10-K 1 e620446_10k-gulf.htm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

(Mark One)

☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2020

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________________ to ________________

Commission file number 001-34499

Gulf Resources, Inc.
(Exact name of registrant as specified in its charter)

Nevada		13-3637458
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

Level 11,Vegetable Building, Industrial Park of the East Shouguang City, Shandong, China		262700
(Address of principal executive offices)		(Zip Code)

+86 (536) 567-0008
Registrant’s telephone number, including area code

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol (s)	Name of each exchange on which registered
Common Stock, $0.0005 par value	GURE	NASDAQ Global Select Market

Securities registered pursuant to section 12(g) of the Act:

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐	Accelerated filer ☐
Non-accelerated filer ☒	Smaller reporting company ☒

Emerging Growth Company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒

As of June 30, 2020, the aggregate market value of the common stock of the registrant held by non-affiliates (excluding shares held by directors, officers and others holding more than 5% of the outstanding shares of the class) was approximately $29 million based upon a closing sale price of $5.35.

APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15 of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.

Yes ☐ No ☐

(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
As of March 31, 2021, the registrant had outstanding 9,997,477 shares of common stock.

Table of Contents

PART I		1
Item 1.	Business.	1
Item 1A.	Risk Factors.	11
Item 1B.	Unresolved Staff Comments.	11
Item 2.	Properties.	11
Item 3.	Legal Proceedings.	18
Item 4.	Mine Safety Disclosures.	18

PART II		19
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.	19
Item 6.	Selected Financial Data.	19
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	20
Item 7A.	Quantitative and Qualitative Disclosures about Market Risk.	30
Item 8.	Financial Statements and Supplementary Data	30
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.	31
Item 9A.	Controls and Procedures.	31
Item 9B.	Other Information.	32

PART III		32
Item 10.	Directors, Executive Officers and Corporate Governance	32
Item 11.	Executive Compensation	37
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	40
Item 13.	Certain Relationships and Related Transactions, Director Independence	41
Item 14.	Principal Accounting Fees and Services	41

PART IV		42
Item 15.	Exhibits and Financial Statement Schedules.	42
Item 16.	Form 10-K Summary.	43
SIGNATURES		44

	1.	natural brine is pumped from underground through extraction wells by subaqueous pumps;

	2.	the natural brine then passes through transmission pipelines to storage reservoirs;

	3.	the natural brine is sent to the bromine refining plant where bromine is extracted from the natural brine. In neutral or acidic water, the bromine ion is easily oxidized by adding the oxidative of chlorine, which generates the single bromine away from the brine. Thereafter the extracted single bromine is blown out by forced air, then absorbed by sulfur dioxide or soda by adding acid, chlorine and sulfur. Extracted bromine is stored in containers of different sizes; and

	4.	the wastewater from this refining process is then transported by pipeline to brine pans.

Property	Factory No. 1 – Haoyuan General Factory
Area	6,442 acres
Date of Acquisition	February 5, 2007
Land Use Rights Lease Term	Fifty Years
Land Use Rights Expiration Date	2054 (for mining areas only)
The number of remaining years to expiration of the of the land lease as of December 31, 2020	33.25 Years
Prior fees paid for land use rights	RMB8.6 million
Annual Rent	RMB186,633
Mining Permit No.:	C3707002009056220022340
Date of Permission:	July 2018, subject to renewal per three years
Period of Permission:	Three year

Property	Factory No. 4 (originally named as Subdivision of Factory No. 1) – State-owned Shouguang Qinshuibo Farm
Area	0.79 acres
Date of Factory lease	January 1, 2011
Factory Lease Term	Twenty Years
Factory lease Expiration Date	2030
The number of remaining years to expiration of the of the factory lease as of December 31, 2020	10.0 Years
Prior Fees Paid for Land Use Rights	Not applicable
Annual Rent	RMB5,000,000
Mining Permit No.:	Under application

