GURE 10-Q Quarterly Report June 30, 2010

GURE 10-Q Quarter ended June 30, 2010

GULF RESOURCES, INC.

10-Ks and 10-Qs

10-Q	Quarter ended Sept. 30, 2025
10-Q	Quarter ended June 30, 2025
10-Q	Quarter ended March 31, 2025
10-K	Fiscal year ended Dec. 31, 2024
10-Q	Quarter ended Sept. 30, 2024
10-Q	Quarter ended June 30, 2024
10-Q	Quarter ended March 31, 2024
10-K	Fiscal year ended Dec. 31, 2023
10-Q	Quarter ended Sept. 30, 2023
10-Q	Quarter ended June 30, 2023
10-Q	Quarter ended March 31, 2023
10-K	Fiscal year ended Dec. 31, 2022
10-Q	Quarter ended Sept. 30, 2022
10-Q	Quarter ended June 30, 2022
10-Q	Quarter ended March 31, 2022
10-K	Fiscal year ended Dec. 31, 2021
10-Q	Quarter ended Sept. 30, 2021
10-Q	Quarter ended June 30, 2021
10-Q	Quarter ended March 31, 2021
10-K	Fiscal year ended Dec. 31, 2020
10-Q	Quarter ended Sept. 30, 2020
10-Q	Quarter ended June 30, 2020
10-Q	Quarter ended March 31, 2020
10-K	Fiscal year ended Dec. 31, 2019
10-Q	Quarter ended Sept. 30, 2019
10-Q	Quarter ended June 30, 2019
10-Q	Quarter ended March 31, 2019
10-K	Fiscal year ended Dec. 31, 2018
10-Q	Quarter ended Sept. 30, 2018
10-Q	Quarter ended June 30, 2018
10-Q	Quarter ended March 31, 2018
10-K	Fiscal year ended Dec. 31, 2017
10-Q	Quarter ended Sept. 30, 2017
10-Q	Quarter ended June 30, 2017
10-Q	Quarter ended March 31, 2017
10-K	Fiscal year ended Dec. 31, 2016
10-Q	Quarter ended Sept. 30, 2016
10-Q	Quarter ended June 30, 2016
10-Q	Quarter ended March 31, 2016
10-K	Fiscal year ended Dec. 31, 2015
10-Q	Quarter ended Sept. 30, 2015
10-Q	Quarter ended June 30, 2015
10-Q	Quarter ended March 31, 2015
10-K	Fiscal year ended Dec. 31, 2014
10-Q	Quarter ended Sept. 30, 2014
10-Q	Quarter ended June 30, 2014
10-Q	Quarter ended March 31, 2014
10-K	Fiscal year ended Dec. 31, 2013
10-Q	Quarter ended Sept. 30, 2013
10-Q	Quarter ended June 30, 2013
10-Q	Quarter ended March 31, 2013
10-K	Fiscal year ended Dec. 31, 2012
10-Q	Quarter ended Sept. 30, 2012
10-Q	Quarter ended June 30, 2012
10-Q	Quarter ended March 31, 2012
10-K	Fiscal year ended Dec. 31, 2011
10-Q	Quarter ended Sept. 30, 2011
10-Q	Quarter ended June 30, 2011
10-Q	Quarter ended March 31, 2011
10-K	Fiscal year ended Dec. 31, 2010
10-Q	Quarter ended Sept. 30, 2010
10-Q	Quarter ended June 30, 2010
10-Q	Quarter ended March 31, 2010
10-K	Fiscal year ended Dec. 31, 2009

PROXIES

DEF 14A	Filed on Sept. 9, 2025
DEF 14A	Filed on July 25, 2025
DEF 14A	Filed on Dec. 20, 2024
DEF 14A	Filed on Nov. 1, 2024
DEF 14A	Filed on Nov. 30, 2023
DEF 14A	Filed on Oct. 3, 2023
DEF 14A	Filed on Nov. 1, 2022
DEF 14A	Filed on Sept. 7, 2022
DEF 14A	Filed on Oct. 12, 2021
DEF 14A	Filed on July 1, 2020
DEF 14A	Filed on Nov. 1, 2019
DEF 14A	Filed on April 30, 2018
DEF 14A	Filed on April 28, 2017
DEF 14A	Filed on April 29, 2016
DEF 14A	Filed on Aug. 11, 2015
DEF 14A	Filed on April 29, 2014
DEF 14A	Filed on April 29, 2013
DEF 14A	Filed on Aug. 31, 2012
DEF 14A	Filed on April 29, 2011
DEF 14A	Filed on April 30, 2010
DEF 14A	Filed on None

10-Q 1 e607344_10q-gulf.htm Unassociated Document

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

	For the quarterly period ended June 30, 2010

	Or

o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

	For the transition period from _________ to _________

Commission File Number: 000-20936

GULF RESOURCES, INC.

(Exact name of registrant as specified in its charter)

Delaware		13-3637458
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

99 Wenchang Road, Chenming Industrial Park, Shouguang City, Shandong, China		262714
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: +86 (536) 567 0008

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o	Accelerated filer o
Non-accelerated filer (Do not check if a smaller reporting company) x	Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o No x

As of August 15, 2010, the registrant had outstanding 34,640,007 shares of common stock.

Table of Contents

Part I – Financial Information
Item 1. Financial Statements	2
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	26
Item 3. Quantitative and Qualitative Disclosures about Market Risk	34
Item 4. Controls and Procedures	34
Part II – Other Information
Item 1. Legal Proceedings	35
Item 1A. Risk Factors	35
Item 2. Unregistered Shares of Equity Securities and Use of Proceeds	35
Item 3. Defaults Upon Senior Securities	35
Item 4. Reserved and Removed	35
Item 5. Other Information	35
Item 6. Exhibits	35

Table of Contents

FORWARD-LOOKING STATEMENTS

This quarterly report on Form 10-Q and other reports filed by the Company from time to time with the Securities and Exchange Commission (collectively the “Filings”) contain or may contain forward-looking statements and information that are based upon beliefs of, and information currently available to, the Company’s management as well as estimates and assumptions made by Company’s management. Readers are cautioned not to place undue reliance on these forward-looking statements, which are only predictions and speak only as of the date hereof. When used in the filings, the words “anticipate”, “believe”, “estimate”, “expect”, “future”, “intend”, “plan”, or the negative of these terms and similar expressions as they relate to the Company or the Company’s management identify forward-looking statements. Such statements reflect the current view of the Company with respect to future events and are subject to risks, uncertainties, assumptions, and other factors, including the risks contained in the “Risk Factors” section of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2009 filed with the Securities and Exchange Commission, relating to the Company’s industry, the Company’s operations and results of operations, and any businesses that the Company may acquire. Should one or more of these risks or uncertainties materialize, or should the underlying assumptions prove incorrect, actual results may differ significantly from those anticipated, believed, estimated, expected, intended, or planned.

Although the Company believes that the expectations reflected in the forward-looking statements are reasonable, the Company cannot guarantee future results, levels of activity, performance, or achievements. Except as required by applicable law, including the securities laws of the United States, the Company does not intend to update any of the forward-looking statements to conform these statements to actual results.

Our financial statements are prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). These accounting principles require us to make certain estimates, judgments and assumptions. We believe that the estimates, judgments and assumptions upon which we rely are reasonable based upon information available to us at the time that these estimates, judgments and assumptions are made. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities as of the date of the financial statements as well as the reported amounts of revenues and expenses during the periods presented. Our financial statements would be affected to the extent there are material differences between these estimates and actual results. In many cases, the accounting treatment of a particular transaction is specifically dictated by GAAP and does not require management’s judgment in its application. There are also areas in which management’s judgment in selecting any available alternative would not produce a materially different result. The following discussion should be read in conjunction with our consolidated financial statements and notes thereto appearing elsewhere in this report.

Table of Contents

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

GULF RESOURCES, INC.

AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Expressed in U.S. dollars)

(UNAUDITED)

	June 30, 2010		December 31, 2009
Current Assets
Cash	$	55,197,372	$	45,536,735
Accounts receivable		25,057,316		14,960,002
Inventories		630,835		650,332
Prepayment and deposit		918,354		233,330
Prepaid land lease		58,850		46,133
Deferred tax asset		107,205		85,672
Other receivable		-		2,195,208
Total Current Assets		81,969,932		63,707,412
Property, plant and equipment, net		99,462,015		81,993,894
Prepaid land lease, net of current portion		716,858		721,862
Total Assets	$	182,148,805	$	146,423,168

Liabilities and Stockholders’ Equity
Current Liabilities
Accounts payable and accrued expenses	$	10,642,759	$	5,823,745
Retention payable		1,104,750		660,150
Due to related parties		232,400		1,190
Taxes payable		8,889,490		5,555,113
Total Current Liabilities		20,869,399		12,040,198
Total Liabilities		20,869,399		12,040,198

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; 34,640,007 and 34,541,066 shares issued and outstanding as of June 30, 2010 and December 31, 2009, respectively		17,320		17,271
Additional paid in capital		66,533,170		64,718,026
Retained earnings unappropriated		84,226,870		59,808,289
Retained earnings appropriated		5,679,769	5,679,769
Cumulative translation adjustment		4,822,277		4,159,615
Total Stockholders’ Equity		161,279,406		134,382,970
Total Liabilities and Stockholders’ Equity	$	182,148,805	$	146,423,168

The accompanying notes are an integral part of these consolidated financial statements.

