What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2022-04-12 compared with 2021-04-08 · 566 added, 403 removed, 1024 unchanged (49% of the section changed)

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required by this item are included in a separate section of this Report.

See “Index to Consolidated Financial Statements”

GULF RESOURCES, INC.

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C O N T E N T S

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING

FIRM (PCAOB ID #1171)

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM (PCAOB ID # 00536 )

CONSOLIDATED BALANCE SHEETS

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

CONSOLIDATED STATEMENTS OF CASH FLOWS

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FINANCIAL STATEMENT SCHEDULE:

SCHEDULE I –

PARENT ONLY FINANCIAL INFORMATION

SCHEDULE I – PARENT ONLY FINANCIAL INFORMATION

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING

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Gulf Resources, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated

balance sheet of Gulf Resources, Inc.

and subsidiaries (collectively the “Company”) as of December 31, 2021, and the related

consolidated statements of comprehensive income (loss), stockholders’ equity, and cash flows for the year ended December 31, 2021,

the related notes, and financial statement schedule (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company

as of December 31, 2021, and the results of its operations and its cash flows for the year ended December 31, 2021, in conformity with

accounting principles generally accepted in the United States of America.

Basis for Opinion

These consolidated financial statements are the

responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s consolidated financial

statements based on our audit.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States)

(PCAOB) and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable

rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the

standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated

financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we

engaged to perform, an audit of its internal control over financial reporting.

As part of our audit, we are required to obtain an understanding

of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s

internal control over financial reporting.

Accordingly, we express no such opinion.

Our audit included performing procedures to assess

the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures

that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the

consolidated financial statements.

Our audit also included evaluating the accounting principles used and significant estimates made by

management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that our audit provides

a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below

are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated

to the audit committee and that:

(1) relate to accounts or disclosures that are material to the consolidated financial statements and

(2) involved our especially challenging, subjective, or complex judgments.

The communication of the critical audit matters does not alter

in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit

matters below, providing a separate opinion on the critical audit matters or on the accounts or disclosures to which they relate.

Property, plant and equipment, net

We determined that the Company’s property,

plant and equipment was a critical audit matter based on the principal considerations that property, plant, and equipment constituted

more than half of the Company’s total assets, the potential impact of the current economic environment as a result of the global

health pandemic and other significant political events, and the carrying value of such assets are subject to estimation, which involves

The plant and equipment may be purchased and placed into service at varying times, and their ability to contribute to the generation

of cash flows is impacted by multiple factors, including required installation, demand for the Company’s products, the availability

of working capital and raw materials.

The audit engagement team addressed this critical accounting matter by reviewing the Company’s

accounting policies, and perform extended procedures including physical inspection, corroborated with enquiry, examination of contracts,

review of global economic conditions and the Company’s own forecast for demand, review of movement of inventories and the liquidity

of the Company, vouching of a sample of purchases, and also perform an independent analysis that included recalculation of depreciation

and impairment testing.

The engagement team’s testing provided adequate evidence to support our audit opinion and to mitigate the

risk of material misstatement to an acceptable level.

The accounts that are affected by this critical audit matter is property plant and

equipment, and the related depreciation that is allocated into cost of sales, and impairment expense, if any.

Deferred Tax Asset

We determined that the Company’s deferred

tax asset was a critical audit matter based on the principal considerations that it was quantitative and qualitative material relative

to the total assets of the Company and the carrying value of such assets are subject to estimation, which involves judgment.

Future economic

conditions, political and regulatory risk may significantly impact the realization of this asset.

We had to exercise auditor judgment

and extensive effort when conducting audit procedures to determine if management’s estimate is fairly stated.

We performed the following audit procedures and

evaluated audit evidence in forming our opinion:

enquired and evaluated the reasonableness of assumptions and data points employed by

management to develop their estimate based on consideration of future profitability, past performance, review of relevant local tax laws,

and independently recalculating the balance.

The accounts that are affected by this critical audit matter were deferred tax asset, related

valuation allowance, income tax benefit, and income tax expense, if any.

Certified Public Accountants

We have served as the Company’s auditor since 2021.