Property	Factory No. 2 – Yuwenbo
Area	1,846 acres
Date of Acquisition	April 7, 2007
Land Use Rights Lease Term	Fifty Years
Land Use Rights Expiration Date	2052
The number of remaining years to expiration of the of the land lease as of December 31, 2020	32 Years
Prior Fees Paid For Land Use Rights	RMB7.5 million
Annual Rent	RMB162,560
Mining Permit No.:	C3707002009056220022340
Date of Permission:	July 2018, subject to renewal per three years
Period of Permission:	Three year

Property	Factory No. 2 – State Operated Shouguang Qingshuibo Farm
Area	568 acres
Date of Acquisition	December 30, 2010
Land Use Rights Lease Term	Thirty Years
Land Use Rights Expiration Date	2040
The number of remaining years to expiration of the of the land lease as of December 31, 2020	20.7 Years
Prior Fees Paid for Land Use Rights	Not applicable
Annual Rent	RMB172,500 (increase 5% per year)
Mining Permit No.:	Under application

Property	Factory No. 7 (originally named as No. 5)– Wangjiancai
Area	2,165 acres
Date of Acquisition	October 25, 2007
Land Use Rights Lease Term	Fifty Years
Land Use Rights Expiration Date	2054
The number of remaining years to expiration of the of the land lease as of December 31, 2020	34 Years
Annual Rent	RMB176,441
Prior Fees Paid for Land Use Rights	RMB8.3 million
Mining Permit No.:	Under application, written consent obtained from local land and resources departments

Property	Factory No. 7 – Qiufen Yuan
Area	1,611 acres
Date of Acquisition	January 7, 2009
Land Use Rights Lease Term	Fifty Years
Land Use Rights Expiration Date	2059
The number of remaining years to expiration of the of the land lease as of December 31, 2020	38.17 Years
Prior Fees Paid for Land Use Rights	Not applicable
Annual Rent	RMB171,150 (increase 5% per two years)
Mining Permit No.:	C3707002009056220022340
Date of Permission:	July 2018, subject to renewal per three years
Period of Permission:	Three year

Property	Factory No. 8 – Fengxia Yuan
Area	2,723 acres
Date of Acquisition	September 7, 2009
Land Use Rights Lease Term	Fifty Years
Land Use Rights Expiration Date	2059
The number of remaining years to expiration of the of the land lease as of December 31, 2020	38.66 Years
Prior Fees Paid for Land Use Rights	Not applicable
Annual Rent	RMB347,130 (increase 5% per two years)
Mining Permit No.:	Under application, written consent obtained from local land and resources departments

Property	Factory No. 9 – Jinjin Li
Area	759 acres
Date of Acquisition	June 7, 2010
Land Use Rights Lease Term	Fifty Years
Land Use Rights Expiration Date	2060
The number of remaining years to expiration of the of the land lease as of December 31, 2020	39.5 Years
Prior Fees Paid for Land Use Rights	Not applicable
Annual Rent	RMB184,200 (increase 5% per two years)
Mining Permit No.:	Under application, written consent obtained from local land and resources departments

Property	Factory No. 10 – Liangcai Zhang
Area	1,700 acres
Date of Acquisition	December 22, 2011
Land Use Rights Lease Term	Ten Years
Land Use Rights Expiration Date	2021
The number of remaining years to expiration of the of the land lease as of December 31, 2020	1.0 Years
Prior Fees Paid for Land Use Rights	Not applicable
Annual Rent	RMB688,000 (increase 5% per year)
Mining Permit No.:	Under application

	2020						2019
Bromine Facility	Produced (in tons)		Sold (in tons)		Selling price (RMB/ton)		Produced (in tons)		Sold (in tons)		Selling price (RMB/ton)
Factory No. 1		1,707		1,802		28,821		1,227		1,113		29,752
Factory No. 2		—		—		—		—		—		—
Factory No. 3**		—		—		—		—		—		—
Factory No. 4**		—		—		—		—		—		—
Factory No. 7* (originally named as No. 5 and No. 7) *		1,768		1,799		28,820		1,255		1,207		29,740