Table of Contents

GULF RESOURCES, INC.

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Expressed in U.S. dollars)

(UNAUDITED)

	Three Months Ended June 30,						Six Months Ended June 30,
	2010			2009			2010			2009

NET REVENUE
Net revenue	$	46,751,809		$	29,590,897		$	76,445,227		$	53,224,436

OPERATING EXPENSES
Cost of net revenue		(23,689,903	)		(16,445,804	)		(39,925,402	)		(29,986,744	)
Sales, marketing and other operating expenses		(75,687	)		(5,902	)		(75,687	)		(10,783	)
Research and development cost		(377,220	)		(125,095	)		(502,422	)		(250,065	)
General and administrative expenses		(731,593	)		(990,539	)		(3,009,084	)		(2,085,038	)
		(24,874,403	)		(17,567,340	)		(43,512,595	)		(32,332,630	)

INCOME FROM OPERATIONS		21,877,406			12,023,557			32,932,632			20,891,806

OTHER INCOME (EXPENSES)
Interest expense		(52	)		(33	)		(226	)		(27,043	)
Interest income		59,824			23,762			113,584			45,792
Sundry income		-			-			21,998			-
INCOME BEFORE TAXES		21,937,178			12,047,286			33,067,988			20,910,555

INCOME TAXES		(5,510,733	)		(3,075,682	)		(8,649,407	)		(5,405,837	)
NET INCOME	$	16,426,445		$	8,971,604		$	24,418,581		$	15,504,718

EARNINGS PER SHARE:
BASIC	$	0.47		$	0.29		$	0.71		$	0.52
DILUTED	$	0.47		$	0.29		$	0.70		$	0.52

WEIGHTED AVERAGE NUMBER OF SHARES:

BASIC		34,587,479			30,542,211			34,574,514			29,860,581
DILUTED		34,738,667			30,542,211			34,750,714			29,860,581

The accompanying notes are an integral part of these consolidated financial statements.

Table of Contents

GULF RESOURCES, INC.

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Expressed in U.S. dollars)

(UNAUDITED)

	Three Months Ended June 30,					Six Months Ended June 30,
	2010		2009			2010		2009

NET INCOME	$	16,426,445	$	8,971,604		$	24,418,581	$	15,504,718
OTHER COMPREHENSIVE INCOME
Foreign currency translation adjustment		682,398		(6,200	)		662,662		(55,638	)
COMPREHENSIVE INCOME	$	17,108,843	$	8,965,404		$	25,081,243	$	15,449,080

The accompanying notes are an integral part of these consolidated financial statements.

Table of Contents

GULF RESOURCES, INC.

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

SIX MONTHS ENDED JUNE 30, 2010

(Expressed in U.S. dollars)

(UNAUDITED)

								Statutory
					Additional			common				Cumulative
	Number		Common		paid-in			reserve		Retained		translation
	of shares		stock		capital			fund		earnings		adjustment		Total
			$		$			$		$		$		$
BALANCE AT DECEMBER 31, 2009		34,541,066		17,271		64,718,026			5,679,769		59,808,289		4,159,615		134,382,970

Translation adjustment	-		-		-			-		-			662,662		662,662
Common stock issued for exercising stock option		12,500		6		17,994			-		-		-		18,000
Common stock issuance for exercising warrants		15,881		8		(8	)	-		-		-			-
Common stock issuance for acquiring assets		70,560		35		608,192			-		-		-		608,227
Issuance of warrants to non-employees		-		-		193,428			-		-		-		193,428
Issuance of stock options to employees		-		-		995,538			-		-		-		995,538
Net income for six months ended June 30, 2010	-		-		-			-			24,418,581	-			24,418,581
BALANCE AT JUNE 30, 2010		34,640,007		17,320		66,533,170			5,679,769		84,226,870		4,822,277		161,279,406

The accompanying notes are an integral part of these consolidated financial statements.

Table of Contents

	Six Months Ended June 30,
	2010			2009

CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	24,418,581		$	15,504,718
Adjustments to reconcile net income
Amortization of warrants		-			309,500
Amortization of prepaid expenses		46,379			7,983
Amortization of prepaid expenses by shares issued for consulting fee		-			32,232
Depreciation and amortization		4,787,674			3,026,880
Stock-based compensation expense		1,188,966			-
Deferred tax asset		(21,445	)	-
Bad debt provision		-			61,455
Changes in assets and liabilities
Accounts receivable		(10,055,752	)		(475,162	)
Inventories		19,405			88,034
Prepayment and deposit		(682,423	)		(410,997	)
Accounts payable and accrued expenses		4,920,174			419,562
Taxes payable		3,320,663			691,379
Net cash provided by operating activities		27,942,222			19,255,584

CASH FLOWS USED IN INVESTING ACTIVITIES
Additions of prepaid land lease		(50,940	)		-
Purchase of property, plant and equipment		(20,283,022	)	(15,663,051		)
Construction in progress		(551,699	)		(3,299,175	)
Net cash used in investing activities		(20,885,661	)		(18,962,226	)

CASH FLOWS PROVIDED BY FINANCING ACTIVITIES
Proceeds from exercising stock options		18,000			-
Proceeds from private placement		2,192,919		-
Advance from a related party		231,210			6,829,785
Net cash provided by financing activities		2,442,129			6,829,785

EFFECTS OF EXCHANGE RATE CHANGE ON CASH		161,947			(43,992	)
NET INCREASE IN CASH & CASH EQUIVALENT		9,660,637			7,079,151
CASH & CASH EQUIVALENT - BEGINNING OF PERIOD		45,536,735			30,878,044
CASH & CASH EQUIVALENT - END OF PERIOD	$	55,197,372		$	37,957,195

The accompanying notes are an integral part of these consolidated financial statements.

Table of Contents

GULF RESOURCES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(Expressed in U.S. dollars)
(UNAUDITED)

	Six Months Ended June 30,
	2010		2009
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for:
Income taxes	$	6,157,079	$	4,615,907
Interest paid	$	226	$	27,009
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES
Issuance of common stock for settlement of stockholder’s notes payable	$	-	$	21,287,493

Issuance of common stock for acquiring property, plant and equipment	$	608,227	$	615,000

Issuance of common stock for exercising warrants	$	8	$	-

The accompanying notes are an integral part of these consolidated financial statements.

Table of Contents

GULF RESOURCES, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2010

(Expressed in U.S. dollars)

(UNAUDITED)

NOTE 1 – NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

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. The balance sheet at December 31, 2009 is derived from the audited balance sheet at that date which is not presented herein.

In the opinion of management, the unaudited financial information for the quarter ended June 30, 2010 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 Annual Report on Form 10-K for the year ended December 31, 2009. Operating results for the quarter ended June 30, 2010 are not necessarily indicative of operating results for an entire fiscal year.

All relevant share data have been adjusted retrospectively to reflect a 1 for 4 reverse stock split effective on October 12, 2009.

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").

Basis of Consolidation

The consolidated financial statements include the accounts of Gulf Resources, Inc. and its wholly-owned subsidiaries, 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”), which owns 100% of SCHC and SYCI, which is 100% owned by SCHC. All material intercompany transactions have been eliminated on consolidation.

The consolidated financial statements have been restated for all periods prior to the mergers to include the financial position, results of operations and cash flows of the commonly controlled companies.

Use of Estimates

The Company’s consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and this requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. The most significant accounting estimates with regard to these consolidated financial statements that require the most significant and subjective judgments include, but are not limited to, useful lives of property, plant and equipment, recoverability of long-lived assets, determination of impairment losses, assessment of market value of inventories and provision for inventory obsolescence, allowance for doubtful accounts, recognition and measurement of current and deferred income taxes, valuation allowance for deferred tax assets, and assumptions used for the valuation of share based payments. Accordingly, actual results may differ significantly from these estimates under different assumptions or conditions

Cash and Cash Equivalents

Cash and cash equivalents consist of all cash balances and highly liquid investments with maturities of three months or less. Because of short maturity of these investments, the carrying amounts approximate their fair values.

Table of Contents

GULF RESOURCES, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2010

(Expressed in U.S. dollars)

(UNAUDITED)

NOTE 1 – NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – Continued

Accounts Receivable and Allowance for Doubtful Accounts

Accounts receivable is stated at cost, net of allowance for doubtful accounts. The Company establishes an allowance for doubtful accounts based on management’s assessment of the collectivity of trade and other receivables. A considerable amount of judgment is required in assessing the amount of allowance and the Company considers the historic level of credit losses and applies certain percentage to accounts receivable balance. The Company makes judgments about the credit worthiness of each customer based on ongoing credit evaluations, and monitors current economic trends that might impact the level of credit losses in the future. If the financial condition of the customer begins to deteriorate, resulting in their inability to make payments, a larger allowance may be required.