San Mateo, CA

April 12, 2022

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING

To the Board of Directors and Stockholders of

Gulf Resources, Inc.

and Subsidiaries

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We have audited the accompanying consolidated

balance sheets of Gulf Resources, Inc.

and Subsidiaries (the Company) as of December 31, 2020 and 2019, and the related consolidated statements

of comprehensive income (loss), stockholders’

equity, and cash flows for each of the two years in the period ended December 31,

2020, and the related notes and schedules (collectively referred to as the consolidated financial statements).

In our opinion, the consolidated

financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019,

and the results of their operations and their cash flows for each of the two years in the period ended December 31, 2020, in conformity

with accounting principles generally accepted in the United States of America.

balance sheet of Gulf Resources, Inc.

and Subsidiaries (the Company) as of December 31, 2020, and the related consolidated statements

of comprehensive loss, stockholders’ equity, and cash flows for the year then ended, and the related notes and schedules (collectively

referred to as the consolidated financial statements).

In our opinion, the consolidated financial statements present fairly, in all material

respects, the financial position of the Company as of December 31, 2020, and the results of their operations and their cash flows for

the year then ended, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These consolidated financial statements are the

responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s consolidated financial

statements based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United

States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and

the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the

responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s consolidated financial

statements based on our audit.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States)

(PCAOB) and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable

rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the

standards of the PCAOB.

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engaged to perform, an audit of its internal control over financial reporting.

As part of our audits, we are required to obtain an understanding

of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s

As part of our audit, we are required to obtain an understanding

of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s

internal control over financial reporting.

Accordingly, we express no such opinion.

Our audits included performing procedures to assess

Our audit included performing procedures to assess

the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures

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consolidated financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by

Our audit also included evaluating the accounting principles used and significant estimates made by

management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that our audits provide

We believe that our audit provides

a reasonable basis for our opinion.

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financial statements, long-lived assets 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.

Management did not carry out an impairment assessment on its long-lived assets as it determined that there were no such events or changes

in circumstances indicating possible impairment.

that the carrying amount of an asset be fully recoverable or that the useful lives of those assets are no longer appropriate.

did not carry out an impairment assessment on its long-lived assets as it determined that there were no such events or changes in circumstances

indicating possible impairment.

To the Board of Directors and Stockholders of

Gulf Resources, Inc.

and Subsidiaries

The principal considerations for our determination

that performing procedures relating to the impairment of long-lived assets is a critical audit matter are the use of significant judgment

and subjective factors in management’s assessment of any changes in events or circumstances that may affect the carrying amount

of its long-lived assets.

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current market conditions;

Evaluating assumptions used in management’s projection of future income to determine whether they

· Evaluating assumptions used in management’s projection of future income to determine whether they

reflect any indication of change in events or circumstances that may affect the carrying amount of its long-lived assets;

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This required a high degree

of auditor judgment and an increased extent of effort when performing audit procedures to evaluate management’s assessment and evaluation

of the amount of valuation allowances required to offset the deferred tax assets.

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able to be estimated.

In August 2018, written decisions of administrative penalty (“Written Decisions”) were served by the

Shouguang City Natural Resources and Planning Bureau (“Bureau”) on the Company challenging the land use of six of its bromine

In August 2018, written decisions of administrative penalty (“Written Decisions”) were served by the

Shouguang City Natural Resources and Planning Bureau (“Bureau”) on the Company challenging the land use of six of its bromine

and crude salt factories.

In May 2019, written decisions of administrative ruling (“Court Rulings”) were made by the Court

in favor of the Bureau.

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The principal consideration for our determination

that performing procedures relating to the loss contingency arising from the Written Decisions and Court Rulings is a critical audit

matter is the highly complex, judgmental and subjective process involved in management’s assessment of the likelihood of the enforcement

that performing procedures relating to the loss contingency arising from the Written Decisions and Court Rulings is a critical audit matter

is the highly complex, judgmental and subjective process involved in management’s assessment of the likelihood of the enforcement

of the Written Decisions and related Court Rulings.

This required a high degree of auditor judgment and an increased extent of effort

when performing audit procedures to evaluate management’s assessment and conclusion.

