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1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | 9 Months Ended
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Sep. 30, 2013
Accounting Policies [Abstract] |
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | (a) Basis of Presentation and Consolidation The accompanying condensed financial statements have been prepared by Gulf Resources, Inc. a Delaware corporation and its subsidiaries (collectively, the “Company”), without audit, in accordance with the instructions to Form 10-Q and, therefore, do not necessarily include all information and footnotes necessary for a fair statement of its financial position, results of operations and cash flows in accordance with accounting principles generally accepted in the United States (“US GAAP”). The balance sheet at December 31, 2012 is derived from the audited balance sheet but does not include all disclosures required by US GAAP. In connection with the consolidated financial statements and notes included in this report, reference is made to the consolidated financial statements and notes contained in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2012 (the “2012 Form 10-K”). In the opinion of management, the unaudited financial information for the three and nine months ended September 30, 2013 presented reflects all adjustments, which are only normal and recurring, necessary for a fair statement of results of operations, financial position and cash flows. These condensed financial statements should be read in conjunction with the financial statements included in the Company’s 2012 Form 10-K. Operating results for the interim periods are not necessarily indicative of operating results for an entire fiscal year. The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the amounts that are reported in the financial statements and accompanying disclosures. Although these estimates are based on management’s best knowledge of current events and actions that the Company may undertake in the future, actual results may be different from the estimates. The Company also exercises judgments in the preparation of these condensed financial statements in the areas including classification of leases and related party transactions. The consolidated financial statements include the accounts of Gulf Resources, Inc. and its wholly-owned subsidiary, Upper Class Group Limited, a company incorporated in the British Virgin Islands, which owns 100% of Hong Kong Jiaxing Industrial Limited, a company incorporated in Hong Kong (“HKJI”). HKJI owns 100% of Shouguang City Haoyuan Chemical Company Limited ("SCHC") which owns 100% of Shouguang Yuxin Chemical Industry Co., Limited (“SYCI”). All material intercompany transactions have been eliminated on consolidation.. Certain comparative amounts in the accompanying condensed financial statements have been reclassified to conform to the current period’s presentation. In the third quarter of 2012, the Company recognized $628,718 related to the legal fees reimbursed by insurance company in other income. We classified and offset such amount in legal expense in the general and administrative expense for the year ended December 31, 2012. These reclassifications had no effect on previously reported consolidated net income or stockholders’ equity. (b) Nature of the Business The Company manufactures and trades bromine and crude salt through its wholly-owned subsidiary, Shouguang City Haoyuan Chemical Company Limited ("SCHC"), and manufactures chemical products for use in the oil industry and paper manufacturing industry through its wholly-owned subsidiary, Shouguang Yuxin Chemical Industry Co., Limited ("SYCI") in The People’s Republic of China (“PRC”). (c) Allowance for Doubtful Accounts As of September 30, 2013 and December 31, 2012, allowances for doubtful accounts were nil. No allowances for doubtful accounts were charged to the income statement for the three-month and nine-month periods ended September 30, 2013 and 2012. (d) Concentration of Credit Risk The Company is exposed to credit risk in the normal course of business, primarily related to accounts receivable and cash and cash equivalents. Substantially all of the Company’s cash and cash equivalents are maintained with financial institutions in the PRC, namely, Industrial and Commercial Bank of China Limited and China Merchants Bank Company Limited, which are not insured or otherwise protected. The Company placed $97,204,603 and $65,241,035 with these institutions as of September 30, 2013 and December 31, 2012, respectively. The Company has not experienced any losses in such accounts in the PRC. Concentrations of credit risk with respect to accounts receivable exists as the Company sells a substantial portion of its products to a limited number of customers. However, such concentrations of credit risks are limited since the Company performs ongoing credit evaluations of its customers’ financial condition and due to the generally short