As of June 30, 2010 and 2009, allowance for doubtful accounts was nil and $61,455, respectively. Nil and $61,455 allowances for doubtful accounts were charged to the income statement for six months ended June 30, 2010 and 2009, respectively.

Concentration of Credit Risk

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.

Inventories

Inventories are stated at the lower of cost, determined on a first-in first-out cost basis, or market. Costs of work-in-progress and finished goods comprise direct materials, direct labor and an attributable portion of manufacturing overhead. Net realizable value is based on estimated selling price less costs to complete and selling expenses.

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 expenditures that extend the useful lives 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.

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 the renovation costs of plant, machinery and equipment. Costs incurred are capitalized and transferred to property and equipment upon completion, at which time depreciation commences. Cost of repairs and maintenance is expensed as incurred.

The Company’s depreciation and amortization policies on fixed assets other than mineral rights and construction in progress are as follows:

	Useful life (in years)
Buildings	20
Plant and machinery	8
Motor vehicles	5
Furniture, fixtures and office equipment	8

Table of Contents

GULF RESOURCES, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2010

(Expressed in U.S. dollars)

(UNAUDITED)

NOTE 1 – NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – Continued

Asset Retirement Obligation

The Company follows FASB ASC 410, which established a uniform methodology for accounting for estimated reclamation and abandonment costs. FASB ASC 410 requires the fair value of a liability for an asset retirement obligation to be recognized in the period in which the legal obligation associated with the retirement of the long-lived asset is incurred. When the liability is initially recorded, the offset is capitalized by increasing the carrying amount of the related long-lived asset. Over time, the liability is accreted to its present value each period, and the capitalized cost is depreciated over the useful life of the related asset. To settle the liability, the obligation is paid, and to the extent there is a difference between the liability and the amount of cash paid, a gain or loss upon settlement is recorded.

Currently, there are no reclamation or abandonment obligations associated with the land being utilized for exploitation.

Recoverability of Long Lived Assets

Long-lived and certain identifiable intangibles are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. The Company is not aware of any events or circumstances which indicate the existence of an impairment which would be material.

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 $132,964 and $79,038 for the three months ended June 30, 2010 and 2009, respectively, and the Company’s contributions totaled $242,966 and $151,588 for the six months ended June 30, 2010 and 2009, respectively

Mineral Rights

The Company follows that certain mineral rights are considered tangible assets and that mineral rights should be accounted for based on their substance. Mineral rights are included in property, plant and equipment.

Reporting Currency and Translation

The financial statements of the Company’s foreign subsidiaries are measured using the local currency as the functional currency; however, the reporting currency is the United States dollar (“USD”). Assets and liabilities of the Company have been translated into dollars using the exchange rate at the balance sheet date. The average exchange rate for the period has been used to translate revenues and expenses. Translation adjustments are reported separately and accumulated in a separate component of equity (cumulative translation adjustment).

Foreign Operations

All of the Company’s operations and assets are located in China. The Company may be adversely affected by possible political or economic events in this country. The effect of these factors cannot be accurately predicted.

Table of Contents

GULF RESOURCES, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2010

(Expressed in U.S. dollars)

(UNAUDITED)

NOTE 1 – NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – Continued

Revenue Recognition

The Company recognizes revenue, net of any taxes, when persuasive evidence of a customer or distributor arrangement exists or acceptance occurs, receipt of goods by customer occurs, the price is fixed or determinable, and the sales revenues are considered collectible. Subject to these criteria, the Company generally recognizes revenue at the time of shipment or delivery to the customer, and when the customer takes ownership and assumes risk of loss based on shipping terms.

Income Taxes

The Company uses the asset and liability method of accounting for income taxes. Under the asset and liability method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statements carrying amounts of existing assets and liabilities and their respective tax bases and tax loss carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.

Shipping and Handling Fees and Costs

The Company does not charge its customers for shipping and handling. The Company classifies shipping and handling costs as part of the cost of net revenue, for the three months ended June 30, 2010 and 2009 shipping and handling costs were $164,440 and $132,152, respectively, and for the six months ended June 30, 2010 and 2009, shipping and handling costs were $285,311 and $241,730 respectively.

Stock-based Compensation

Common stock, stock options and stock warrants issued to employees or directors are recorded at their fair values estimated at grant date using the Black-Scholes model and the portion that is ultimately expected to vest is recognized as compensation cost over the requisite service period.

Common stock, stock options and stock warrants issued to other than employees or directors are recorded on the basis of their fair value using the Black-Scholes model on the basis of the market price of the underlying common stock on the “valuation date,” which for options and warrants related to contracts that have substantial disincentives to non-performance is the date of the contract, and for all other contracts the measurement date is the date that the service is complete. Expense related to the options and warrants is recognized on a straight-line basis over the shorter of the period over which services are to be received or the vesting period. Where expense must be recognized prior to a valuation date, the expense is computed under the Black-Scholes model on the basis of the market price of the underlying common stock at the end of the period, and any subsequent changes in the market price of the underlying common stock up through the valuation date is reflected in the expense recorded in the subsequent period in which that change occurs.

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.

Table of Contents

GULF RESOURCES, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2010

(Expressed in U.S. dollars)

(UNAUDITED)

NOTE 1 – NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – Continued

The following table sets forth the computation of basic and diluted earnings per share:

	Three Months Ended June 30,
	2010		2009
Numerator
Net income	$	16,426,445	$	8,971,604

Denominator
Basic: Weighted-average common shares outstanding during the period		34,587,479		30,542,211
Add: Dilutive effect of stock options		151,188		-
Diluted		34,738,667		30,542,211

Net income per share
Basic	$	0.47	$	0.29
Diluted	$	0.47	$	0.29

	Six months ended June 30,
	2010		2009
Numerator
Net income	$	24,418,581	$	15,504,718

Denominator
Basic: Weighted-average common shares outstanding during the period		34,574,514		29,860,581
Add: Dilutive effect of stock options		176,200		-
Diluted		34,750,714		29,860,581

Net income per share
Basic	$	0.71	$	0.52
Diluted	$	0.70	$	0.52

Table of Contents

GULF RESOURCES, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2010

(Expressed in U.S. dollars)

(UNAUDITED)

NOTE 1 – NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES– Continued

Recently Adopted Accounting Pronouncements

In February 2010, the FASB issued ASU No. 2010-09, Subsequent Events (Topic 855): Amendments to Certain Recognition and Disclosure Requirements. The amendments in the ASU remove the requirement for a Securities and Exchange Commission filer to disclose a date through which subsequent events have been evaluated in both issued and revised financial statements. This amendment was effective upon issuance.

Recent Accounting Pronouncements Not Yet Adopted

In April 2010, the FASB issued ASU No. 2010-13, Compensation—Stock Compensation (Topic 718): Effect of Denominating the Exercise Price of a Share-Based Payment Award in the Currency of the Market in Which the Underlying Equity Security Trades. This Update provides amendments to Topic 718 to clarify that an employee share-based payment award with an exercise price denominated in the currency of a market in which a substantial portion of the entity’s equity securities trades should not be considered to contain a condition that is not a market, performance, or service condition. Therefore, an entity would not classify such an award as a liability if it otherwise qualifies as equity. The update is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2010. Management does not anticipate significant effect of the amendment to the Group as the Group has accounted for share-based payment award as equity.

NOTE 2 – ASSETS ACQUISITIONS

On January 7, 2009, the Company acquired substantially all of the assets owned by Fenqiu Yuan, Han Wang and Yufen Zhang in the Shouguang City Renjiazhuangzi Village North Area (the “Fenqiu Yuan, Han Wang & Yufen Zhang property” or Factory No. 7”). The Fenqiu Yuan, Han Wang and Yufen Zhang property includes a 50-year mineral rights (as of date acquisition) and land lease covering 1,611 acres of real property, with the related production facility, the pipelines, other production equipment, and the buildings located on the property. The total purchase price for the acquired assets was $10,615,000, consisting of $10,000,000 in cash and 375,000 shares of the Company’s Common Stock valued at $615,000 (fair value).

On September 7, 2009, the Company acquired substantially all of the assets owned by Yuliang Gao, Han Wang and Qing Yang in the Shouguang City Yingli Township Beishan Village (the “Yuliang Gao, Han Wang & Qing Yang property” or Factory No. 8”). Fengxia Yuan acted as Attorney-in-Fact for one of the owners of Factory 8, Yuliang Gao, and entered into the acquisition agreement relating to Factory 8 on behalf of Yuliang Gao. The Yuliang Gao, Han Wang and Qing Yang property includes a 50-year mineral rights (as of date acquisition) and land lease covering 2,723 acres of real property, with the related production facility, the pipelines, other production equipment, and the buildings located on the property. The total purchase price for the acquired assets was $16,930,548, consisting of $11,516,960 in cash and 1,057,342 shares of the Company’s Common Stock valued at $5,413,588 (fair value).

