NEW YORK & SHANDONG PROVINCE, China, Aug. 16 /PRNewswire-Asia-FirstCall/ -- Gulf Resources, Inc. (Nasdaq: GFRE) ("Gulf Resources" or the "Company"), a leading manufacturer of bromine, crude salt and specialty chemical products in China, today announced its financial results for the second quarter ended June 30, 2010.



    Second Quarter 2010 Highlights
    -- Revenue was $46.8 million for the three months ended June 30, 2010, a
       year-over-year increase of 58.0%
    -- Gross profit was $23.1 million for the three months ended June 30, 2010,
       a year-over-year increase of 75.4%
    -- Gross margin increased to 49.3% from 44.4% for the three months ended
       June 30, 2010
    -- Income from operations was $21.9 million for the three months ended
       June 30, 2010, a year-over-year increase of 82.0%
    -- Operating margin was 46.8%, compared to 40.6% for the three months
       ended June 30, 2010
    -- Net income was $16.4 million, or $0.47 per basic and diluted share for
       the three months ended June 30, 2010, an increase of 83.1% from
       $9.0 million, or $0.29 per basic and diluted share, a year ago
    -- Cash totaled $55.2 million as of June 30, 2010
    -- Acquired bromine and crude salt production assets, bringing total
       annual bromine production capacity to 46,300 tonnes and annual crude
       salt production capacity to 550,000 tonnes
    -- Completed production line for wastewater treatment chemical additives
       and began trial production

Second Quarter 2010 Results

"We are pleased to report another strong quarter with solid double-digit growth in both the top and bottom line. Our strong financial performance in the second quarter was mainly due to the positive pricing environment for bromine. For the three months ended June 30, 2010, our average selling price for bromine was $2,801 per tonne, an increase of 67.8% from the corresponding quarter last year," said Xiaobin Liu, the Chief Executive Officer of Gulf Resources. "During the quarter, we continued making progress with our growth strategy by closing our eighth acquisition of bromine and crude salt production assets. We also achieved a milestone in the integration of our two business subsidiaries through the commercialization of bromine-based chemical products as we began trial production of wastewater treatment chemical additives earlier than originally planned."

Gulf Resources' revenue was $46.8 million for the three months ended June 30, 2010, an increase of 58.0% from $29.6 million for the second quarter of 2009. The increase in net revenue was primarily attributable to growth in the Company's bromine segment as a result of the increased sales price of bromine, which was driven by the strong demand for brominated flame retardants, fumigants, water purification compounds, dyes, medicines, and disinfectants in China. Revenue from the bromine and crude salt product segment was $35.0 million, or 74.8% of total revenue for the three months ended June 30, 2010, an increase of 70.4% from $20.5 million last year.

Revenue from the chemical products segment was $11.8 million, or 25.2% of total revenue, for the three months ended June 30, 2010, an increase of 29.9% from $9.1 million in the corresponding period last year. The increase in revenue from the Company's chemical product segment was mainly due to the strong demand for environmentally friendly oil and gas exploration chemicals and agricultural intermediaries, which the Company upgraded at the end of last year.

Gross profit for the three months ended June 30, 2010 totaled $23.1 million, compared to $13.1 million for the second quarter of 2009 and gross profit margin for the three months ended June 30, 2010 was 49.3%, compared to 44.4% for the corresponding three-month period last year. The improved gross profit margin was mainly due to the higher sales prices of bromine and crude salt, which increased faster than the cost of net revenue in the segment.

Selling, general and administrative expenses for the three months ended June 30, 2010 were $0.8 million, compared with $1.0 million for the second quarter of 2009. The decrease was primarily due to a reclassification of certain compensation expenses. Research and development expenses were $0.4 million, up from $0.1 million a year ago due to activities related to the new production line for wastewater treatment chemical additives.

Income from operations for the three months ended June 30, 2010 was $21.9 million, an increase of 82.0% compared with $12.0 million for the corresponding quarter of 2009. Operating margin was 46.8% for the three months ended June 30, 2010, compared with 40.6% for the second quarter of 2009.

For the three months ended June 30, 2010, the Company incurred other income of $59,772 million compared with other income of $23,729 for the corresponding quarter last year.

Income taxes were $5.5 million for the three months ended June 30, 2010, an increase of 79.2% from $3.1 million for the second quarter of 2009. The Company's effective income tax rate was 25.1% compared to 25.5% in the year ago period.

