XML 19 R8.htm IDEA: XBRL DOCUMENT v3.5.0.2
2. BUSINESS ACQUISITION
 9 Months Ended
Sep. 30, 2016
Business Combinations [Abstract]  
2. BUSINESS ACQUISITION

In order to increase the Company’s profit margins, produce more consistent and reliable earnings and lessen dependence on the economically sensitive bromine industry, on January 12, 2015, Gulf Resources, Inc. (the“Company” or “Gulf”) and Shouguang City Haoyuan Chemical Company Limited, a wholly owned subsidiary of the Company (“SCHC”), entered into an Equity Interest Transfer Agreement (the “Agreement”) to acquire 100% of Shouguang City Rongyuan Chemical Co., Ltd. (“SCRC”) for a total consideration of $79,678,746 to be settled in cash and in shares of common stock of the Company.

 

On February 4, 2015, the Company closed the transactions contemplated by the Agreement between the Company, SCHC and SCRC. The Closing Date is deemed to be the acquisition date.

 

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 sellers of SCRC agreed as part of the purchase price to accept 7,268,011 restricted 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 being valued at $1.84, which was the closing price of the Company’s stock on the Closing Date. There is no change in the number of shares issued. The total purchase consideration consisted of $66,305,606 in cash and $13,169,506 in the shares of the common stock of the Company.

 

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 following table represents the fair value of identifiable assets and liabilities of SCRC acquired and goodwill recognized at acquisition date.

 

Cash $ 14,074,720  
Accounts receivable   19,365,259  
Inventories   1,646,196  
Other current assets   82,562  
Property, plant and equipment, net   17,891,360  
Prepaid land leases, net of current portion   4,800,404  
Goodwill   28,743,418  
Accounts payable and accrued expenses   (8,670,568 )
Taxes payable   (963,458 )
Cumulative translation adjustment   2,708,853  
Total purchase price $ 79,678,746  

 

The net revenue and net income of SCRC since the acquisition date that are included in the consolidated statement of income for the fiscal year 2015 were $51,274,989 and $12,667,379. Goodwill is not expected to be deductible for tax purpose.

 

Costs of $121,512 related to the acquisition, which included audit fee and valuation fees, have been charged directly to operations and are included in general and administrative expenses in the consolidated statement of income for the fiscal year 2015.

 

The following table shows supplemental information of the actual results of operations for the nine months ended September 30, 2016 and on a pro forma basis for the nine months ended September 30, 2015, as if the acquisition of SCRC had been completed at the beginning of the Company’s interim periods presented:

 

  For the nine months ended
    September 30, 2016   September 30, 2015
    Actual   Pro forma
Net Revenue $ 120,907,839 $ 132,576,760
Net Income $ 30,179,696 $ 28,239,987
EARNINGS PER SHARE        
-Basic $ 0.65 $ 0.61
-Diluted $ 0.65 $ 0.60

 

The pro forma information presented has been calculated after adjusting for results of SCRC to reflect the business combination accounting effect resulting from this acquisition including the elimination of intercompany sales, depreciation and amortization on the increase in valuation of property, plant and equipment and prepaid land lease. There are no nonrecurring items included in the pro forma results of operations presented.