To the Board of Directors and Stockholders of

Gulf Resources, Inc.

and Subsidiaries

Addressing the matter involved performing procedures

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and the local city government in respect of the commencement of production of the bromine and crude salt factories;

Gaining an understanding of the latest progress of the matter by visiting the Bureau’s office in

· Gaining an understanding of the latest progress of the matter by visiting the Bureau’s office in

Shouguang City to conduct an interview with the officer-in-charge;

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/s/ Morison Cogen LLP

We have served as the Company’s auditor

Blue Bell, Pennsylvania

April 8, 2021

GULF RESOURCES, INC.

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Current Assets

Accounts receivable

Accounts receivable, net

Inventories, net

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Finance lease right-of use assets

Operating lease right-of –use assets

Operating lease right-of-use assets

Prepaid land leases, net of current portion

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Total non-current assets

$ 309,856,862

$ 294,037,818

Commitment and Contingencies

Liabilities and Stockholders’

Liabilities and Stockholders’ Equity

Current Liabilities

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Taxes payable-current

Amount due to a related party

Finance lease liability, current portion

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Commitment and Contingencies

Stockholders’

Stockholders’ Equity

PREFERRED STOCK;

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Accumulated other comprehensive income (loss)

Total Stockholders’

Total Liabilities and Stockholders’

Total Stockholders’ Equity

Total Liabilities and Stockholders’ Equity

$ 309,856,862

$ 294,037,818

The accompanying notes are an integral part of

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Cost of net revenue

( 27,132,372 )

( 19,415,034 )

Sales, marketing and other operating expenses

Direct labor and factory overheads incurred during plant shutdown

( 10,718,605 )

( 8,170,390 )

General and administrative expenses

( 9,525,235 )

( 10,239,943 )

Other operating expense

( 2,380,540 )

Total operating expense

( 49,819,716 )

( 37,890,416 )

LOSS FROM OPERATIONS

( 9,683,392 )

OTHER INCOME (EXPENSE)

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Interest income

LOSS BEFORE INCOME TAXES

Other (income) expenses

INCOME (LOSS) BEFORE INCOME TAXES

( 9,528,515 )

INCOME TAX (EXPENSE) BENEFIT

( 6,298,218 )

$ ( 924,718 )

$ ( 8,420,044 )

COMPREHENSIVE INCOME (LOSS):

$ ( 924,718 )

$ ( 8,420,044 )

OTHER COMPREHENSIVE INCOME (LOSS)

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AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

YEARS ENDED DECEMBER 31, 2021 AND 2020

(Expressed in U.S.

Treasury stock

unappropriated

comprehensive

AT JANUARY 1, 2019

Currency translation

Shares issued from treasury

stock for services

exercise of stock options

Issuance of stock options

loss for year ended December 31, 2019

AT DECEMBER 31, 2019

AT JANUARY 1, 2020

shares issued for services

Currency translation

loss for year ended December 31, 2020

AT DECEMBER 31, 2020

BALANCE AT JANUARY 1, 2020

$ ( 510,329 )

$ 159,808,400

$ ( 15,491,807 )

$ 263,107,100

Restricted shares issued for services

Currency translation adjustment

Net loss for year ended December 31, 2020

( 8,420,044 )

BALANCE AT DECEMBER 31, 2020

$ ( 510,329 )

$ 151,388,356

$ 277,024,273

BALANCE AT JANUARY 1, 2021

$ ( 510,329 )

$ 151,388,356

$ 277,024,273

Restricted shares issued for services

Currency translation adjustment

Net loss for year ended December 31, 2021

BALANCE AT DECEMBER 31, 2021

$ ( 510,329 )

$ 100,569,159

$ 150,463,638

$ 286,639,217

The accompanying notes are an integral part of

these consolidated financial statements.

Treasury Stock

Additional Paid-In Capital

Retained Earnings Unappropriated

Accumulated Other Comprehensive Income (Loss)

GULF RESOURCES, INC.