Net income was $16.4 million for the three months ended June 30, 2010, an increase of 83.1% from $9.0 million for the second quarter of 2009. Basic and diluted earnings per share for the second quarter of 2010 were $0.47 compared to $0.29 per basic and diluted share for the second quarter of 2009.

Weighted average number of diluted shares for the three months ended June 30, 2010 was 34,738,667 compared with 30,542,211 for the three months ended June 30, 2009.

Results for Six Months

Revenues for the six months ended June 30, 2010 were $76.4 million, up 43.6% from revenues of $53.2 million for the six months ended June 30, 2009. Gross profit for the six months ended June 30, 2010 was $36.5 million, up 57.2% from gross profit of $23.2 million for the corresponding period of 2009. Gross margin was 47.8%, compared to 43.7% for the first six months of 2009. Operating income was $32.9 million, up 57.6% from $20.9 million for the first six months of 2009. Net income was $24.4 million, or $0.71 and $0.70 per basic and diluted share, respectively, compared to $15.5 million, or $0.52 per basic and diluted share, for the same period a year ago.

Financial Condition

As of June 30, 2010, Gulf Resources had cash of $55.2 million, current liabilities of $20.9 million, and shareholders' equity $161.3 million. At quarter end, the Company had working capital of $61.1 million and a current ratio of 3.9:1. For the six months ended June 30, 2010, the Company generated $27.9 million in cash flow from operations, primarily attributable to net income, and used $20.9 million in investing activities, mainly for the construction of waste water chemical additives production line and acquisitions of bromine assets.

The Company believes its available funds and cash flows generated from operations are sufficient to meet its anticipated ongoing operating needs for the next twelve months. However, the Company will likely need to raise additional capital in order to execute its ongoing program of acquiring unlicensed bromine and other properties.

Business Outlook

For the second half of the year, Gulf Resources plans to increase research and development activities in end-user markets for bromine and is assessing technologies as well as acquisition opportunities that increase its competitiveness in downstream industries.

"This year we will make a push for R&D in order to increase our competitiveness in downstream bromine-based products, such as water treatment chemicals and pharmaceutical intermediates, and to diversify our revenue sources," said Mr. Liu. "We continue to evaluate acquisition targets to expand our market share in bromine and crude salt production. With a limited number of licensed properties in the bromine market, we expect to solidify our market leadership with future acquisitions and increase production capacity to meet the solid demand of bromine and crude salt end user markets in China. Despite the increase in market prices, we believe we are able to execute on our expansion plan given our strong cash flow, healthy balance sheet and access to the capital markets.

"Following the rapid increase in the first half of the year, we have seen market prices of bromine begin to stabilize. However, we have successfully renegotiated contract prices with all of our major customers near current levels. We believe the new contract prices will allow us to benefit from the strong pricing environment and maintain our profitability," concluded Mr. Liu.

The Company reiterates guidance for revenue between $146 million and $150 million and net income between $44 million and $46 million for fiscal year 2010. This guidance does not take into account the Company's most recent acquisition of bromine and crude salt production assets.

Conference Call

Gulf Resources' management will host a conference call on Tuesday, August 17, 2010 at 9:00 AM Eastern Time to discuss its financial results for the second quarter 2010 ended June 30, 2010. Hosting the call will be Mr. Xiaobin Liu, CEO of Gulf Resources and Mr. David Wang, VP Finance of Gulf Resources. To participate in this live conference call, please dial +1 (877) 440-3774 five to ten minutes prior to the scheduled conference call time. International callers should call +1 (706) 902-4014. The conference participant pass code is 90897399. A replay of the conference call will be available for 14 days starting from 10:00 AM ET on Tuesday, August 17, 2010. To access the replay, call +1 (800) 642-1687. International callers should call +1 (706) 645-9291. The pass code is 90897399. This conference call will be broadcast live over the Internet and can be accessed by all interested parties by clicking on http://www.gulfresourcesinc.cn/webcasts.html . Please access the link at least fifteen minutes prior to the start of the call to register, download, and install any necessary audio software. For those unable to participate during the live broadcast, a 90-day replay will be available shortly after the call by accessing the same link.

About Gulf Resources, Inc.

Gulf Resources, Inc. operates through two wholly-owned subsidiaries, Shouguang City Haoyuan Chemical Company Limited ("SCHC") and Shouguang Yuxin Chemical Industry Co., Limited ("SYCI"). The Company believes that it is one of the largest producers of bromine in China. Elemental Bromine is used to manufacture a wide variety of compounds utilized in industry and agriculture. Through SYCI, the Company manufactures chemical products utilized in a variety of applications, including oil & gas field explorations and as papermaking chemical agents. For more information, visit http://www.gulfresourcesinc.cn .

