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PARENT ONLY FINANCIAL INFORMATION | 12 Months Ended
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Dec. 31, 2011
PARENT ONLY FINANCIAL INFORMATION | SCHEDULE I – PARENT ONLY FINANCIAL INFORMATION The following presents condensed parent company only financial information of Gulf Resources, Inc. Condensed Balance Sheets
|  | As of December 31, |
|  | 2011 |  |  | 2010 |
|  |  |  |  | Unaudited |
Current Assets |  |  |  |  |  |  |  |
Prepayments and deposits |  | $ | 307,600 |  |  | $ | - |
Total Current Assets |  |  | 307,600 |  |  |  | - |
Non-Current Assets |  |  |  |  |  |  |  |
Interests in subsidiaries |  |  | 192,636,852 |  |  |  | 139,936,042 |
Amounts due from group companies |  |  | 52,494,771 |  |  |  | 54,372,933 |
Total non-current assets |  |  | 245,131,623 |  |  |  | 194,308,975 |
Total Assets |  | $ | 245,439,223 |  |  | $ | 194,308,975 |
Liabilities and Stockholders’ Equity |  |  |  |  |  |  |  |
Current Liabilities |  |  |  |  |  |  |  |
Other payables and accrued expenses |  | $ | 1,036,513 |  |  | $ | 507,917 |
Amounts due to group companies |  |  | 1,289,954 |  |  |  | 1,115,864 |
Total Liabilities |  | $ | 2,326,467 |  |  | $ | 1,623,781 |
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; 34,745,342 and 34,735,912 shares issued; and 34,560,743 and 34,735,912 shares outstanding as of December 31, 2011 and 2010, respectively |  |  | 17,373 |  |  |  | 17,368 |
Treasury stock; 184,599 shares as of December 31, 2011 at cost |  |  | (500,000 | ) |  |  | - |
Additional paid-in capital |  |  | 74,107,979 |  |  |  | 66,626,584 |
Retained earnings unappropriated |  |  | 133,314,581 |  |  |  | 106,500,085 |
Retained earnings appropriated |  |  | 14,409,557 |  |  |  | 10,271,293 |
Cumulative translation adjustment |  |  | 21,763,266 |  |  |  | 9,269,864 |
Total Stockholders’ Equity |  |  | 243,112,756 |  |  |  | 192,685,194 |
Total Liabilities and Stockholders’ Equity |  | $ | 245,439,223 |  |  | $ | 194,308,975 |
Condensed Statements of Income
|  | Years Ended December 31, |
|  | 2011 |  |  | 2010 |  |  | 2009 |
|  |  |  |  | Unaudited |  |  | Unaudited |
OPERATING (EXPENSES) INCOME |  |  |  |  |  |  |  |  |  |  |  |
General and administrative expenses |  | $ | (9,552,707 | ) |  | $ | (2,957,467 | ) |  | $ | (3,240,497 | )
Other operating income |  |  | 300,000 |  |  |  | - |  |  |  | - |
TOTAL OPERATING EXPENSES |  |  | (9,252,707 | ) |  |  | (2,957,467 | ) |  |  | (3,240,497 | )
OTHER EXPENSES |  |  |  |  |  |  |  |  |  |  |  |
Interest expense |  |  | (1,941 | ) |  |  | (764 | ) |  |  | - |
TOTAL OTHER EXPENSES |  |  | (1,941 | ) |  |  | (764 | ) |  |  | - |
TOTAL EXPENSES |  |  | (9,254,648 | ) |  |  | (2,958,231 | ) |  |  | (3,240,497 | )
Equity in net income of subsidiaries |  |  | 40,207,408 |  |  |  | 54,241,551 |  |  |  | 33,831,912 |
INCOME BEFORE TAXES |  |  | 30,952,760 |  |  |  | 51,283,320 |  |  |  | 30,591,415 |
INCOME TAXES |  |  | - |  |  |  | - |  |  |  | - |
NET INCOME |  | $ | 30,952,760 |  |  | $ | 51,283,320 |  |  | $ | 30,591,415 |
Condensed Statements of Cash Flows
|  | Years Ended December 31, |
|  | 2011 |  |  | 2010 |  |  | 2009 |
|  |  |  |  | Unaudited |  |  | Unaudited |
CASH FLOWS FROM OPERATING ACTIVITIES |  |  |  |  |  |  |  |  |  |  |  |
Net income |  | $ | 30,952,760 |  |  | $ | 51,283,320 |  |  | $ | 30,591,415 |
Adjustments to reconcile net income to net cash provided by operating activities: |  |  |  |  |  |  |  |  |  |  |  |
Equity earnings in unconsolidated subsidiaries |  |  | (40,207,408 | ) |  |  | (54,241,551 | ) |  |  | (33,831,912 | )
Stock-based compensation expense |  |  | 7,481,400 |  |  |  | 1,282,428 |  |  |  | 2,022,240 |
Changes in assets and liabilities: |  |  |  |  |  |  |  |  |  |  |  |
Prepayment and deposits |  |  | (307,600 | ) |  |  | - |  |  |  | - |
Other payables and accrued expenses |  |  | 528,596 |  |  |  | 201,800 |  |  |  | (964,564 | )
Net cash used in operating activities |  |  | (1,552,252 | ) |  |  | (1,474,003 | ) |  |  | (2,182,821 | )
CASH FLOWS FROM FINANCING ACTIVITIES |  |  |  |  |  |  |  |  |  |  |  |
Repurchase of common stock |  |  | (500,000 | ) |  |  | - |  |  |  | - |
Proceeds from private placement |  |  | - |  |  |  | 2,192,920 |  |  |  | 21,307,142 |
