Gulf Resources Reports Second Quarter 2008 Results

Published Aug 14th, 2008

NEW YORK & SHANDONG PROVINCE, China--(BUSINESS WIRE)--Gulf Resources, Inc. (OTCBB: GFRE - News) ("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 three and six months ended June 30, 2008.


Second Quarter Highlights
Net revenue was $23.8 million, an increase of 92% from 2007
Gross profit was $9.7 million, an increase of 90% from 2007
Income from operations was $8.6 million, an increase of 79% from 2007
Net income was $6.3 million, an increase of 103% from $3.1 million in 2007
Basic and fully diluted earnings per share doubled to $0.06 from $0.03 in 2007


Second Quarter 2008 Results
"We are quite pleased with Gulf Resources' results for the second quarter and the first half of 2008. The strong growth in revenue and net income was the result of the contribution of the five new bromine producing properties acquired in 2007 and early 2008," said Ming Yang, Chief Executive Officer of Gulf Resources. "We have also added additional capacity in our chemical segment that enables Gulf to serve China's expanding demand for environmentally friendly chemical compounds."

Gulf Resources' net revenue in the second quarter of 2008 was $23.8 million, an increase of 92% from $12.4 million in the second quarter of 2007. Net revenue increased because of strong growth in sales of the Bromine and crude salt segment as a result of the recently acquired bromine producing facilities, growth in the Chemical products segment and favorable exchange rates.

Sales within the Bromine and crude salt segment were $18.0 million, or 75.8% of the Company's net revenue in the second quarter of 2008, compared to $7.7 million or 62.2% of the Company's net revenue in the second quarter of 2007. Sales of the Chemical products segment were $5.8 million in the second quarter of 2008, a 23% increase from sales of $4.7 million in the second quarter of 2007 due to the introduction of new products and favorable exchange rates.

Gross profit in the second quarter of 2008 was $9.7 million, a 90% increase from $5.1 million in the second quarter of 2007. Gross profit margin was 40.8%, compared to 41.3% in the second quarter of 2007. The slight decrease in gross margin was due to a new tax on extracted resources effective January 1, 2008 that was recorded in the second quarter of 2008. The new tax amounted to nearly $700,000 and it was partially offset by higher gross margin achieved on sales of bromine and crude salt, production efficiencies and increased utilization of the bromine production capacity in the second quarter of 2008.

Operating expenses in the second quarter of 2008 were $1.1 million, compared to $347,017 in the second quarter of 2007. Operating expenses increased due to professional fees resulting from the Company's new corporate structure, increased land tax fees and salary expenses due to the Company's expanded operations and the funding of a research venture that began in the fall of 2007.

Income from operations in the second quarter of 2008 was $8.6 million, an increase of 79% from the second quarter of 2007. Operating margin was 36.0% in the second quarter of 2008, compared to 38.5% in the second quarter of 2007.

Income taxes were $2.3 million compared to $1.7 million in the second quarter of 2007. The Company's effective tax rate was 26.8% compared to 34.8% in the year ago period due to reductions in the Chinese corporate income tax rates which became effective January 1, 2008.

Net income was $6.3 million in the second quarter of 2008, representing a 103% increase from $3.1 million in the second quarter of 2007. Basic and diluted earnings per share were $0.06 for the second quarter of 2008, compared to $0.03 in the second quarter of 2007.

Six Month Financial Results

Revenues for the first six months of 2008 were $45.8 million, up 104% from revenues of $22.5 million in the first six months of 2007. Gross profit was $19.1 million, up 109% from gross profit of $9.2 million for the six months of 2007. Gross margin was 41.8%, compared to 40.8% for the first six months of 2007. Operating income was $17 million, up 97% from $8.6 million for the first six months of fiscal 2007. Net income was $12.4 million, or $0.12 per basic and fully diluted share, compared to $5.7 million, or $0.06 per basic and fully diluted share, for the same period a year ago.

Financial Condition

As of June 30, 2008, Gulf Resources had cash and restricted cash of $10.6 million and working capital of $11.8 million. Notes payable totaled $21.2 million and shareholders' equity was $41.5 million as of June 30, 2008. During the six months ended June 30, 2008, the Company generated $9.3 million in cash flow from operations, primarily due to net income.

Recent Developments

In July 2008, Gulf Resources signed an agreement with Longteng, the largest privately owned coated art paper producer in China, to supply a variety of custom produced chemicals for use in the manufacturing of high quality paper products. Gulf Resources will produce a total of five new custom paper additives specifically for use in the production of high quality specialty paper products.

In July 2008, Gulf Resources established a cooperative research and development agreement with the Shandong Institute of Light Industry ("SILI") to create improved products for use in the papermaking industry. This research and development initiative with SILI gives Gulf Resources the sole right to use any products and technologies developed for a period of two years, to create new, superior paper additives for use in the production of high quality specialty paper products.

Business Outlook

Gulf Resources reaffirms previously issued guidance for its 2008 financial results, with revenues expected to be between $84 million to $90 million, net income expected to be between $22 million to $25 million, and diluted earnings per share expected to be between $0.22 and $0.25. This guidance does not include the impact of any unusual charges.

"We plan to build upon our solid results in the first half of the year and will continue to seek opportunities to expand our business both through acquisitions and increased operating efficiencies. Demand for bromine remains strong and we expect that this will continue to be the major area of growth for our company in the future," concluded Mr. Ming Yang. "We have also been actively seeking opportunities in our chemical segment and our new capacity will enable us to cater to the increasing demand for environmentally-friendly chemical compounds. We feel that Gulf Resources is well positioned to continue to grow our revenue and net income, ultimately increasing value for our shareholders."

Conference Call

Gulf's management will host a conference call at 8:00 a.m. Eastern Time on Thursday, August 14, 2008 to discuss its results for the period ended June 30, 2008. To participate in this live conference call, please dial 877-317-6701 five to ten minutes prior to the scheduled conference call time. International callers should call 412-317-6701. The Conference Pass Code is 1595605.

Replay of the conference call will be available from 10:00 a.m. Eastern Time on Thursday, August 14 to Friday, August 29, 2008. To access the replay, call 877-344-7529. International callers should call 412-317-0088. The Conference Pass Code is 1595605.

This conference call will also be broadcast live over the Internet and can be accessed by all interested parties by using the following link: http://services.choruscall.com/links/gulf080814.html . To listen to the call, please visit this link at least 15 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 webcast, it will be archived using the same link for 90 days. For those unable to participate during the live broadcast, a replay will be available shortly after the call on the Gulf website for 90 days.

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 the largest producer 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, please visit the Company's website: www.gulfresourcesco.com.

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, 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.