Table of Contents

GULF RESOURCES, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2010

(Expressed in U.S. dollars)

(UNAUDITED)

NOTE 2 – ASSETS ACQUISITIONS– Continued

On June 7, 2010, the Company acquired substantially all of the assets owned by Jinjin Li and Qiuzhen Wang in the Shouguang City Yangkou Township Yangzhuang Village (the “Jinjin Li and Qiuzhen Wang property” or Factory No. 9”). Jinjin Li was acting individually and as Attorney-in-Fact for four other owners of Factory 9, Yueliang Wang, Kunming Tian, Gaoming Tian and Zhiqiang Wei. The Jinjin Li and Qiuzhen Wang property includes a 50-year mineral rights (as of date acquisition) and land lease covering 759 acres of real property, with the related production facility, the pipelines, other production equipment, and the buildings located on the property. The total purchase price for the acquired assets was $13,905,719, consisting of $13,297,492 in cash and 70,560 shares of the Company’s Common Stock valued at $608,227 (fair value).

Each of the asset acquisitions described above was not in operation when the Company acquired the assets. The owners of each of the assets did not hold the proper license for the exploration and production of bromine, and production at each of the assets acquired had previously been halted by the government. With respect to Factory No. 7, the assets had not been operational for twelve months. With respect to Factory No. 8, the assets had not been operational for thirteen months. With respect to Factory No. 9, the assets had not been operational for eleven months The Company recorded the above transactions as purchase of assets.

NOTE 3 – INVENTORIES

Inventory consists of:

	June 30, 2010			December 31, 2009

Raw material	$	293,805		$	298,359
Finished goods		341,681			356,605
Allowance for obsolete and slow moving inventory		(4,651	)		(4,632	)

	$	630,835		$	650,332

NOTE 4 – PREPAID LAND LEASES

The Company prepaid for land leases for a period of fifty years to use the land on which the office premises, production facilities and warehouse of the Company are situated. The prepaid land lease is amortized on a straight line basis. During the three months ended June 30, 2010, amortization of prepaid land lease totaled $24,322, of which $24,175 and $147 were recorded as cost of net revenue and administrative expenses respectively. During the three months ended June 30, 2009, amortization of prepaid land lease totaled $3,961, of which $3,814 and $147 were recorded as cost of net revenue and administrative expenses respectively. During the six months ended June 30, 2010, amortization of prepaid land lease totaled $46,379, of which $46,085 and $294 were recorded as cost of net revenue and administrative expenses respectively. During the six months ended June 30, 2009, amortization of prepaid land leases totaled $7,918, of which $7,625 and $293 were recorded as cost of net revenue and administrative expenses respectively.

Table of Contents

GULF RESOURCES, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2010

(Expressed in U.S. dollars)

(UNAUDITED)

NOTE 5 – PROPERTY, PLANT AND EQUIPMENT, NET

Property, plant and equipment, net consist of the following:

	June 30, 2010		December 31, 2009

At cost:
Mineral rights	$	5,864,482	$	5,840,594
Buildings		29,267,535		21,651,379
Plant and machinery		78,885,399		63,270,428
Furniture, fixtures and office equipment		3,617,844		3,602,676
Motor vehicles		6,519		-
Construction in progress		553,848		1,467,000

Total		118,195,627		95,832,077

Less: accumulated depreciation and amortization		18,733,612		13,838,183

Net book value	$	99,462,015	$	81,993,894

During the three months ended June 30, 2010, depreciation and amortization expense totaled $2,410,053, of which $2,348,969 and $61,084 were recorded as cost of net revenue and administrative expenses respectively. During the three months ended June 30, 2009, depreciation and amortization expense totaled $1,555,677, of which $1,516,080 and $39,597 were recorded as cost of sales and administrative expenses respectively.

There were no impairment provisions made at June 30, 2010 and 2009.

In August 2009, the Company completed a sewage treatment project at a total cost of Renminbi 45,000,000 (equivalent to $6,628,500). A retention amount of $662,850, representing 10% of the total cost will be paid to Xuzhou Bishui Environmental Science Technology Co., Ltd. upon one year after the completion date.

In June 2010, the Company completed the construction of a production line for wastewater treatment chemical additives at a total cost of Renminbi 60,000,000 (equivalent to $8,838,000). A retention amount of $441,900, representing 5% of the total cost will be paid to Shouguang City Shengkun Construction Co., Ltd. upon one year after the completion date.

Table of Contents

GULF RESOURCES, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2010

(Expressed in U.S. dollars)

(UNAUDITED)

NOTE 6 – ACCOUNTS PAYABLE AND ACCRUED EXPENSES

Accounts payable and accrued expenses consist of the following:

	June 30,		December 31,
	2010		2009
Accounts payable	$	10,136,676	$	5,348,638
Salary payable		193,864		177,194
Social security insurance contribution payable		60,616		19,132
Other payable		251,603		278,781
Total	$	10,642,759	$	5,823,745

NOTE 7 – DUE TO RELATED PARTIES AND RELATED PARTY TRANSACTIONS

The amount consists of the following:

	June 30,		December 31,
	2010		2009
Due to a key management	$	1,190	$	1,190
Due to a related company – Hong Kong Jiaxing Lighting Limited	$	231,210	$	-

The amount of $1,190 represents advance from a key management of the Company which is unsecured, and interest free and repayable on demand.

The amount due to a related company represents funds received from Hong Kong Jiaxing Lighting Limited which is unsecured, interest free and repayable on demand for the purpose of paying the Company’s daily operating expenses such as audit fees and legal fees etc., which are incurred by Gulf Resources.

Table of Contents

GULF RESOURCES, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2010

(Expressed in U.S. dollars)

(UNAUDITED)

NOTE 8 – TAXES PAYABLE

Taxes payable consists of the following:

	June 30,		December 31,
	2010		2009
Income tax payable	$	5,616,118	$	3,079,233
Mineral resource compensation fee payable		641,873		333,928
Value added tax payable and others		2,631,499		2,141,952
Total	$	8,889,490	$	5,555,113

NOTE 9 – COMMON STOCK

Effective October 12, 2009 the Company affected a one for four reverse stock split. All shares and per share amount for all periods presented have been adjusted to reflect the reverse stock split.

In March 2009, the Company issued 5,250,000 shares of its common stock as payment for $21,287,493 of Notes and Loan Payable-Related Party.

In March 2009, the Company issued 375,000 shares of its common stock, valued at $615,000, to acquire assets owned by Mr. Fenqiu Yuan, Han Wang and Yufen Zhang.

In September 2009, the Company issued 1,057,342 shares of its common stock, valued at $5,413,588, to acquire assets owned by Han Wang, Qing Yang and Yuliang Gao.

In December 2009, the Company issued 2,941,182 shares of its common stock at a price of $8.50 per share in a private placement. A portion of the proceeds were received by the Company in January 2010.

In August 2008, the Company granted to one investor relations firm a warrant to purchase a total of 25,000 shares of the Company’s common stock at an exercise price of $4.80 per share and the options vested immediately. In January 2010, the investor relations firm made a cashless exercise for the warrant. The Company issued 15,881 shares based on the fair market price of $13.16.

In the fourth quarter of 2008, the Company granted to one Board member options to purchase a total of 12,500 shares of the Company’s common stock at an exercise price of $1.44 per share and the options vested immediately. In February 2010, the Company issued 12,500 shares of its common stock upon the exercise of such stock options by the Board member.

In June 2010, the Company issued 70,560 shares of its common stock, valued at $608,227, to acquire assets owned by Mr Jinjin Li, Ms Qiuzhen Wang, Yueliang Wang, Kunming Tian, Gaoming Tian and Zhiqiang Wei .

Table of Contents

GULF RESOURCES, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2010

(Expressed in U.S. dollars)

(UNAUDITED)

NOTE 10 – STOCK-BASED COMPENSATION

Pursuant to the 2007 Equity Incentive Plan, the aggregate number of stock options available for grant and issuance is 2,500,000 shares.

In March 2009, the Company granted to 9 management staff (including 4 directors of the Company) options to purchase a total of 150,000 shares (25,000 for each of the executive directors, and 12,500 each for one non executive independent director and 5 other management staff) of the Company’s common stock at an exercise price of $4.80 per share and the options vested immediately. The options were valued at $143,820 fair value, using the Black-Scholes option pricing model with assumed 174% volatility, a three-year expiration term, a risk free rate of 1.43% and no dividend yield. For the year ended December 31, 2009, $143,820 was recognized as general and administrative expenses.

In May 2009, the Company granted to a director options to purchase 12,500 shares of the Company’s common stock at an exercise price of $4.80 per share and the options vested immediately. The options were valued at $20,486 fair value, using the Black-Scholes option pricing model with assumed 170% volatility, a three-year expiration term, a risk free rate of 1.43% and no dividend yield. For the year ended December 31, 2009, $20,486 was recognized as general and administrative expenses.

In June 2009, the Company granted to a director options to purchase 25,000 shares of the Company’s common stock at an exercise price of $4.80 per share and the options vested immediately. The options were valued at $39,534 fair value, using the Black-Scholes option pricing model with assumed 167% volatility, a three-year expiration term, a risk free rate of 1.43% and no dividend yield. For the year ended December 31, 2009, $39,534 was recognized as general and administrative expenses.

