compensation [Abstract] | ||
Number of Option and Warrants Outstanding, Beginning balance | 185,000 | 2,399,000 |
Number of Option and Warrants Outstanding, Granted | 661,000 | 80,000 |
Number of Option and Warrants exercised in period | 0 | (1,831,500) |
Number of Option and Warrants expired | (37,500) | (462,500) |
Number of Option and Warrants Outstanding, Ending Balance | 808,500 | 185,000 |
Weighted- Average Exercise price of Option and Warrants, outstanding beginning of period | $ 2.19 | $ 1.39 |
Weighted- Average Exercise price of Option and Warrants, granted in period | 1.47 | 1.87 |
Weighted- Average Exercise price of Option and Warrants, exercised in period | 0 | 1.11 |
Weighted- Average Exercise price of Option and Warrants, expired in period | 2.18 | 2.24 |
Weighted- Average Exercise price of Option and Warrants, outstanding end of period | $ 1.61 | $ 2.19 |
Range of Exercise Price per Common Share, Beginning Balance | $1.54 - $4.80 | 0.95 - $12.60 |
Range of Exercise Price per Common Share, Granted and Vested | $1.44 - $1.98 | $1.45 - $2.17 |
Range of Exercise Price per Common Share, Exercised | $ 0 | $ 1.11 |
Range of Exercise Price per Common Share, Expired | $1.83-$2.55 | $0.95 - $12.60 |
Range of Exercise Price per Common Share, Ending Balance | $1.44 - $4.80 | $1.54 - $4.80 |
13. STOCK-BASED COMPENSATION _2
13. STOCK-BASED COMPENSATION (Details 1) - $ / shares | 12 Months Ended | ||
Dec. 31, 2017 | Dec. 31, 2016 | Dec. 31, 2015 | |
Share-based Compensation [Abstract] | |||
Outstanding | 808,500 | 185,000 | 2,399,000 |
Range of Exercise Prices, Lower Limit | $ 1.44 | ||
Range of Exercise Prices, Upper Limit | $ 4.80 | ||
Weighted Average Remaining Contractual Life (Years) | 3 years 1 month 10 days | ||
Weighted Average Exercise Price of Options Currently Outstanding | $ 1.61 | $ 2.19 | $ 1.39 |
13. STOCK-BASED COMPENSATION _3
13. STOCK-BASED COMPENSATION (Details Narrative) - USD ($) | 12 Months Ended | |
Dec. 31, 2017 | Dec. 31, 2016 | |
Share-based Compensation [Abstract] | ||
Aggregate intrinsic value of options outstanding and exercisable | $ 10,571 | |
Intrinsic value of options exercised | $ 1,479,042 | |
Issued common stock upon cashless exercise, shares | 0 | 1,831,500 |
14. INCOME TAXES (Restated) (De
14. INCOME TAXES (Restated) (Details) - USD ($) | 12 Months Ended | |
Dec. 31, 2017 | Dec. 31, 2016 | |
Income Tax Disclosure [Abstract] | ||
Current taxes - PRC | $ 7,737,087 | $ 11,807,194 |
Deferred taxe - PRC | (4,126,947) | 3,013 |
Income taxes | $ 3,610,140 | $ 11,810,207 |
14. INCOME TAXES (Restated) (_2
14. INCOME TAXES (Restated) (Details 1) | 12 Months Ended | |
Dec. 31, 2017 | Dec. 31, 2016 | |
Income Tax Disclosure [Abstract] | ||
Statutory income tax rate | 25.00% | 25.00% |
Non-deductible items | 4.00% | (1.00%) |
Change in valuation allowance-US federal net operating loss | 2.00% | 1.00% |
Effective tax rate | 31.00% | 25.00% |
14. INCOME TAXES (Restated) (_3
14. INCOME TAXES (Restated) (Details 2) - USD ($) | Dec. 31, 2017 | Dec. 31, 2016 |
Deferred tax assets: | ||
Allowance for obsolete and slow-moving inventories | $ 10,980 | $ 0 |
Impairment on property, plant and equipment | 4,610,228 | 421,105 |
Exploration costs | 1,905,347 | 1,794,667 |
Compensation costs of unexercised stock options | 98,092 | 120,986 |
US federal net operating loss | 0 | 11,575,000 |
Total deferred tax assets | 6,624,647 | 13,911,758 |
Valuation allowance | (98,092) | (11,695,986) |
Net deferred tax asset | $ 6,526,555 | $ 2,215,772 |
14. INCOME TAXES (Restated) (_4
14. INCOME TAXES (Restated) (Details Narrative) - USD ($) | 12 Months Ended | |
