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1. BASIS OF PRESENTATION AND CONSOLIDATION | 9 Months Ended
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Sep. 30, 2017
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 Nevada corporation and its subsidiaries (collectively, the “Company”), 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”). In the opinion of management, the unaudited financial information for the three and nine months ended September 30, 2017 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 2016 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 certain areas, including classification of leases and related party transactions. On September 2, 2016, the Company announced the planned merger of two of its 100% owned subsidiaries, Shouguan Yuxin Chemical Co., Limited (“SYCI”) and Shouguan Rongyuan Chemical Co., Ltd (“SCRC”). On March 24, 2017, the legal process of the merger was completed and SCRC was officially deregistered on March 28, 2017. The results of these two subsidiaries were reported as SYCI in the three and nine months ended September 30, 2017. 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”) and Daying County Haoyuan Chemical Company Limited (“DCHC”). All material intercompany transactions have been eliminated on consolidation. (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"), manufactures chemical products for use in the oil industry, pesticides, paper manufacturing industry and antibiotics for use by human and animals through its wholly-owned subsidiary, Shouguang Yuxin Chemical Industry Co., Limited ("SYCI") in the People’s Republic of China (“PRC”). DCHC was established to further explore and develop natural gas and brine resources (including bromine and crude salt) in PRC. On September 1, 2017, the Company received notification from the government of Yangkou County, Shouguang City of PRC that production at all its factories be halted with immediate effect in order for the Company to perform rectification and improvement in accordance with the county’s new safety and environmental protection requirements. As such, direct labor and factory overhead costs (including depreciation of plant and machinery) of a total amount of $1,876,462 incurred in September 2017 which would have been presented in the cost of net revenue were presented as part of general and administrative expense in the three-month and nine-month periods ended September 30, 2017 (Note 19). (c) Allowance for Doubtful Accounts As of September 30, 2017 and December 31, 2016, allowances for doubtful accounts were nil. No allowances for doubtful accounts were charged to the condensed consolidated statements of income for the three-month and nine-month periods ended September 30, 2017 and 2016. (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, China Merchants Bank Company Limited and Sichuan Rural Credit Union, which are not insured or otherwise protected. The Company placed $193,385,686 and $163,884,574 with these institutions as of September 30, 2017 and December 31, 2016, 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 extends credit terms as and when appropriate. Approximately 38.0% and 61.6% of the balances of accounts receivable as of September 30, 2017 and December 31, 2016, respectively, are outstanding for less than three months. All outstanding receivables as of September 30, 2017 and December 31, 2016 are within the credit terms which range between 90 and 240 days. For the balances of accounts receivable aged more than 90 days as of September 30, 2017, approximately 30% were settled in October 2017. For the balances of all accounts receivable as of September 30, 2017, approximately 22% were settled in October 2017. The rate of collection in October 2017 for accounts receivable aged more than 90 days as of September 30, 2017 was analyzed as follows:
Accounts Receivable Aging | Percent Collected
90-120 days | 19%
121-150 days | 34%
151-180 days | 18%
181-210 days | 34%
211-240 days | 100%
(e) Property, Plant and Equipment ( including Oil and gas properties) 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 less 5% residual value 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 process 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 are as follows:
|  | Useful life (in years)
Buildings (including salt pans) |  | 8 - 20
Plant and machinery (including protective shells, transmission channels and ducts) |  | 3 - 8
Motor vehicles |  | 5
Furniture, fixtures and equipment |  | 3-8
Property, plant and equipment under the capital lease are depreciated over the shorter of their expected useful lives or the remaining term of the lease. Producing oil and gas properties are depreciated on a unit-of-production basis over the proved developed reserves. Common facilities that are built specifically to service production directly attributed to designated oil and gas properties are depreciated based on the proved developed reserves of the respective oil and gas properties on a pro-rata basis. Common facilities that are not built specifically to service identified oil and gas properties are depreciated using the straight-line method over their estimated useful lives. Costs associated with significant development projects are not depreciated until commercial production commences and the reserves related to those costs are excluded from the calculation of depreciation. (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 plan at the applicable rate based on the employees’ salaries. The required contributions under the