Factory No. 8		—		—		—		—		—		—
Factory No. 9		1,231		1,212		28,668		—		—		—
Factory No. 4( originally know Subdivision of Factory No. 1)		1,154		1,144		28,920		—		—		—
Factory No. 10		—		—		—		—		—		—
Factory No. 11**		—		—		—		—		—		—
Total		5,860		5,957				2,482		2,320

*	Bromine production for Factory No. 5 and Factory No. 7 were combined in early 2010 as both factories are located adjacent to each other., and renamed Factory No. 5 (which was previously considered part of Factory No. 7) as Factory No. 7 on May 2019.

**	Factory No. 3, 4 and 11 were demolished in September 2018.

	2020						2019
Crude Salt Facility	Produced (in tons)		Sold (in tons)		Selling price (RMB/ton)		Produced (in tons)		Sold (in tons)		Selling price (RMB/ton)
Factory No. 1		6,160		5,632		118		8,431		7,419		143
Factory No. 2		—		—		—		—		1,859		170
Factory No. 7* (Originally Named as No. 5 and No. 7) *		116,083		112,938		120		13,131		15,163		147

Factory No. 8		—		—		—		—		—		—
Factory No. 9		56,822		56,152		118		—		—		—
Total		179,065		174,722				21,562		24,441

*	Bromine production for Factory No. 5 and Factory No. 7 were combined in early 2010 as both factories are located adjacent to each other, and renamed Factory No. 5 (which was previously considered part of Factory No. 7) as Factory No. 7 on May 2019

Bromine Property	Facility Acquisition Date		Acres		Annual Production Capacity ^# (in tons)		2020 Utilization Ratio			2019 Utilization Ratio
Factory No. 1		—		6,442		6,681		31	%	28%
Factory No. 2		April 7, 2007		1,846		4,844		—		—


Factory No. 7* (originally named as No. 5 and No. 7)		October 25, 2007/ January 7, 2009		3,776		6,986		30	%	27%

Factory No. 8		September 7, 2009		2,723		4,016		—		—
Factory No. 9		June 7, 2010		759		2,793		66	%	—
Factory No.4 (originally named as Subdivision of Factory No. 1)		January 1, 2011		1		3,186		54	%	—
Factory No. 10		December 22, 2011		1,700		3,000		—		—

Plan category	Number of securities to be issued upon exercise of outstanding options, warrants and rights	Weighted-average exercise price of outstanding options, warrants and rights	Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
	(a)	(b)	(c)
Equity compensation plans approved by security holders	121,600	$7.09	515,648
Equity compensation plans not approved by security holders	—	—	—
Total	121,600	$7.09	515,648

	Years ended
	December 31, 2020			December 31, 2019			Percent Change Increase/ (Decrease)
Net Revenue	$	28,207,024		$	10,596,521			166	%
Cost of Net Revenue	$	(19,415,034	)	$	(5,430,269	)		258	%
Gross Profit	$	8,791,990		$	5,166,252			70	%
Sales, Marketing and Other Operating Expense	$	(42,663	)	$	(12,434	)		243	%
Direct labor and factory overheads incurred during plant shutdown	$	(8,170,390	)	$	(15,175,280	)		(46	%)
General and Administrative Expenses	$	(10,239,943	)	$	(13,272,921	)		(23	%)
Other Operating Expense	$	(22,386	)	$	—			—
Loss from Operations	$	(9,683,392	)	$	(23,294,383	)		(58	%)
Other Income, Net	$	154,877		$	301,325			(49	%)
Loss before Taxes	$	(9,528,515	)	$	(22,993,058	)		(59	%)
Income Tax Benefit (Expense)	$	1,108,471		$	(2,806,987	)		139	%
Net loss	$	(8,420,044	)	$	(25,800,045	)		(67	%)