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CASH FLOWS FROM OPERATING ACTIVITIES

$ ( 924,718 )

$ ( 8,420,044 )

Adjustments to reconcile net income to net cash (used in) provided by operating activities:

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Deferred tax asset

( 1,108,471 )

Stock-based compensation expense

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Accounts receivable

Other receivables

( 7,749,127 )

( 1,161,704 )

Prepayment and deposits

( 2,849,670 )

Other receivables

Accounts and other payable and accrued expenses

Amount due to a related party

Taxes payable

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Purchase of property, plant and equipment

( 30,093,140 )

( 21,719,369 )

Net cash used in investing activities

( 30,093,140 )

( 21,719,369 )

CASH FLOWS FROM FINANCING ACTIVITIES

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NET DECREASE IN CASH AND CASH EQUIVALENTS

( 6,079,448 )

CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR

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Interest on finance lease obligation

Operating right-of-use assets obtained in exchange for lease obligations

SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES

Purchase of Property, plant and equipment included in Payable and

accrued expenses

Par value of common stock issued upon cashless exercise of options

Purchase of property, plant

and equipment included in payables and accrued expenses

The accompanying notes are an integral part of

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(Expressed in U.S.

NOTE 1 –

NATURE OF BUSINESS AND SUMMARY

NOTE 1 – NATURE OF BUSINESS AND SUMMARY

OF SIGNIFICANT ACCOUNTING POLICIES

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statements have been prepared by Gulf Resources, Inc.

(“Gulf Resources”).

a Nevada corporation and its subsidiaries (collectively,

the “Company”).

(“Gulf Resources”), a Nevada corporation and its subsidiaries (collectively,

the “Company”).

The consolidated financial statements include

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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”).

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”).

Virgin Islands, which owns 100% of Hong Kong Jiaxing Industrial Limited, a company incorporated in Hong Kong (“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

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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, pesticides, paper manufacturing industry and for human and animal antibiotics 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 the PRC.

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COVID-19 a pandemic.

The duration and intensity of the impact of the COVID-19 and resulting disruption to the Company’s operations

and financial position is uncertain.

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government of Yangkou County that its Factory No.

9 have passed inspection and could resume operations.

9 have passed inspection and can resume operations.

2019, Factory No.

7 resumed operations.

On November 25, 2019, the government of

Shouguang City issued a notice ordering all bromine facilities in Shouguang City, including the Company’s bromine facilities, including

Factory No.1 and Factory No.

On November 25, 2019, the government of Shouguang

City issued a notice ordering all bromine facilities in Shouguang City, including the Company’s bromine facilities, including Factory

No.1 and Factory No.

7, to temporarily stop production from December 16, 2019 to February 10, 2020.

Subsequently, due to the

coronavirus outbreak in China, the local government ordered those bromine facilities to postpone the commencement of production.

Subsequently,

the Company received an approval dated on February 27, 2020 issued by the local governmental authority which allowed the Company to resume

Subsequently, due to the coronavirus

outbreak in China, the local government ordered those bromine facilities to postpone the commencement of production.

Subsequently, the

Company received an approval dated on February 27, 2020 issued by the local governmental authority which allowed the Company to resume

production after the winter temporary closure.

Further, the Company received another approval from the Shouguang Yangkou People’s

Government dated on March 5, 2020 allowing the Company to resume production at its bromine factories No.1, No.

4, No.7 and No.

to meet the needs of bromide products for epidemic prevention and control (the “March 2020 Approval”).

The Company’s

to meet the needs of bromide products for epidemic prevention and control (the “March 2020 Approval”).

The Company’s

Factories No.

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(Expressed in U.S.

NOTE 1 –

BASIS OF PRESENTATION AND SUMMARY

OF SIGNIFICANT ACCOUNTING POLICIES –

NOTE 1 – BASIS OF PRESENTATION AND SUMMARY

OF SIGNIFICANT ACCOUNTING POLICIES – Continued

(ii) Chemical Segment

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from the Government of Yangkou County, Shouguang City notifying the Company to relocate its two chemical production plants located in

the second living area of the Qinghe Oil Extraction to the Bohai Marine Fine Chemical Industrial Park (“Bohai Park”).

This is because the two plants are located in a residential area and their production activities could impact the living environment of

the second living area of the Qinghe Oil Extraction to the Bohai Marine Fine Chemical Industrial Park (“Bohai Park”).

