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.