Dec. 31, 2017 | Dec. 31, 2016 | |
Statutory tax rates | 25.00% | 25.00% |
Accumulated distributable earnings | $ 282,660,981 | $ 255,133,960 |
Unrecognized withholding tax | 14,133,049 | 12,756,698 |
US federal net operating loss | 15,300,000 | 33,100,000 |
Increases Decrease in valuation allowance | $ (11,597,894) | $ 231,824 |
HONG KONG [Member] | ||
Statutory tax rates | 16.50% | 16.50% |
15. BUSINESS SEGMENTS (Details)
15. BUSINESS SEGMENTS (Details) - USD ($) | 12 Months Ended | |
Dec. 31, 2017 | Dec. 31, 2016 | |
Segment Reporting Information [Line Items] | ||
Net revenue (external customers) | $ 107,522,441 | $ 149,275,002 |
Net revenue (intersegment) | 6,305,642 | 8,484,617 |
Income from operations before income taxes | 11,171,611 | 47,723,342 |
Income taxes | 3,610,140 | 11,810,207 |
Income from operations after income taxes | 7,561,471 | 35,913,135 |
Total assets | 387,499,423 | 365,691,353 |
Depreciation and amortization | 20,197,313 | 24,880,246 |
Capital expenditures | 17,938,652 | 16,995,862 |
Goodwill | 29,374,909 | 27,668,539 |
Bromine Segment [Member] | ||
Segment Reporting Information [Line Items] | ||
Net revenue (external customers) | 42,224,901 | 56,811,730 |
Net revenue (intersegment) | 6,305,642 | 8,484,617 |
Income from operations before income taxes | 12,460,230 | 21,224,862 |
Income taxes | 3,156,016 | 5,306,216 |
Income from operations after income taxes | 9,304,214 | 15,918,646 |
Total assets | 147,124,127 | 143,145,960 |
Depreciation and amortization | 14,533,169 | 15,056,980 |
Capital expenditures | 465,655 | 12,912,583 |
Goodwill | 0 | 0 |
Crude Salt Segment [Member] | ||
Segment Reporting Information [Line Items] | ||
Net revenue (external customers) | 8,986,080 | 8,985,852 |
Net revenue (intersegment) | 0 | 0 |
Income from operations before income taxes | 2,426,137 | 9,076 |
Income taxes | 585,521 | 9,022 |
Income from operations after income taxes | 1,840,616 | 54 |
Total assets | 51,512,530 | 33,980,033 |
Depreciation and amortization | 2,452,737 | 5,221,667 |
Capital expenditures | 17,411,762 | 2,335,963 |
Goodwill | 0 | 0 |
Chemical Products Segment [Member] | ||
Segment Reporting Information [Line Items] | ||
Net revenue (external customers) | 56,311,460 | 83,477,420 |
Net revenue (intersegment) | 0 | 0 |
Income from operations before income taxes | (1,024,569) | 25,473,792 |
Income taxes | (131,397) | 6,494,969 |
Income from operations after income taxes | (893,172) | 18,978,823 |
Total assets | 186,677,501 | 186,676,983 |
Depreciation and amortization | 3,211,407 | 4,601,599 |
Capital expenditures | 0 | 0 |
Goodwill | 29,374,909 | 27,668,539 |
Natural Gas [Member] | ||
Segment Reporting Information [Line Items] | ||
Net revenue (external customers) | 0 | 0 |
Net revenue (intersegment) | 0 | 0 |
Income from operations before income taxes | (116,465) | (4,906) |
Income taxes | 0 | 0 |
Income from operations after income taxes | (116,465) | (4,906) |
Total assets | 2,119,756 | 1,799,094 |
Depreciation and amortization | 0 | 0 |
Capital expenditures | 61,235 | 1,747,316 |
Goodwill | 0 | 0 |
Segment Total [Member] | ||
Segment Reporting Information [Line Items] | ||
Net revenue (external customers) | 107,522,441 | 149,275,002 |
Net revenue (intersegment) | 6,305,642 | 8,484,617 |
Income from operations before income taxes | 13,745,333 | 46,702,824 |
Income taxes | 3,610,140 | 11,810,207 |
Income from operations after income taxes | 10,135,193 | 34,892,617 |
Total assets | 387,433,914 | 365,602,070 |
Depreciation and amortization | 20,197,313 | 24,880,246 |