	Net Revenue by Segment
	Year Ended					Year Ended					Percent Increase (Decrease)
	December 31, 2020					December 31, 2019					of Net Revenue
Segment			% of total					% of total
Bromine	$	25,184,808		89	%	$	10,022,027		95	%		151	%
Crude Salt		3,022,216		11	%		522,758		4	%		478	%
Chemical Products		—		—			—		—			—
Natural Gas		—		—			51,736		1	%		(100	%)
Total sales	$	28,207,024		100	%	$	10,596,521		100	%		166	%

	Years Ended December 31				Percent Change
Bromine and crude salt segments product sold in tonnes	2020		2019		Increase
Bromine (excluded volume sold to SYCI)		5,957		2,320		157	%
Crude Salt		174,722		24,441		615	%

	Cost of Net Revenue by Segment										% Change
	Year Ended					Year Ended					of Cost of
	December 31, 2020					December 31, 2019					Net Revenue
Segment			% of total					% of total
Bromine	$	15,950,812		82	%	$	4,815,890		89	%		231	%
Crude Salt		3,464,222		18	%		564,091		10	%		514	%
Chemical Products		—		—			—		—			—
Natural Gas		—		—			50,288		1	%		(100	%)
Total	$	19,415,034		100	%	$	5,430,269		100	%		257	%

	Annual Production Capacity (in tonnes)		Utilization Ratio (i)
Fiscal year 2019		31,506		19	%
Fiscal year 2020		31,506		25	%
Variance of the fiscal year 2020 and 2019		0		6	%

	Gross Profit (Loss) by Segment												% Point Change
	Year Ended						Year Ended						of Gross
	December 31, 2020						December 31, 2019						Profit Margin
Segment				Gross Profit (loss) Margin						Gross Profit (loss) Margin
Bromine	$	9,233,996			37	%	$	5,206,136			52	%		(15	%)
Crude Salt		(442,006	)		(15	%)		(41,332	)		(8	%)		(7	%)
Chemical Products		—			—			—			—			—
Natural Gas		—			—			1,448			3	%		(3	%)
Total Gross Profit	$	8,791,990			31	%	$	5,166,252			49	%		(18	%)

	Income (loss) from Operations by Segment
	Year ended December 31, 2020						Year ended December 31, 2019
Segment:				% of total						% of total
Bromine	$	1,616,542			(33	%)	$	(15,609,979	)		68	%
Crude Salt	$	(3,589,494	)		73	%	$	(4,446,900	)		19	%
Chemical Products	$	(2,745,297	)		56	%	$	(2,823,298	)		12	%
Natural Gas	$	(204,514	)		4	%	$	(188,949	)		1	%
Loss from operations before corporate costs	$	(4,922,763	)		100	%	$	(23,069,126	)		100	%
Corporate costs	$	(2,928,603	)				$	(646,914	)
Unrealized gain (loss) on translation of intercompany balance	$	(1,832,026	)				$	421,657
Loss from operations	$	(9,683,392	)				$	(23,294,383	)

Statement of Cash Flows
	Years Ended December 31
	2020			2019
Net cash (used in) provided by operating activities	$	9,305,627		$	(15,309,112	)
Net cash used in investing activities	$	(21,719,369	)	$	(60,611,949	)
Net cash used in financing activities	$	(264,976	)	$	(275,509	)
Effects of exchange rate changes on cash and cash equivalents	$	6,599,270		$	(2,500,379	)
Net decrease in cash and cash equipment	$	(6,079,448	)	$	(78,696,949	)

	PAGE

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM	F-2

CONSOLIDATED BALANCE SHEETS	F-3

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)	F-4

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY	F-5

CONSOLIDATED STATEMENTS OF CASH FLOWS	F6 – F-7

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS	F-8 – F-29

FINANCIAL STATEMENT SCHEDULE:

SCHEDULE I – PARENT ONLY FINANCIAL INFORMATION	S-1 – S-2

GULF RESOURCES, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Expressed in U.S. dollars)