payment terms. About 83.7% and 100% of the balances of accounts receivable as of September 30, 2013 and December 31, 2012, respectively, were outstanding for less than or equal to 90 days. For the balances of accounts receivable aged more than 90 days as of September 30, 2013, all was settled in October 2013. (e) Property, Plant and Equipment Property, plant and equipment are stated at cost less accumulated depreciation and any impairment losses. Expenditures for new facilities or equipment, and major expenditures for betterment of existing facilities or equipment are capitalized and depreciated using the straight-line method at rates sufficient to depreciate such costs over the estimated productive lives. All other ordinary repair and maintenance costs are expensed as incurred. Mineral rights are recorded at cost less accumulated depreciation and any impairment losses. Mineral rights are amortized ratably over the term of the lease, or the equivalent term under the units of production method, whichever is shorter. Construction in progress primarily represents direct costs of construction of plant, machinery and equipment. Costs incurred are capitalized and transferred to property and equipment upon completion, at which time depreciation commences. The Company’s depreciation and amortization policies on property, plant and equipment, other than mineral rights and construction in progress, are as follows:
|  | Useful life (in years) |
Buildings (including salt pans) |  |  | 8 - 20 |
Plant and machinery (including protective shells, transmission channels and ducts) |  |  | 5 - 8 |
Motor vehicles |  |  | 5 |
Furniture, fixtures and equipment |  |  | 8 |
Property, plant and equipment under capital leases are depreciated over their expected useful lives on the same basis as owned assets, or where shorter, the term of the lease, which is 20 years. (f) Retirement Benefits Pursuant to the relevant laws and regulations in the PRC, the Company participates in a defined contribution retirement plan for its employees arranged by a governmental organization. The Company makes contributions to the retirement scheme at the applicable rate based on the employees’ salaries. The required contributions under the retirement plans are charged to the consolidated income statement on an accrual basis when they are due. The Company’s contributions totaled $125,504 and $112,940 for the three-month periods ended September 30, 2013 and 2012, respectively, and totaled $369,417 and $355,333 for the nine-month periods ended September 30, 2013 and 2012, respectively. (g) Revenue Recognition The Company recognizes revenue, net of value-added tax, when persuasive evidence of an arrangement exists, delivery of the goods has occurred, customer acceptance has been obtained, which means the significant risks and ownership have been transferred to the customer, the price is fixed or determinable and collectability is reasonably assured. (h) Shipping and Handling Fees and Costs The Company does not charge its customers for shipping and handling as all customers arrange their own transportation of finished goods. The Company classifies shipping and handling costs for purchase of raw materials as part of the cost of net revenue, which amounted to $0 and $80,607 for the nine-month periods ended September 30, 2013 and 2012, respectively. There is no such shipping and handling costs for the three-month period ended September 30, 2013 and 2012 as they are borne by the suppliers since April 2012. (i) Recoverability of Long-lived Assets In accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 360-10-35 “Impairment or Disposal of Long-lived Assets”, long-lived assets to be held and used are analyzed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be fully recoverable or that the useful lives of those assets are no longer appropriate. The Company evaluates at each balance sheet date whether events and circumstances have occurred that indicate possible impairment. The Company determines the existence of such impairment by measuring the expected future cash flows (undiscounted and without interest charges) and comparing such amount to the carrying amount of the assets. An impairment loss, if one exists, is then measured as the amount by which the carrying amount of the asset exceeds the discounted estimated future cash flows. Assets to be disposed of are reported at the lower of the carrying amount or fair value of such assets less costs to sell. Asset impairment charges are recorded to reduce the carrying amount of the long-lived asset that will be sold or disposed of to their estimated fair values. Charges for the asset impairment reduce the carrying amount of the long-lived assets to their estimated salvage value in connection with the decision to dispose of such assets. For the three-month and nine-month periods ended September 30, 2012, certain property, plant and machinery, with net book values of $130,143 and $1,042,138, respectively, were replaced during the