This is because the two plants are located in a residential area and their production activities will impact the living environment of

the residents.

This is as a result of the country’s effort to improve the development of the chemical industry, manage safe production

and curb environmental pollution accidents effectively, and ensure the quality of the living environment of residents.

All chemical enterprises

which did not comply with the requirements of the safety and environmental protection regulations were ordered to shut down.

which do not comply with the requirements of the safety and environmental protection regulations will be ordered to shut down.

In December 2017, the Company secured from the

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In January 2020, the Company obtained the environmental

protection assessment approval from the government of Shouguang City, Shandong Province for the proposed new Yuxin chemical factory.

this approval, the Company is permitted to construct the new chemical factory and began the construction in June 2020.

protection assessment approval performed by the government of Shouguang City, Shandong Province for the proposed new Yuxin chemical factory.

With this approval, the Company is permitted to construct the new chemical factory and began the construction in the second quarter of

The Company believes this relocation process will

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(iii) Natural Gas Segment

In January 2017, the Company completed the first

brine water and natural gas well field construction in Tianbao Town, Daying County, in Sichuan Province and commenced trial production

in January 2019.

On May 29, 2019, the Company received a verbal notice from the government of Tianbao Town, Daying County, Sichuan Province,

whereby the Company is required to obtain project approval for the entire natural gas and brine water project, including approvals for

land use, safety production inspection, and environmental protection assessment.

Until these approvals have been received, the Company

has to temporarily halt trial production at its natural gas well in Daying.

In compliance with the new Chinese government policies, the

Company is also required to obtain an exploration license and a mining license for bromine and natural gas, respectively.

the Opinions of the Ministry of Natural Resources on Several Issues in Promoting the Reform of Mineral Resources Management (Trial) promulgated

by the Ministry of Natural Resources of PRC on January 9, 2020, which came into effect on May 1, 2020, privately owned enterprises are

allowed to participate in the natural gas production.

The Company plans to proceed with its applications for the natural gas and brine

project approvals with related government departments after the government has finalized the land and resource planning for Sichuan Province.

In January 2017, the Company completed the first brine

water and natural gas well field construction in Daying located in Sichuan Province and commenced trial production in January 2019.

May 29, 2019, the Company received a verbal notice from the government of Tianbao Town, Daying County, Sichuan Province, whereby the Company

is required to obtain project approval for its well located in Daying, including the whole natural gas and brine water project, and approvals

for safety production inspection, environmental protection assessment, and to solve the related land issue.

Until these approvals have

been received, the Company has to temporarily halt trial production at its natural gas well in Daying.

In compliance with the Chinese

government new policies, the Company is also required to obtain an exploration license and a mining license for bromine and natural gas,

respectively.

Pursuant to the Opinions of the Ministry of Natural Resources on Several Issues in Promoting the Reform of Mineral Resources

Management (Trial) promulgated by the Ministry of Natural Resources of PRC on January 9, 2020, which came into effect on May 1, 2020,

privately owned enterprises are allowed to participate in the natural gas production.

The Company plans to proceed with its applications

for the natural gas and brine project approvals with related government departments until the governmental planning has been finalized.

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

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(Expressed in U.S.

NOTE 1 –

BASIS OF PRESENTATION AND SUMMARY

OF SIGNIFICANT ACCOUNTING POLICIES –

NOTE 1 – BASIS OF PRESENTATION AND SUMMARY

OF SIGNIFICANT ACCOUNTING POLICIES – Continued

Cash and Cash Equivalents

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receivables that exceed the term.

The Company establishes an allowance for doubtful accounts based on management’s assessment of

the collectability of trade and other receivables.

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As of December 31, 2021 and December 31,

There were no allowances for doubtful accounts.

No allowances for doubtful accounts were charged to the consolidated statements of comprehensive

income (loss) for years ended December 31, 2020 and 2019.

2020, using the ending exchange rate, there was $ 72,984 and $ 0

allowances for doubtful accounts;

those corresponding amounts of allowances for doubtful accounts were charged to the

consolidated statements of comprehensive income (loss) for years ended December 31, 2021 and 2020.

Concentration of Credit Risk

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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

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However, such

concentrations of credit risks are limited since the Company performs ongoing credit evaluations of its customers’

financial condition

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.