In October 2009, the Company granted to 2 management staff options to purchase 37,500 shares of the Company’s common stock at an exercise price of $6.44 per share and the options vested immediately. The options were valued at $219,656 fair value, using the Black-Scholes option pricing model with assumed 161% volatility, a three-year expiration term, a risk free rate of 1.43% and no dividend yield. For the year ended December 31, 2009, $219,656 was recognized as general and administrative expenses.

In October 2009, the Company granted to an independent director options to purchase 12,500 shares of the Company’s common stock at an exercise price of $9.65 per share and the options vested immediately. The options were valued at $90,648 fair value, using the Black-Scholes option pricing model with assumed 160% volatility, a three-year expiration term, a risk free rate of 1.43% and no dividend yield. For the year ended December 31, 2009, $90,648 was recognized as general and administrative expenses.

In November 2009, the Company granted to an independent director options to purchase 12,500 shares of the Company’s common stock at an exercise price of $10.14 per share and the options vested immediately. The options were valued at $92,315 fair value, using the Black-Scholes option pricing model with assumed 152% volatility, a three-year expiration term, a risk free rate of 1.43% and no dividend yield. For the year ended December 31, 2009, $92,315 was recognized as general and administrative expenses.

In December 2009, the Company granted to an investment bank warrants to purchase 176,471 shares of the Company’s common stock at an exercise price of $10.2 per share and the warrants vested immediately. The warrants were valued at $1,367,156 fair value, using the Black-Scholes option pricing model with assumed 156% volatility, a three-year expiration term, a risk free rate of 1.43% and no dividend yield. For the year ended December 31, 2009, $1,367,156 was recognized as general and administrative expenses.

Table of Contents

GULF RESOURCES, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2010

(Expressed in U.S. dollars)

(UNAUDITED)

NOTE 10 – STOCK-BASED COMPENSATION – Continued

In February 2010, the Company granted to 8 management staff options to purchase 132,500 shares of the Company’s common stock at an exercise price of $8.25 per share and the options vested immediately. The options were valued at $995,539 fair value, using the Black-Scholes option pricing model with assumed 154% volatility, a three-year expiration term, a risk free rate of 1.60% and no dividend yield. For the three months ended March 31, 2010, $995,539 was recognized as general and administrative expenses.

In February 2010, the Company granted to the investing relationship firm warrants to purchase 25,000 shares of the Company’s common stock at an exercise price of $12 per share and the warrants vested immediately. The warrants were valued at $193,428 fair value, using the Black-Scholes option pricing model with assumed 155% volatility, a four-year expiration term, a risk free rate of 1.60% and no dividend yield. For the three months ended March 31, 2010, $193,428 was recognized as general and administrative expenses.

The following table summarizes all Company stock option transactions between January 1, 2010 and June 30, 2010.

	Number of Option &Warrants Outstanding		Number of Option &Warrants Vested		Range of Exercise Price per Common Share
Balance, December 31, 2009		501,471		501,471	$	0.84 - $10.20
Granted or vested during the six months ended June 30, 2010		157,500		157,500	$	8.25-12.0
Exp Exercised during the six months ended June 30, 2010		(37,500)		(37,500)	$	1.44-$4.8
Balance, June 30, 2010		621,471		621,471	$	0.84 - $12.0

Stock and Warrants Options Outstanding

	Outstanding and	Weighted Average	Weighted Average
Range of	Currently Exercisable	Remaining	Exercise Price of Options
Exercise Prices	at June 30, 2010	Contractual Life (Years)	Currently Exercisable

$0.84-$12.0	621,471	3.99	$ 7.72

The weighted average grant-date fair values as at June 30, 2010 and December 31, 2009 were $6.99 and $6.84, respectively.

At June 30, 2010, the aggregate intrinsic value of the stock options and warrants was nil.

Table of Contents

GULF RESOURCES, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2010

(Expressed in U.S. dollars)

(UNAUDITED)

NOTE 11– INCOME TAXES

The Company utilizes the asset and liability method of accounting for income taxes in accordance with FASB ASC 740-10.

United States

Gulf Resources, Inc. is subject to the United States of America Tax law at tax rate of 34%. No provision for the US federal income taxes has been made as the Company had no US taxable income for the period ended June 30, 2010 and 2009, and management believes that its earnings are permanently invested in the PRC. As of June 30, 2010 and 2009, the accumulated undistributed PRC earnings are $101,140,677 and $57,440,850, respectively.

BVI

Upper Class Group Limited was incorporated in the BVI and, under the current laws of the BVI, it is not subject to tax on income or capital gain in the BVI. Upper Class Group Limited did not generate assessable profit for the periods ended June 30, 2010 and 2009.

Hong Kong

Hong Kong Jiaxing Industrial Limited was incorporated in Hong Kong and is subject to Hong Kong profits tax. The Company is subject to Hong Kong taxation on its activities conducted in Hong Kong and income arising in or derived from Hong Kong. No provision for profits tax has been made as the Company has no assessable income for the period. The applicable statutory tax rates for the periods ended June 30, 2010 and 2009 are 16.5%.

PRC

Enterprise income tax (“EIT”) for SCHC and SYCI in the PRC is charged at 25% of the assessable profits.

The operating subsidiaries SCHC and SYCI are wholly foreign-owned enterprises (“FIE”) incorporated in the PRC and are subject to PRC Foreign Enterprise Income Tax Law.

On February 22, 2008, the Ministry of Finance (“MOF”) and the State Administration of Taxation (“SAT”) jointly issued Cai Shui [2008] Circular 1 (“Circular 1”). According to Article 4 of Circular 1, distributions of accumulated profits earned by a FIE prior to January 1, 2008 to foreign investor(s) in 2008 will be exempt from withholding tax (“WHT”) while distribution of the profit earned by an FIE after January 1, 2008 to its foreign investor(s) shall be subject to WHT.

Table of Contents

GULF RESOURCES, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2010

(Expressed in U.S. dollars)

(UNAUDITED)

NOTE 11– INCOME TAXES– Continued

	June 30,			December 31,
	2010			2009
Deferred tax liabilities	$	-		$	-

Deferred tax assets:
Allowance for obsolete and slow-moving inventories	$	1,163		$	1,158
Property, plant and equipment		102,952			81,437
Net operating loss		7,638,095			6,692,426
Other assets		3,090			3,077

Total deferred tax assets		7,745,300			6,778,098

Valuation allowance		(7,638,095	)		(6,692,426	)

Net deferred tax asset	$	107,205		$	85,672

Current deferred tax asset	$	107,205		$	85,672
Long-term deferred tax asset	$	-		$	-

There was no unrecognized tax benefits and accrual for uncertainty tax positions as of June 30, 2010 and 2009.

Tax returns filed regarding tax years from 2005 through 2009 are subject to review by the respective tax authorities.

Table of Contents

GULF RESOURCES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2010

(Expressed in U.S. dollars)

(UNAUDITED)

NOTE 12– BUSINESS SEGMENTS

The Company has two reportable segments: bromine and crude salt and chemical products.

Three Months Ended June 30, 2010	Bromine and		Chemical		Segment					Consolidated
Three Months Ended June 30, 2010	Crude Salt		Products		Total		Corporate			Total

Net revenue	$	34,984,070	$	11,767,739	$	46,751,809	$	-		$	46,751,809
Income (loss) from operations		18,678,688		3,389,772		22,068,460		(191,054	)		21,877,406
Total assets		146,629,445		35,466,253		182,095,698		53,107			182,148,805
Depreciation and amortization		1,988,208		421,845		2,410,053		-			2,410,053
Capital expenditure		14,621,645		2,641,140		17,262,785		-			17,262,785

Three Months Ended June 30, 2009	Bromine and		Chemical		Segment					Consolidated
Three Months Ended June 30, 2009	Crude Salt		Products		Total		Corporate			Total

Net revenue	$	20,529,449	$	9,061,448	$	29,590,897	$	-		$	29,590,897
Income (loss) from operations		9,199,179		3,072,202		12,271,381		(247,824	)		12,023,557
Total assets		87,743,342		25,773,119		113,516,461		115,627			113,632,088
Depreciation and amortization		1,333,847		221,830		1,555,677		-			1,555,677
Capital expenditure		5,638,785		3,299,175		8,937,960		-			8,937,960

Six Months Ended June 30, 2010	Bromine and		Chemical		Segment					Consolidated
Six Months Ended June 30, 2010	Crude Salt		Products		Total		Corporate			Total

Net revenue	$	54,880,528	$	21,564,699	$	76,445,227	$	-		$	76,445,227
Income (loss) from operations		27,804,516		6,753,287		34,557,803		(1,625,171	)		32,932,632
Total assets		146,629,445		35,466,253		182,095,698		53,107			182,148,805
Depreciation and amortization		3,944,214		843,460		4,787,674		-			4,787,674
Capital expenditure		14,621,645		7,040,639		21,662,284		-			21,662,284

Table of Contents

GULF RESOURCES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2010

(Expressed in U.S. dollars)

(UNAUDITED)

NOTE 12– BUSINESS SEGMENTS – Continued

Six Months Ended June 30, 2009	Bromine and		Chemical		Segment				Consolidated
Six Months Ended June 30, 2009	Crude Salt		Products		Total		Corporate		Total

Net revenue	$	36,059,724	$	17,164,712	$	53,224,436	$	-	$	53,224,436
Income (loss) from operations		15,740,780		5,826,524		21,567,304		(675,498)		20,891,806
Total assets		87,743,342		25,773,119		113,516,461		115,627		113,632,088
Depreciation and amortization		2,585,859		441,021		3,026,880		-		3,026,880
Capital expenditure		15,663,051		3,299,175		18,962,226		-		18,962,226

	Three Months Ended				Six Months Ended
	June 30,				June 30,
Reconciliations	2010		2009		2010		2009

Total segment operating income	$	22,068,460	$	12,271,381	$	34,557,803	$	21,567,304
Corporate overhead expenses		(191,054)		(247,824)		(1,625,171)		(675,498)
Other income		59,772		23,729		135,356		18,749
Income tax expense		(5,510,733)		(3,075,682)		(8,649,407)		(5,405,837)

Total consolidated net income	$	16,426,445	$	8,971,604	$	24,418,581	$	15,504,718

The following table shows the major customer(s) (10% or more) for the six months ended June 30, 2010.