Capital expenditures | 17,938,652 | 16,995,862 |
Goodwill | 29,374,909 | 27,668,539 |
Corporate [Member] | ||
Segment Reporting Information [Line Items] | ||
Net revenue (external customers) | 0 | 0 |
Net revenue (intersegment) | 0 | 0 |
Income from operations before income taxes | (2,573,722) | 1,020,518 |
Income taxes | 0 | 0 |
Income from operations after income taxes | (2,573,722) | 1,020,518 |
Total assets | 65,509 | 89,283 |
Depreciation and amortization | 0 | 0 |
Capital expenditures | 0 | 0 |
Goodwill | $ 0 | $ 0 |
15. BUSINESS SEGMENTS (Details
15. BUSINESS SEGMENTS (Details 1) - USD ($) | 12 Months Ended | |
Dec. 31, 2017 | Dec. 31, 2016 | |
Business Segments | ||
Total segment operating income | $ 13,745,333 | $ 46,702,824 |
Corporate costs | (1,015,963) | (682,210) |
Unrealized translation difference | (1,557,759) | 1,702,728 |
Income from operations | 11,171,611 | 47,723,342 |
Other income | 391,842 | 312,696 |
Income before income taxes | $ 11,563,453 | $ 48,036,038 |
15. BUSINESS SEGMENTS (Detail_2
15. BUSINESS SEGMENTS (Details 2) - Shandong Maroi Chemical Company Limited [Member] - USD ($) | 12 Months Ended | |
Dec. 31, 2017 | Dec. 31, 2016 | |
Revenue, Major Customer [Line Items] | ||
Revenue from major customer | $ 14,267 | $ 17,848 |
Percentage of Total Revenue (%) | 13.30% | 12.00% |
Bromine Segment [Member] | ||
Revenue, Major Customer [Line Items] | ||
Revenue from major customer | $ 7,852 | $ 9,823 |
Crude Salt Segment [Member] | ||
Revenue, Major Customer [Line Items] | ||
Revenue from major customer | 2,952 | 2,678 |
Chemical Products Segment [Member] | ||
Revenue, Major Customer [Line Items] | ||
Revenue from major customer | $ 3,463 | $ 5,347 |
16. CUSTOMER CONCENTRATION (Det
16. CUSTOMER CONCENTRATION (Details Narrative) - USD ($) | 12 Months Ended | |
Dec. 31, 2017 | Dec. 31, 2016 | |
Amounts due from major customers | $ 22,804,914 | $ 25,111,129 |
Top 5 customers | ||
Percent products sold to top five customers | 36.70% | 30.90% |
17. MAJOR SUPPLIERS (Details Na
17. MAJOR SUPPLIERS (Details Narrative) - USD ($) | 12 Months Ended | |
Dec. 31, 2017 | Dec. 31, 2016 | |
Next13To24Months | ||
Top five suppliers percentage raw materials supplied | 68.20% | 54.40% |
Amount due top five suppliers | $ 0 | $ 3,598,861 |
19. CAPITAL COMMITMENT AND OP_3
19. CAPITAL COMMITMENT AND OPERATING LEASE COMMITMENTS (Details) | Dec. 31, 2017USD ($) |
Capital Lease Obligations Payable within: | |
the next 12 months | $ 287,256 |
the next 13 to 24 months | 287,256 |
the next 25 to 36 months | 287,256 |
the next 37 to 48 months | 287,256 |
the next 49 to 60 months | 287,256 |
thereafter | 2,298,049 |
Total | 3,734,329 |
Less: Amount representing interest | (1,227,128) |
Present value of net minimum lease payments | 2,507,201 |
Operating Lease Obligations | |
the next 12 months | 988,859 |
the next 13 to 24 months | 1,012,360 |
the next 25 to 36 months | 1,033,929 |
the next 37 to 48 months | 1,059,600 |
the next 49 to 60 months | 911,781 |
thereafter | 16,583,556 |
Total | 21,590,085 |
Property Management Fees | |
the next 12 months | 95,476 |
the next 13 to 24 months | 95,476 |
the next 25 to 36 months | 95,476 |
the next 37 to 48 months | 95,476 |
the next 49 to 60 months | 95,476 |
thereafter | 0 |
Total | $ 477,380 |
19. CAPITAL COMMITMENT AND OP_4
19. CAPITAL COMMITMENT AND OPERATING LEASE COMMITMENTS (Details Narrative) - USD ($) | 12 Months Ended | |
Dec. 31, 2017 | Dec. 31, 2016 | |
Capital Commitment And Operating Lease Commitments Details Narrative Abstract | ||
Rental expenses related to operating leases | $ 1,044,611 | $ 1,043,615 |