second phase enhancement project to protective shells for transmission channels and ducts and the enhancement work to bromine production facilities in Factory No. 2, write-offs of the same amounts, were made and included in write-off/impairment on property, plant and equipment. On September 25, 2013, SCHC entered into a relocation compensation agreement with the Transportation Bureau of Dongying City, Shangdong Province (“Transportation Bureau”) and the Government of Liuhu Township of Dongying City, Shandong Province (“Liuhu Government”) in which SCHC will receive relocation compensation in the amount of $3,875,047 (RMB 23,824,453) for relocating Factory No. 3 due to a railway construction project. Out of this total amount, $2,927,700 (RMB 18,000,000) will be received upon the demolition of the warehouses and facilities of factory No. 3. The remaining balance will be paid after the clearance of all ground fixtures and examination approval by Liuhu Government. As of September 30, 2013, SCHC has completed the demolition work and compensation proceeds of $2,927,700 (RMB 18,000,000) was recorded in other receivable. This amount was received by SCHC from the Liuhu Government in October 2013. For the three-month and nine-month periods ended September 30, 2013, certain property, plant and machinery, with net book value of $307,182 were replaced due to the relocation of the Factory No. 3. In addition, demolition costs of $733,379 (RMB 4,523,400) were incurred in the same periods. The write-off and demolition costs were offset against the compensation proceeds resulting in a net gain on relocation of factory of $1,877,779 in the three and nine months ended September 30, 2013. This is accounted for in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 605-40 “Revenue Recognition – Gains and losses”. (j) Basic and Diluted Net Income per Share of Common Stock Basic earnings per common share are based on the weighted average number of shares outstanding during the periods presented. Diluted earnings per share are computed using weighted average number of common shares plus dilutive common share equivalents outstanding during the period. Potential common shares that would have the effect of increasing diluted earnings per share are considered to be anti-dilutive, i.e. the exercise prices of the outstanding stock options were greater than the market price of the common stock. Anti-dilutive common stock equivalents which were excluded from the calculation of number of dilutive common stock equivalents amounted to 3,601,075 and 5,165,936 shares for the three-month periods ended September 30, 2013 and 2012, respectively, and amounted to 4,660,000 and 2,803,343 shares for the nine-month periods ended September 30, 2013 and 2012, respectively. These awards could be dilutive in the future if the market price of the common stock increases and is greater than the exercise price of these awards. (k) Basic and Diluted Net Income per Share of Common Stock – Continued The following table sets forth the computation of basic and diluted earnings per share:
|  | Three-Month Period Ended September 30, |  |  | Nine-Month Period Ended September 30,
|  | 2013 |  |  | 2012 |  |  |  | 2013 |  |  |  | 2012 |
Numerator |  |  |  |  |  |  |  |  |  |  |  |  |  |
Net income |  | $ | 8,109,729 |  |  | $ | 4,113,216 |  |  | $ | 15,348,593 |  |  | $ | 13,088,997 |
Denominator |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Basic: Weighted-average common shares outstanding during the period |  |  | 38,368,267 |  |  |  | 34,560,743 |  |  |  | 38,368,267 |  |  |  | 34,560,743 |
Add: Dilutive effect of stock options |  |  | 594,887 |  |  |  | 139,246 |  |  |  | 317,343 |  |  |  | 396,476 |
Diluted |  |  | 38,963,154 |  |  |  | 34,699,989 |  |  |  | 38,685,610 |  |  |  | 34,957,219 |
Net income per share |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Basic |  | $ | 0.21 |  |  | $ | 0.12 |  |  | $ | 0.40 |  |  | $ | 0.38 |
Diluted |  | $ | 0.21 |  |  | $ | 0.12 |  |  | $ | 0.40 |  |  | $ | 0.37 |
(l) New Accounting Pronouncements No accounting standards and guidance with an effective date during the three-month and nine-month periods ended September 30, 2013 or issued during 2013 had or are expected to have a significant impact on the Company’s condensed consolidated financial statements.

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- Definition The entire disclosure for the business description and accounting policies concepts. Business description describes the nature and type of organization including but not limited to organizational structure as may be applicable to holding companies, parent and subsidiary relationships, business divisions, business units, business segments, affiliates and information about significant ownership of the reporting entity. Accounting policies describe all significant accounting policies of the reporting entity. + References No definition available. + Details
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