Proceeds from exercising stock options |  |  | - |  |  |  | 18,000 |  |  |  | - |
Advances from / (to) group companies |  |  | 2,052,252 |  |  |  | (736,917 | ) |  |  | (19,124,299 | )
Net cash provided by financing activities |  |  | 1,552,252 |  |  |  | 1,474,003 |  |  |  | 2,182,821 |
NET INCREASE IN CASH AND CASH EQUIVALENTS |  |  | - |  |  |  | - |  |  |  | - |
CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR |  |  | - |  |  |  | - |  |  |  | - |
CASH AND CASH EQUIVALENTS - END OF YEAR |  | $ | - |  |  | $ | - |  |  | $ | - |
Notes:
| (i) | Basis of presentation
In the condensed parent-company-only financial statements, the Company’s investment in subsidiaries is stated at cost plus equity in undistributed earnings of subsidiaries since the date of acquisition. The Company’s share of net income of its subsidiaries is included in condensed statements of income using the equity method. These condensed parent-company-only financial statements should be read in connection with the consolidated financial statements and notes thereto. As of December 31, 2011, the Company itself has no purchase commitment, capital commitment and operating lease commitment for the condensed parent-company-only financial statements.
| (ii) | Restricted Net Assets
Schedule I of Article 5-04 of Regulation S-X requires the condensed financial information of registrant shall be filed when the restricted net assets of consolidated subsidiaries exceed 25 percent of consolidated net assets as of the end of the most recently completed fiscal year. For purposes of the above test, restricted net assets of consolidated subsidiaries shall mean that amount of the registrant’s proportionate share of net assets of consolidated subsidiaries (after intercompany eliminations) which as of the end of the most recent fiscal year may not be transferred to the parent company by subsidiaries in the form of loans, advances or cash dividends without the consent of a third party (i.e., lender, regulatory agency, foreign government, etc.). The condensed parent company financial statements have been prepared in accordance with Rule 12-04, Schedule I of Regulation S-X as the restricted net assets of the subsidiaries of Gulf Resources, Inc. exceed 25% of the consolidated net assets of Gulf Resources, Inc. The ability of the Company’s Chinese operating subsidiaries to pay dividends may be restricted due to the foreign exchange control policies and availability of cash balances of the Chinese operating subsidiaries. Because a significant portion of the Company’s operations and revenues are conducted and generated in China, a significant portion of the revenues being earned and currency received are denominated in RMB. RMB is subject to the exchange control regulation in China, and, as a result, the Company may be unable to distribute any dividends outside of China due to PRC exchange control regulations that restrict the Company’s ability to convert RMB into US Dollars.

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- Definition The entire disclosure for condensed financial information, including the financial position, cash flows, and the results of operations of the registrant (parent company) as of the same dates or for the same periods for which audited consolidated financial statements are being presented. Alternatively, the details of this disclosure can be reported by the specific parent company taxonomy elements, indicating the appropriate date and period contexts in an instance document. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Article 9 -Section 06 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Article 7 -Section 05 -Paragraph c Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 04 -Paragraph c -Article 5 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 3 -Subparagraph (SX 210.12-04) -URI http://asc.fasb.org/extlink&oid=6881521&loc=d3e24072-122690 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher AICPA -Name Accounting Research Bulletin (ARB) -Number 51 -Paragraph 24 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 04 -Article 12 Reference 7: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 810 -SubTopic 10 -Section 45 -Paragraph 11 -URI http://asc.fasb.org/extlink&oid=6921628&loc=d3e5283-111683 + Details
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