retirement plans are charged to the condensed consolidated statement of income on an accrual basis when they are due. The Company’s contributions totaled $288,779 and $269,254 for the three-month period ended September 30, 2017 and 2016, respectively, and totaled $801,655 and $768,870 for the nine-month period ended September 30, 2017 and 2016, 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 and 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) 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. Production in all the factories of the Company was temporarily suspended from September 1, 2017 to allow for rectification and improvement in accordance with PRC’s new safety and environmental protection requirements. Due to this, the Company reviewed the possibility of impairment of its property, plant and equipment and determined that there will be no material effect on the financial statements. For the three-month and nine-month periods ended September 30, 2016, certain property, plant and machinery, with net book values of $90,395 were replaced during the enhancement project to protective shells for transmission channels, write-offs of the same amounts, were made and included in write-off/impairment on property, plant and equipment. (i) Basic and Diluted Earnings 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 outstanding during the period increased to include the number of additional shares of common stock that would have been outstanding if the potentially dilutive outstanding stock options had been exercised. Potentially dilutive outstanding stock options 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 are greater than the market price of the common stock. The number of anti-dilutive outstanding stock options which were excluded from the calculation of diluted earnings was 41,944 and 75,000 for the three-month period ended September 30, 2017 and 2016 respectively, and 35,366 and 136,875 for the nine-month period ended September 30, 2017 and 2016 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. 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,
|  | 2017 |  |  | 2016 |  |  |  | 2017 |  |  |  | 2016 |  |
Numerator |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Net income |  | $ | 3,425,640 |  |  | $ | 10,515,713 |  |  | $ | 25,252,438 |  |  | $ | 30,179,696 |  |
Denominator |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Basic: Weighted-average common shares outstanding during the period |  |  | 46,794,443 |  |  |  | 46,301,217 |  |  |  | 46,794,011 |  |  |  | 46,106,194 |  |
Add: Dilutive effect of stock options |  |  | 103,552 |  |  |  | 8,033 |  |  |  | 39,019 |  |  |  | 454,743 |  |
Diluted |  |  | 46,897,995 |  |  |  | 46,309,250 |  |  |  | 46,833,030 |  |  |  | 46,560,937 |  |
Earnings per share |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Basic |  | $ | 0.07 |  |  | $ | 0.23 |  |  | $ | 0.54 |  |  | $ | 0.65 |  |
Diluted |  | $ | 0.07 |  |  | $ | 0.23 |  |  | $ | 0.54 |  |  | $ | 0.65 |  |
(j) Reporting Currency and Translation The financial statements of the Company’s foreign subsidiaries are measured using the local currency, Renminbi (“RMB”), as the functional currency; whereas the functional currency and reporting currency of the Company is the United States dollar (“USD” or “$”). As such, the Company uses the “current rate method” to translate its PRC operations from RMB into USD, as required under FASB ASC 830 “Foreign Currency Matters”. The assets and liabilities of its PRC operations are translated into USD using the rate of exchange prevailing at the balance sheet date. The capital accounts are translated at the historical rate. Adjustments resulting from the translation of the balance sheets of the Company’s PRC subsidiaries are recorded in stockholders’ equity as part of accumulated other comprehensive income. The statement of income and comprehensive income is translated at average rates during the reporting period. Gains or losses resulting from transactions in currencies other than the functional currencies are recognized in net income for the reporting periods as part of general and administrative expense. The statement of cash flows is translated at average rates during the reporting period, with the exception of issuance of shares and payment of dividends which are translated at historical rates. (k) Foreign Operations All of the Company’s operations and assets are located in PRC. The Company may be adversely affected by possible political or economic events in this country. The effect of these factors cannot be accurately predicted. (l) Exploration Costs Exploration costs including the cost of researching for appropriate places to drill wells and the cost of well drilling in search of potential natural brine, are charged to the income statement as incurred. Once the commercial viability of a project has been confirmed, all subsequent costs are capitalized. For oil and gas properties, the successful efforts method of accounting is adopted. The Company carries exploratory well costs as an asset when the well has found a sufficient quantity of reserves to justify its completion as a producing well and where the Company is making sufficient progress assessing the reserves and the economic and operating viability of the project. Exploratory well costs not meeting these criteria are charged to expenses. Exploratory wells that discover potentially economic reserves in areas where major capital expenditure will be required before production would begin and when the major capital expenditure