Forward-Looking Statements

Certain statements in this news release contain forward-looking information about Gulf Resources and its subsidiaries business and products within the meaning of Rule 175 under the Securities Act of 1933 and Rule 3b-6 under the Securities Exchange Act of 1934, and are subject to the safe harbor created by those rules. The actual results may differ materially depending on a number of risk factors including, but not limited to, the general economic and business conditions in the PRC, future product development and production capabilities, the market price of bromine, shipments to end customers, market acceptance of new and existing products, additional competition from existing and new competitors for bromine and other oilfield and power production chemicals, changes in technology, the ability to make future bromine asset purchases, and various other factors beyond its control. All forward-looking statements are expressly qualified in their entirety by this Cautionary Statement and the risks factors detailed in the Company's reports filed with the Securities and Exchange Commission. Gulf Resources undertakes no duty to revise or update any forward-looking statements to reflect events or circumstances after the date of this release.






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

                                             June 30, 2010 December 31, 2009
    Current Assets
    Cash                                       $55,197,372       $45,536,735
    Accounts receivable                         25,057,316        14,960,002
    Inventories                                    630,835           650,332
    Prepayment and deposit                         918,354           233,330
    Prepaid land lease                              58,850            46,133
    Deferred tax asset                             107,205            85,672
    Other receivable                                    --         2,195,208
    Total Current Assets                        81,969,932        63,707,412
    Property, plant and equipment, net          99,462,015        81,993,894
    Prepaid land lease, net of current
     portion                                       716,858           721,862
    Total Assets                              $182,148,805      $146,423,168

    Liabilities and Stockholders' Equity
    Current Liabilities
    Accounts payable and accrued expenses      $10,642,759        $5,823,745
    Retention payable                            1,104,750           660,150
    Due to related parties                         232,400             1,190
    Taxes payable                                8,889,490         5,555,113
    Total Current Liabilities                   20,869,399        12,040,198
    Total Liabilities                           20,869,399        12,040,198

    Stockholders' Equity
    PREFERRED STOCK ; $0.001 par value;
     1,000,000 shares authorized none
     outstanding                                       $--               $--
    COMMON STOCK; $0.0005 par value;
     100,000,000 shares authorized;
     34,640,007 and 34,541,066 shares
     issued and outstanding as of June
     30, 2010 and December 31, 2009,
     respectively                                   17,320            17,271
    Additional paid in capital                  66,533,170        64,718,026
    Retained earnings unappropriated            84,226,870        59,808,289
    Retained earnings appropriated               5,679,769         5,679,769
    Cumulative translation adjustment            4,822,277         4,159,615
    Total Stockholders' Equity                 161,279,406       134,382,970
    Total Liabilities and Stockholders'
     Equity                                   $182,148,805      $146,423,168



                            GULF RESOURCES, INC.
                             AND SUBSIDIARIES
                   CONSOLIDATED STATEMENTS OF OPERATIONS
                         (Expressed in U.S. dollars)
                                (UNAUDITED)

                         Three Months Ended June 30, Six Months Ended June 30,
                               2010         2009         2010         2009

    NET REVENUE
     Net revenue           $46,751,809  $29,590,897  $76,445,227  $53,224,436

    OPERATING EXPENSES
     Cost of net revenue   (23,689,903) (16,445,804) (39,925,402) (29,986,744)
    Sales, marketing and
     other operating
     expenses                  (75,687)      (5,902)     (75,687)     (10,783)
     Research and
      development cost        (377,220)    (125,095)    (502,422)    (250,065)
     General and
      administrative
      expenses                (731,593)    (990,539)  (3,009,084)  (2,085,038)
                           (24,874,403) (17,567,340) (43,512,595) (32,332,630)

    INCOME FROM OPERATIONS  21,877,406   12,023,557   32,932,632   20,891,806

    OTHER INCOME
     (EXPENSES)
     Interest expense              (52)         (33)        (226)     (27,043)
     Interest income            59,824       23,762      113,584       45,792
     Sundry income                  --           --       21,998           --
    INCOME BEFORE TAXES     21,937,178   12,047,286   33,067,988   20,910,555

    INCOME TAXES            (5,510,733)  (3,075,682)  (8,649,407)  (5,405,837)
    NET INCOME             $16,426,445   $8,971,604  $24,418,581  $15,504,718