Number	Customer	Bromine and Crude Salt (000’s)	Chemical Products (000’s)	Total Revenue (000’s)	Percentage of Total Revenue (%)
1	Shouguang City Rongyuan Chemical Company Limited	$8,258	$-	$8,258	10.8%
TOTAL		$8,258	$-	$8,258	10.8%

The following table shows the major customer(s) (10% or more) for the six months ended June 30, 2009.

Number	Customer	Bromine and Crude Salt (000’s)	Chemical Products (000’s)	Total Revenue (000’s)	Percentage of Total Revenue (%)
1	Shandong Morui Chemical Company Limited	$5,943	$-	$5,943	11.2%
2	Shouguang City Rongyuan Chemical Company Limited	$5,936	$-	$5,936	11.2%
TOTAL		$11,879	$-	$11,879	22.4%

Table of Contents

GULF RESOURCES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2010

(Expressed in U.S. dollars)

(UNAUDITED)

NOTE 13 – MAJOR SUPPLIERS

During the six months period ended June 30, 2010, the Company purchased 91.16% of its raw materials from its top five suppliers. At June 30, 2010, amounts due to those suppliers included in accounts payable were $9,403,022. During the period ended June 30, 2009, the Company purchased 49.9% of its raw material from top five suppliers. At June 30, 2009, amounts due to those suppliers included in accounts payable were $2,758,587. This concentration makes the Company vulnerable to a near-term severe impact, should the relationships be terminated.

NOTE 14 – CUSTOMER CONCENTRATION

The Company sells a substantial portion of its products to a limited number of customers. During the six month period ended June 30, 2010, the Company sold 41.7% of its products to its top five customers. At June 30, 2010, amounts due from these customers were $11,616,499. During the period ended June 30, 2009, the Company sold 40.6% of its products to its top five customers. At June 30, 2009, amounts due from these customers was $4,968,208. This concentration makes the Company vulnerable to a near-term severe impact, should the relationships be terminated

NOTE 15– ESTABLISHMENT OF CO-OP RESEARCH AND DEVELOPMENT CENTER AND RESEARCH FOR NEW PRODUCTION LINE

On September 6, 2007, the Company’s wholly-owned subsidiary, SYCI, and East China University of Science and Technology formally opened a Co-Op Research and Development Center. The research center is equipped with state of the art chemical engineering instruments for the purpose of pursuing targeted research and development of refined bromide compounds and end products. According to the Co-Op Research Agreement, any research achievement or patents will become assets of the Company. The Company will provide $500,000 annually until June 2012 to East China University of Science and Technology for research.

In the second quarter of 2010, the Company’s wholly-owned subsidiary, SYCI conducted research for the new production line of waste water treatment additives, the research is for the purpose of testing the manufacturing routine and samples, the research and development expense incurred for the new production line from outside parties and internal company were $252,018 and $218,931, respectively.

The total research and development expense recognized during the three months and six months ended June 30, 2010 was $377,200 and $502,422. The research and development expense recognized during the three months and six months ended June 30, 2009 was $125,095 and $250,065.

Table of Contents

GULF RESOURCES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2010

(Expressed in U.S. dollars)

(UNAUDITED)

NOTE 16 – CAPITAL COMMITMENT AND OPERATING LEASE COMMITMENTS

The Company has committed approximately $5,538,480 for construction of new channel and wells for bromine facilities as of June 30, 2010.

The Company has leased three pieces of land under non-cancelable operating leases, which are fixed in rentals and expired through February, August 2059 and June 2060, respectively. The Company accounts for the leases as operating leases. Future minimum lease payments consist of the following at June 30, 2010 :

Less than 1 year	$	37,357
1 -3 years	$	222,529
3 -5 years	$	220,162
More than 5 years	$	9,195,491

Total	$	9,675,539

Rental expense amounted to $46,379 and $7,983 were charged to the income statements for the six months period ended June 30, 2010 and 2009 respectively.

Table of Contents

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

Gulf Resources conducts operations through its two wholly-owned China subsidiaries, SCHC and SYCI. Our business is also reported in these two segments, Bromine and Crude salts, and Chemical Products.

Through SCHC, we produce and sell bromine and crude salt. We are one of the largest producers of bromine in China, as measured by production output. Elemental bromine is used to manufacture a wide variety of brominated compounds used in industry and agriculture. Bromine is commonly used in brominated flame retardants, fumigants, water purification compounds, dyes, medicines, and disinfectants.

Through SYCI, we manufacture and sell chemical products that are used in oil and gas field exploration, oil and gas distribution, oil field drilling, wastewater processing, papermaking chemical agents and inorganic chemicals.

On December 12, 2006, Gulf Resources acquired, through a share exchange, Upper Class Group Limited, a British Virgin Islands holding corporation which then owned all of the outstanding shares of SCHC. Under accounting principles generally accepted in the United States, this share exchange is considered to be a capital transaction, rather than a business combination, with the share exchange equivalent to the issuance of stock by Upper Class for the net assets of Gulf Resources, accompanied by a recapitalization, and is accounted for as a change in capital structure. Accordingly, the accounting for the share exchange was identical to that resulting from a reverse acquisition, except no goodwill was recorded. Under reverse takeover accounting, the post reverse acquisition comparative historical financial statements of the legal acquirer, Gulf Resources, are those of the legal acquiree, Upper Class Group Limited and its subsidiary, SCHC, which together are considered to be the accounting acquirer. Share and per share amounts reflected in this report have been retroactively adjusted to reflect the merger.

Table of Contents

On February 5, 2007, Gulf Resources, through its subsidiary SCHC, acquired SYCI. Since prior to the acquisition the ownership of Gulf Resources and SYCI was substantially the same, the transaction was accounted for as a transaction between entities under common control, whereby the assets and liabilities of SYCI were recognized at their carrying amounts.

As a result of our acquisitions of SCHC and SYCI, the historical financial statements and the information presented below reflects the accounts of SCHC and SYCI. The following discussion should be read in conjunction with our consolidated financial statements and notes thereto appearing elsewhere in this report.

RESULTS OF OPERATIONS

The following table presents certain information derived from the consolidated statements of operations, cash flows and shareholders equity for the three months and six months ended June 30, 2010 and 2009.

	Three months ended June 30, 2010		Three months ended June 30, 2009		Percentage Change
Net revenue	$	46,751,809	$	29,590,897		58	%

Cost of net revenue	$	23,689,903	$	16,445,804		44	%
Gross profit	$	23,061,906	$	13,145,093		75	%

Sales, marketing and other operating expenses	$	75,687	$	5,902		1,182	%

Research and development costs	$	377,220	$	125,095		202	%

General and administrative expenses	$	731,593	$	990,539		-26	%
Income from operations	$	21,877,406	$	12,023,557		82	%

Other income net	$	59,772	$	23,729		152	%
Income before taxes	$	21,937,178	$	12,047,286		82	%

Income taxes	$	5,510,733	$	3,075,682		79	%
Net income	$	16,426,445	$	8,971,604		83	%

Table of Contents

	Six months ended June 30, 2010		Six months ended June 30, 2009		Percentage Change
Net revenue	$	76,445,227	$	53,224,436		44	%

Cost of net revenue	$	39,925,402	$	29,986,744		33	%
Gross profit	$	36,519,825	$	23,237,692		57	%

Sales, marketing and other operating expenses	$	75,687	$	10,783		602	%

Research and development costs	$	502,422	$	250,065		101	%

General and administrative expenses	$	3,009,084	$	2,085,038		44	%
Income from operations	$	32,932,632	$	20,891,806		58	%

Other income net	$	135,356	$	18,749		622	%
Income before taxes	$	33,067,988	$	20,910,555		58	%

Income taxes	$	8,649,407	$	5,405,837		60	%
Net income	$	24,418,581	$	15,504,718		57	%

Net revenue Net revenue was $46,751,809 for three months ended June 30, 2010, an increase of $17,160,912 (or approximately 58.0%) as compared to the same period in 2009. This increase was primarily attributable to strong growth in our bromine and crude salt segment, in which revenue increased from $20,529,449 for the three months ended June 30, 2009 to $34,984,070 for the same period in 2010, an increase of approximately 70.4%.