	December 31, 2020			December 31, 2019
Current Assets
Cash	$	94,222,538		$	100,301,986
Accounts receivable		6,521,798			4,877,106
Inventories, net		419,609			690,087
Prepayments and deposits		6,146,461			1,332,970
Prepaid land leases		—			—
Other receivables		559			559
Total Current Assets		107,310,965			107,202,708
Non-Current Assets
Property, plant and equipment, net		148,947,689			137,994,949
Finance lease right-of use assets		186,272			179,526
Operating lease right-of –use assets		8,868,661			8,817,884
Prepaid land leases, net of current portion		10,134,004			9,115,276
Deferred tax assets		18,590,227			15,940,642
Total non-current assets		186,726,853			172,048,277
Total Assets	$	294,037,818		$	279,250,985
Commitment and Contingencies
Liabilities and Stockholders’ Equity
Current Liabilities
Payable and accrued expenses	$	5,081,701		$	1,106,048
Retention payable		-			3,805,483
Taxes payable-current		1,326,179			779,623
Finance lease liability, current portion		217,070			198,506
Operating lease liabilities, current portion		477,350			416,604
Total Current Liabilities		7,102,300			6,306,264
Non-Current Liabilities
Finance lease liability, net of current portion		1,888,903			1,905,772
Operating lease liabilities, net of current portion		8,022,342			7,931,849
Total Non-Current Liabilities		9,911,245			9,837,621
Total Liabilities		17,013,545			16,143,885

Commitment and Contingencies		—			—

Stockholders’ Equity
PREFERRED STOCK; $0.001 par value; 1,000,000 shares authorized; none outstanding
COMMON STOCK; $0.0005 par value; 80,000,000 shares authorized; 10,043,307and 9,563,257 shares issued; and 9,997,477 and 9,517,427 shares outstanding as of December 31, 2020 and December 31, 2019		24,139			23,904
Treasury stock; 45,830 and 45,830 shares as of December 31, 2020 and December 31, 2019 at cost		(510,329	)		(510,329	)
Additional paid-in capital		97,435,316			95,043,388
Retained earnings unappropriated		151,388,356			159,808,400
Retained earnings appropriated		24,233,544			24,233,544
Accumulated other comprehensive income (loss)		4,453,247			(15,491,807	)
Total Stockholders’ Equity		277,024,273			263,107,100
Total Liabilities and Stockholders’ Equity	$	294,037,818		$	279,250,985

	Years Ended December 31,
	2020			2019

NET REVENUE	$	28,207,024		$	10,596,521

OPERATING EXPENSE
Cost of net revenue		(19,415,034	)		(5,430,269	)
Sales, marketing and other operating expenses		(42,663	)		(12,434	)
Direct labor and factory overheads incurred during plant shutdown		(8,170,390	)		(15,175,280	)
General and administrative expenses		(10,239,943	)		(13,272,921	)
Other operating expense		(22,386	)		—

		(37,890,416	)		(33,890,904	)

LOSS FROM OPERATIONS		(9,683,392	)		(23,294,383	)

OTHER INCOME (EXPENSE)
Interest expense		(136,430	)		(145,445	)
Interest income		291,307			446,770
LOSS BEFORE INCOME TAXES		(9,528,515	)		(22,993,058	)

INCOME TAX (EXPENSE) BENEFIT		1,108,471			(2,806,987	)
NET LOSS	$	(8,420,044	)	$	(25,800,045	)

COMPREHENSIVE INCOME (LOSS):
NET LOSS	$	(8,420,044	)	$	(25,800,045	)
OTHER COMPREHENSIVE INCOME (LOSS)
- Foreign currency translation adjustments		19,945,054			(5,013,759	)
COMPREHENSIVE INCOME (LOSS)	$	11,525,010		$	(30,813,804	)

BASIC AND DILUTED LOSS PER SHARE	$	(0.87	)	$	(2.73	)

BASIC AND DILUTED WEIGHTED AVERAGE NUMBER OF SHARES:		9,650,619			9,465,432

SEC Form 10-K filed by Gulf Resources, Inc.