    EARNINGS PER SHARE:
    BASIC                        $0.47        $0.29        $0.71        $0.52
    DILUTED                      $0.47        $0.29        $0.70        $0.52

    WEIGHTED AVERAGE
     NUMBER OF SHARES:

    BASIC                   34,587,479   30,542,211   34,574,514   29,860,581
    DILUTED                 34,738,667   30,542,211   34,750,714   29,860,581



                            GULF RESOURCES, INC.
                              AND SUBSIDIARIES
                    CONSOLIDATED STATEMENTS OF OPERATIONS
                          (Expressed in U.S. dollars)
                                 (UNAUDITED)

                         Three Months Ended June 30, Six Months Ended June 30,
                                2010        2009         2010         2009

    NET INCOME              $16,426,445  $8,971,604  $24,418,581  $15,504,718
    OTHER COMPREHENSIVE
     INCOME
    Foreign currency
     translation adjustment     682,398      (6,200)     662,662      (55,638)
    COMPREHENSIVE INCOME    $17,108,843  $8,965,404  $25,081,243  $15,449,080



                                GULF RESOURCES, INC.
                                  AND SUBSIDIARIES
                       CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (Expressed in U.S. dollars)
                                      (UNAUDITED)

                                                  Six Months Ended June 30,
                                                   2010              2009

    CASH FLOWS FROM OPERATING ACTIVITIES
    Net income                                 $24,418,581       $15,504,718
    Adjustments to reconcile net income
    Amortization of warrants                            --           309,500
    Amortization of prepaid expenses                46,379             7,983
    Amortization of prepaid expenses by
     shares issued for consulting fee                   --            32,232
    Depreciation and amortization                4,787,674         3,026,880
    Stock-based compensation expense             1,188,966                --
    Deferred tax asset                             (21,445)               --
    Bad debt provision                                  --            61,455
    Changes in assets and liabilities
    Accounts receivable                        (10,055,752)         (475,162)
    Inventories                                     19,405            88,034
    Prepayment and deposit                        (682,423)         (410,997)
    Accounts payable and accrued expenses        4,920,174           419,562
    Taxes payable                                3,320,663           691,379
    Net cash provided by operating
     activities                                 27,942,222        19,255,584

    CASH FLOWS USED IN INVESTING
     ACTIVITIES
    Additions of prepaid land lease                (50,940)               --
    Purchase of property, plant and
     equipment                                 (20,283,022)      (15,663,051)
    Construction in progress                      (551,699)       (3,299,175)
    Net cash used in investing activities      (20,885,661)      (18,962,226)

    CASH FLOWS PROVIDED BY FINANCING
     ACTIVITIES
    Proceeds from exercising stock
     options                                        18,000                --
    Proceeds from private placement              2,192,919                --
    Advance from a related party                   231,210         6,829,785
    Net cash provided by financing
     activities                                  2,442,129         6,829,785

    EFFECTS OF EXCHANGE RATE CHANGE ON
     CASH                                          161,947           (43,992)
    NET INCREASE IN CASH & CASH
     EQUIVALENT                                  9,660,637         7,079,151
    CASH & CASH EQUIVALENT - BEGINNING OF
     PERIOD                                     45,536,735        30,878,044
    CASH & CASH EQUIVALENT - END OF
     PERIOD                                    $55,197,372       $37,957,195

    SUPPLEMENTAL DISCLOSURE OF CASH FLOW
     INFORMATION
    Cash paid during the period for:
    Income taxes                                $6,157,079         $4,615,907
    Interest paid                                     $226            $27,009
    SUPPLEMENTAL DISCLOSURE OF NON-CASH
     FINANCING ACTIVITIES
    Issuance of common stock for
     settlement of stockholder's notes
     payable                                           $--        $21,287,493

    Issuance of common stock for
     acquiring property, plant and
     equipment                                    $608,227           $615,000

    Issuance of common stock for
     exercising warrants                                $8               $--



    For further information, please contact:

    Gulf Resources, Inc.
     David Wang, VP of Finance
     Email: gfre.2008@vip.163.com

     Helen Xu
     Email: beishengrong@vip.163.com
     Web:   http://www.gulfresourcesinc.cn/

    CCG Investor Relations
     Mr. Crocker Coulson, President
     Phone: +1-646-213-1915
     Email: crocker.coulson@ccgir.com
     Web:   http://www.ccgirasia.com/

SOURCE Gulf Resources, Inc.