The increase in revenue from our bromine and crude salt segment was mainly due to the increase in the average selling price of bromine. The average selling price of bromine increased from $1,669 per tonne for the three months ended June 30, 2009 to $2,801 per tonne for the same period in 2010, an increase of 67.8%. The sales volume of bromine slightly increased from 10,895 tonnes for the three months ended June 30, 2009 to 11,045 tonnes for the same period in 2010. The increase in average selling price was a result of strong demand for brominated flame retardants, fumigants, water purification compounds, dyes, medicines, and disinfectants in the China market following the recovery of business and economic conditions. The sales volume of crude salt increased from 95,540 tonnes for the three months ended June 30, 2009 to 100,101 tonnes for the same period in 2010. The average selling price of crude salt increased from $25 per tonne for the three months ended June 30, 2009 to $40 per tonne for the same period in 2010. Revenues from our chemical products segment increased from $9,061,448 for three months ended June 30, 2009 to $11,767,739 for the same period in 2010, an increase of approximately 29.9%. The increase was mainly due to the strong demand for environmentally friendly oil and gas exploration chemicals and agricultural intermediaries.

Table of Contents

Net revenue for the six months ended June 30, 2010, was $76,445,227, representing an increase of $23,220,791 or 43.6% over the same period in 2009. For the six months ended June 30, 2010, net revenue from our bromine and crude salts segment grew by $18,820,804 to $54,880,528, an increase of 52.2% compared to the same period in 20009. The increase was mainly due to the increase in the average selling price of bromine from $1,700 per tonne for the six months ended June 30, 2009 to $2,642 per tonne for the same period in 2010, an increase of 55.4%. Sales volume of bromine decreased from 18,343 tonnes for the six months ended June 30, 2009 to 18,169 tonnes for the same period in 2010. The increase in average selling price was a result of strong demand for bromine in the China market due to business and economic conditions continuing to recover for many of our customers. The sales volume of crude salt increased from 165,540 tonnes for the six months ended June 30, 2009 to 178,101 tonnes for the same period in 2010, and the average selling price of crude salt increased from $29 per tonne to $39 per tonne. Net revenue from our chemical products segment was $21,564,699 for the six months ended June 30, 2010, an increase of $4,399,987 or 25.6% over the same period in 2009. The increase was mainly due to the strong demand for environmentally friendly oil and gas exploration chemicals and agricultural intermediaries.

	Net Revenue by Segment
	Three Months Ended					Three Months Ended
	June 30, 2010					June 30, 2009
Segments			Percent of total					Percent of total
Bromine and crude salt	$	34,984,070		74.8	%	$	20,529,449		69.4	%
Chemical products	$	11,767,739		25.2	%	$	9,061,448		30.6	%
Total revenues	$	46,751,809		100	%	$	29,590,897		100	%

	Three Months Ended June 30,
	2010 vs. 2009
Segments	Percent Increase of Net Revenue
Bromine and crude salt	70.4%
Chemical products	29.9%

	Net Revenue by Segment
	Six months ended				Six months ended
	June 30, 2010				June 30, 2009
Segments			Percent of total				Percent of total
Bromine and crude salt	$	54,880,528		71.8%	$	36,059,724		67.8%
Chemical products	$	21,564,699		28.2%	$	17,164,712		32.2%
Total revenues	$	76,445,227		100.0%	$	53,224,436		100.0%

	Six Months Ended June 30
	2010 vs. 2009
Segments	Percent Increase of Net Revenue
Bromine and Crude salt	52.2%
Chemical Products	25.6%

Bromine and crude salt segment product sold in tonnes	Three Months Ended June 30, 2010		Three Months Ended June 30, 2009		Percentage Change
Bromine		11,045		10,895		1.3	%

Crude salt		100,101		95,540		4.8	%

Bromine and crude salt segment product sold in tonnes	Six Months Ended June 30, 2010		Six Months Ended June 30, 2009		Percentage Change
Bromine		18,169		18,343		(0.9)	%

Crude salt		178,101		165,540		7.6	%

Table of Contents

Due to the diverse product mix and varying values, management does not believe that the tonnes sold by the chemical product division is a meaningful metric.

Cost of Net revenue Cost of net revenue reflects the raw materials consumed and the direct salaries and benefits of staff engaged in the production process, electricity and other manufacturing costs. Our cost of net revenue was $23,689,903 for three months ended June 30, 2010, an increase of $7,244,099 (or approximately 44.0%) compared to the same period in 2009. Our cost of net revenue was $39,925,402 for the six months ended June 30, 2010, an increase of $9,938,658 (or approximately 33.1%) compared to the same period in 2009. This increase resulted primarily from the production increase in both bromine and crude salt and chemical products. Production increase was due to the increase in net revenue. The rate of increase for cost of net revenue was lower than that of net revenue because the rate of inflation relating to cost of net revenue was lower than the percentage increase in selling price of our products, as well as leverage due to economies of scale.

Gross Profit Gross profit was $23,061,906, or 49.3% of net revenue for three months ended June 30, 2010 compared to $13,145,093, or 44.4% of net revenue for the same period in 2009. Gross profit was $36,519,825, or 47.8% of net revenue for the six months ended June 30, 2010 compared to $23,237,692, or 43.7% of net revenue for the same period in 2009. The increase in gross profit percentage was primarily attributable to a rise of margin percentage in our bromine and crude salt segment. For the six months ended June 30, 2010 as compared to the same period in 2009, the average selling price of bromine increased from $1,700 per tonne to $2,642 per tonne with an increase of 55.4%, while the inflation rate for cost of net revenue in our bromine and crude salt segment was lower than the increase rate of selling price.

Research and Development Costs Research and development costs result from the agreement that SYCI and East China University of Science and Technology entered in September 2007 to establish a Co-Op Research and Development Center to develop new bromine-based chemical compounds and products to be utilized in the pharmaceutical industry. All research findings and patents developed by this center will belong to Gulf Resources.

In the second quarter of 2010, the Company’s wholly-owned subsidiary, SYCI conducted research for the new production line of waste water treatment additives. The research is for the purpose of testing the manufacturing routine and samples, and the expense incurred for the new production line for the three months ended June 30, 2010 was $251,949. Research and development costs incurred for the three months ended June 30, 2010 and 2009 was $377,220 and $125,095 respectively. The research and development costs incurred for six months ended June 30, 2010 and 2009 was $502,422 and $250,065 respectively.

General and Administrative Expenses General and administrative expenses were $731,593 for three months ended June 30, 2010, a decrease of $258,946 (or approximately 26.1%) compared to $990,539 for the same period in 2009. The decrease was mainly due to the reclassification of certain compensation fees which were treated as general and administrative expenses for three months ended June 30, 2009 but were treated as cost of net revenue for the same period in 2010. General and administrative expenses were $3,009,084 for the six months ended June 30, 2010, an increase of $924,046 (or approximately 44.3%) from $2,085,038 for the same period in 2009. This significant increase in general and administrative expenses was primarily due to non-cash expenses related to options granted to our employees of $995,538 and a warrant issued to our investor relations firm of $193,428 resulting from the service agreement signed in February 2010. The increase in stock options was primarily for the purpose of incentivizing our employees.

Income from Operations

	Income from Operation by Segment
	Three months ended June 30, 2010						Three months ended June 30, 2009
				Percent of total						Percent of total
Segment
Bromine and crude salt	$	18,678,688			84.6	%	$	9,199,179			75.0	%
Chemical products		3,389,772			15.4	%		3,072,202			25.0	%

Income from operations before corporate costs		22,068,460			100.0	%		12,271,381			100.0	%
Corporate costs		(191,054	)					(247,824	)

Income from operations		21,877,406						12,023,557

Table of Contents

	Income from Operation by Segment
	Six months ended June 30, 2010						Six months ended June 30, 2009
				Percent of total						Percent of total
Segment
Bromine and crude salt	$	27,804,516			80.5	%	$	15,740,780			73.0	%
Chemical products		6,753,287			19.5	%		5,826,524			27.0	%

Income from operations before corporate costs		34,557,803			100.0	%		21,567,304			100.0	%
Corporate costs		(1,625,171	)					(675,498	)

Income from operations		32,932,632						20,891,806

Income from operations before corporate costs was $22,068,460 for the three months ended June 30, 2010 (or 47.2% of net revenue), an increase of $9,797,079 (or approximately 79.8%) compared to the same period in 2009. Income from operations before corporate costs was $34,557,803 for the six months ended June 30, 2010 (or 45.2% of net revenue), an increase of $12,990,499 (or approximately 60.2%) compared to the same period in 2009. For the three months ended June 30, 2010, income from operations for the bromine and crude salt segment was $18,678,688, an increase of 103.0% from $9,199,179 compared to the same period in 2009. The increase in revenue and the income from operations of our bromine and crude salt was mainly due to the increase in the selling price of bromine. For the three months ended June 30, 2010, income from operations for the chemical products segment was $3,389,772, an increase of 10.3% from $3,072,202 for the same period in 2009. The increase in revenue and the income from operations of our chemical products was driven by environmentally friendly oil and gas exploration chemicals and agricultural intermediaries.