depends upon the successful completion of further exploratory work remain capitalized and are reviewed periodically for impairment. (m) Goodwill Goodwill represents the excess of the purchase price over the net of the fair value of the identifiable tangible and intangible assets acquired and the fair value of liabilities assumed in business acquisitions. Goodwill impairment is assessed based on qualitative factors to determine whether it is more likely than not that the fair value of a reporting entity is less than its carrying amount, including goodwill. If the Company determines that it is more likely than not that the fair value of a reporting entity is less than its carrying amount, the two-step goodwill impairment test will be performed. The Company performs its impairment assessment annually and between annual tests in certain circumstances and determined that the two-step goodwill impairment test is not required to be carried out as of September 30, 2017. (n) New Accounting Pronouncements Recently Adopted Accounting Pronouncements In March 2016, the FASB issued ASU No. 2016-09, Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, which simplifies several aspects of the accounting for share-based payment award transactions, including: (1) income tax consequences; (2) classification of awards as either equity or liabilities, and (3) classification on the statement of cash flows. For public companies, the amendments in this ASU are effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. The Company adopted the amendments in this Update as of January 1, 2017. There is no impact on the financial statements since any excess tax benefits were fully offset by a valuation allowance and not recognized for financial statement purposes. Recently Issued Accounting Pronouncements Not Yet Adopted In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In August 2015, FASB issued ASU 2015-14 which deferred the effective date of Update 2014-09 to annual reporting periods beginning after December 15, 2017. Early application is permitted only as of annual reporting periods beginning after December 15, 2016. The Company expects to adopt the new standard in the first quarter of 2018. The Company does not expect the adoption of this Update to have a material effect on the financial statements. In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). The amendments in this Update specify the accounting for leases. The core principle of Topic 842 is that a lessee should recognize the assets and liabilities that arise from leases. For public business entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company is evaluating the impact of this on the consolidated financial statements and related disclosures. In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230), Classification of Certain Cash Receipts and Cash Payments. The Update addresses eight specific changes to how cash receipts and cash payments are presented and classified in the statement of cash flows. The amendments in this Update are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted. An entity that elects early adoption must adopt all of the amendments in the same period. The amendments in this Update should be applied using a retrospective transition method to each period presented. If it is impracticable to apply the amendments retrospectively for some of the issues, the amendments for those issues would be applied prospectively as of the earliest date practicable. The Company does not expect the adoption of this Update to have a material effect on the financial statements. In January 2017, the FASB issued ASU No. 2017-01, Business Combinations (Topic 805), Clarifying the Definition of a Business. The amendments in this Update provide a more robust framework to use in determining when a set of assets and activities is a business. The amendments in this Update are effective for annual periods beginning after December 15, 2017, including interim periods within those periods. The Company does not expect the adoption of this Update to have a material effect on the financial statements. In January 2017, the FASB issued ASU No. 2017-04, Intangibles – Goodwill and Other (Topic 350), Simplifying the Test for Goodwill Impairment. To simplify the subsequent measurement of goodwill, the Board eliminated Step 2 from the goodwill impairment test. Instead, under the amendments in this Update, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. A public business entity that is a U.S. Securities and Exchange Commission (SEC) filer should adopt the amendments in this Update for its annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. The Company is currently evaluating the effect of the adoption of this Update. In May 2017, the FASB issued ASU 2017-09, Compensation – Stock Compensation (Topic 718), Scope of Modification Accounting. The amendments in this Update provide guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting. The amendments in this Update are effective for all entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. The amendments in this Update should be applied prospectively to an award modified on or after the adoption date.

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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 Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 275 -URI http://asc.fasb.org/topic&trid=2134479 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -URI http://asc.fasb.org/topic&trid=2122369 + Details
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