Other Income Other income was $59,772 for the three months ended June 30, 2010, an increase of $36,043 from $23,729 for the same period in 2009. Other income was $135,356 for the six months ended June 30, 2010, an increase of $116,607 from $18,749 for the same period in 2009. This increase in other income was primarily due to the increase in interest income which was offset by a loss from the disposal of property, plant and equipment incurred during the first six months of 2010 in order to upgrade the equipment at our bromine facilities.

Net Income Net income was $16,426,445 for the three months ended June 30, 2010, an increase of $7,454,841 (or approximately 83.1%) compared to the same period in 2009. Net income was $24,418,581 for the six months ended June 30, 2010, an increase of $8,913,863 (or approximately 57.5%) compared to the same period in 2009. This increase was primarily attributable to the increase in revenues.

LIQUIDITY AND CAPITAL RESOURCES

As of June 30, 2010, cash and cash equivalents were $55,197,372 as compared to $45,536,735 as of December 31, 2009. The components of this increase of $9,660,637 are reflected below.

Cash Flow

	Six Months Ended June 30,
	2010		2009
Net cash provided by operating activities	$	27,942,222	$	19,255,584
Net cash used in investing activities	$	(20,885,661)	$	(18,962,226)
Net cash provided by financing activities	$	2,442,129	$	6,829,785
Net cash inflow	$	9,660,637	$	7,079,151

Table of Contents

For the six months ended June 30, 2010 the Company met its working capital and capital investment requirements mainly by using cash flow from operations. The Company intends to continue to explore opportunities relating to bromine asset purchases. As of June 30, 2010, the capital commitment for construction of new channel and wells for bromine facilities was approximately $5.54 million.

Net Cash Provided by Operating Activities

During the six months ended June 30, 2010, we had positive cash flow from operating activities of $27,942,222 primarily attributable to net income of $24,418,581. During the six months ended June 30, 2009, we had positive cash flow from operating activities of $19,255,584, primarily attributable to net income of $15,504,718. Net cash provided by operating activities during the six months ended June 30, 2010 increased by $8,686,638 compared to the same period in 2009. The primary source of this was due to the increase in net income.

Net Cash Provided (Used) by Investing Activities and Financing Activities

The Company used $6,985,530 cash for the construction of waste water chemical additives during the six months ended June 30, 2010. The Company used $13,297,492 cash for the acquisition of bromine assets in June of 2010. The Company also used $551,699 to build new channels and wells for bromine facilities during the six months ended June 30, 2010. These projects were financed by opening cash balances as of December 31, 2009 and cash generated from operations during the first six months of 2010.

We believe that our available funds and cash flows generated from operations will be sufficient to meet our anticipated ongoing operating needs for the next twelve months. However we will likely need to raise additional capital in order to fund the ongoing program of acquiring unlicensed bromine properties and other properties. We expect to raise those funds through the issuance of additional shares of our equity securities in one or more public or private offerings, or through credit facilities obtained with lending institutions or a combination of both. There can be no guarantee that we will be able to obtain such funding, whether through the issuance of debt or equity, on terms satisfactory to management and our board of directors.

For the immediate future we intend to focus our efforts on the activities of SCHC and SYCI as these segments continue to expand within the Chinese market. Our long-term strategic goal is to extend our market to overseas countries.

We may not be able to identify, successfully integrate or profitably manage any businesses or business segment we may acquire, or any expansion of our business. An expansion may involve a number of risks, including possible adverse effects on our operating results, diversion of management attention, inability to retain key personnel, risks associated with unanticipated events and the financial statement effect of potential impairment of acquired intangible assets, any of which could have a materially adverse effect on our condition and results of operations. We may affect an acquisition with a target business which may be financially unstable, under-managed, or in its early stages of development or growth. In addition, if competition for acquisition candidates or operations were to increase, the cost of acquiring businesses could increase materially. Our inability to implement and manage our expansion strategy successfully may have a material adverse effect on our business and future prospects.

We are not currently party to any contracts or other arrangements with respect to future acquisitions.

Critical Accounting Policies and Estimates

Use of Estimates

Table of Contents

Accounts Receivable and Allowance for Doubtful Accounts

As of June 30, 2010 and December 31, 2009, allowance for doubtful accounts were nil. For the three month ended June 30, 2010 and 2009, allowance for doubtful accounts amounted to nil and $61,455, respectively.

Property, Plant and Equipment

Property, plant and equipment are stated at cost. Expenditures for new facilities or equipment and expenditures that extend the useful lives 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.

The Company’s depreciation and amortization policies on fixed assets other than mineral rights and construction in progress are as follows:

	Useful life ( in years)
Buildings	20
Plant and machinery	8
Motor vehicles	5
Furniture, fixtures and office equipment	8

Revenue Recognition

Income Taxes

Stock-based Compensation

Table of Contents

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Not required.

Item 4. Controls and Procedures

We maintain “disclosure controls and procedures,” as such term is defined under Exchange Act Rule 13a-15(e), that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures. In designing and evaluating the disclosure controls and procedures, our management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives and in reaching a reasonable level of assurance our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. We have carried out an evaluation as required by Rule 13a-15(d) under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of June 30, 2010.

Although management did not accurately disclose in its Current Report on Form 8-K filed with the S.E.C on June 8, 2010 and June 24, 2010 the identities of the sellers of Factory 9 and did not include a correct translation of the agreement entered into by the Company’s subsidiary and the sellers of Factory 9, management does not believe that such omission is a material weakness in its disclosure controls. Based upon their evaluation and subject to the foregoing, the Chief Executive Officer and Chief Financial Officer concluded that as of June 30, 2010 our disclosure controls and procedures were effective.

There have not been any changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) under the Exchange Act) during our most recently completed fiscal quarter which is the subject of this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Table of Contents

PART II—OTHER INFORMATION

Item 1. Legal Proceedings

None.

Item 1A. Risk Factors

Investing in our common stock involves a high degree of risk. Before you invest you should carefully consider the risks and uncertainties described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2009 (the “2009 Form 10-K”), under the caption "Risk Factors," our Management's Discussion and Analysis of Financial Condition and Results of Operations set forth in Item 2 of Part I of this Quarterly Report on Form 10-Q, our consolidated financial statements and related notes included in Item 1 of Part I of this Quarterly Report on Form 10-Q and our consolidated financial statements and related notes, as well as our Management’s Discussion and Analysis of Financial Condition and Results of Operations and the other information in our 2009 Form 10-K. Readers should carefully review those risks, as well as additional risks described in other documents we file from time to time with the Securities and Exchange Commission.

Item 2. Unregistered Shares of Equity Securities and Use of Proceeds

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Reserved and Removed

None.

Item 5. Other Information

None.

Item 6. Exhibits

Exhibit No .	Description
31.1	Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer.

31.2	Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer.

32.1	Section 1350 Certification of Chief Executive Officer and Chief Financial Officer

Table of Contents

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	GULF RESOURCES, INC.

Dated: August 16, 2010	By:	/s/ Xiao bin Liu
		Xiao bin Liu
		Chief Executive Officer
		(principal executive officer)

	By:	/s/ Min Li
August 16, 2010		Min Li
		Chief Financial Officer
		(principal financial and accounting officer)

TABLE OF CONTENTS

Part I Financial Information Item 1. Financial Statements Note 1 Nature Of Business and Summary Of Significant Accounting Policies Note 1 Nature Of Business and Summary Of Significant Accounting Policies Continued Note 2 Assets Acquisitions Note 2 Assets Acquisitions Continued Note 3 Inventories Note 4 Prepaid Land Leases Note 5 Property, Plant and Equipment, Net Note 6 Accounts Payable and Accrued Expenses Note 7 Due To Related Parties and Related Party Transactions Note 8 Taxes Payable Note 9 Common Stock Note 10 Stock-based Compensation Note 10 Stock-based Compensation Continued Note 11 Income Taxes Note 11 Income Taxes Continued Note 12 Business Segments Note 12 Business Segments Continued Note 13 Major Suppliers Note 14 Customer Concentration Note 15 Establishment Of Co-op Research and Development Center and Research For New Production Line Note 16 Capital Commitment and Operating Lease Commitments Item 2. Management S Discussion and Analysis Of Financial Condition and Results Of Operations Item 3. Quantitative and Qualitative Disclosures About Market Risk Item 4. Controls and Procedures Part II Other Information Item 1. Legal Proceedings Item 1A. Risk Factors Item 2. Unregistered Shares Of Equity Securities and Use Of Proceeds Item 3. Defaults Upon Senior Securities Item 4. Reserved and Removed Item 5. Other Information Item 6. Exhibits

GULF RESOURCES, INC.

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Expressed in U.S. dollars)

(UNAUDITED)