Accounts receivable of $6,521,798 as of December

31, 2020 was fully collected in the period January through February in 2021.

Inventories are stated at the lower of cost, determined

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(Expressed in U.S.

NOTE 1 –

BASIS OF PRESENTATION AND SUMMARY

OF SIGNIFICANT ACCOUNTING POLICIES –

NOTE 1 – BASIS OF PRESENTATION AND SUMMARY

OF SIGNIFICANT ACCOUNTING POLICIES – Continued

Property, Plant and Equipment

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upon completion and depreciation will commence when the completed assets are placed in service.

The Company’s depreciation and amortization

policies on property, plant and equipment, other than mineral rights and construction in process, are as follows:

Nature of Business and Summary of

Significant Accounting Policies - Schedule of Property, Plant and Equipment Useful Life

Buildings (including salt pans)

Plant and machinery (including protective shells, transmission channels and ducts)

Motor vehicles

Motor vehicles Motor Vehicles

Furniture, fixtures and equipment

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The Company follows Financial Accounting Standards

Board Accounting Standards Codification (“FASB ASC”), which established a uniform methodology for accounting for estimated

reclamation and abandonment costs.

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(Expressed in U.S.

NOTE 1 –

BASIS OF PRESENTATION AND SUMMARY

OF SIGNIFICANT ACCOUNTING POLICIES –

NOTE 1 – BASIS OF PRESENTATION AND SUMMARY

OF SIGNIFICANT ACCOUNTING POLICIES – Continued

Currently, there are no reclamation or abandonment

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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

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.

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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’

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 consolidated statement of comprehensive income (loss) on an accrual basis when they are

The Company’s contributions totaled $295,252 and $1,035,687 for the years ended December 31, 2020 and 2019, respectively.

The Company’s contributions totaled $ 950,505 and $ 295,252 for the years ended December 31, 2021 and 2020, respectively.

GULF RESOURCES, INC.

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(Expressed in U.S.

NOTE 1 –

BASIS OF PRESENTATION AND SUMMARY

OF SIGNIFICANT ACCOUNTING POLICIES –

NOTE 1 – BASIS OF PRESENTATION AND SUMMARY

OF SIGNIFICANT ACCOUNTING POLICIES – Continued

Mineral Rights

The Company follows FASB ASC 805 “Business

Combinations”

that certain mineral rights are considered tangible assets and that mineral rights should be accounted for based on

The Company follows FASB ASC 805 “Business

Combinations” that certain mineral rights are considered tangible assets and that mineral rights should be accounted for based on

their substance.

2 unchanged sentences

lease at inception.

Operating leases are included in operating lease right-of-use (“ROU”) assets and operating lease liabilities

in the consolidated balance sheets.

1 unchanged sentence

balance sheets.

ROU assets represent the Company’s right

to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising

ROU assets represent the Company’s right

to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising

from the lease.

17 unchanged sentences

Anti-dilutive common stock equivalents which were excluded from

the calculation of number of dilutive common stock equivalents amounted to 71,327 and 103,392 shares for the years ended December 31,

2020 and 2019, 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 calculation of number of dilutive common stock equivalents amounted to 0 and 71,327 shares for the years ended December 31, 2021 and

2020, 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.

Because the Company reported a net loss for the

2 unchanged sentences

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;

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 “$”).

currency and reporting currency of the Company is the United States dollar (“USD” or “$”).

GULF RESOURCES, INC.

3 unchanged sentences

(Expressed in U.S.

NOTE 1 –

BASIS OF PRESENTATION AND SUMMARY

OF SIGNIFICANT ACCOUNTING POLICIES –

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”.

NOTE 1 – BASIS OF PRESENTATION AND SUMMARY

OF SIGNIFICANT ACCOUNTING POLICIES – Continued

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 (loss).

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 (loss).

The statement of

5 unchanged sentences

Foreign Operations

All of the Company’s operations and assets

are located in PRC.

13 unchanged sentences

Revenue from contracts with customers is disaggregated in Note 15.

Payments are typically received from customers within 90 days from

invoicing and recognition of revenue in accordance to the credit terms extended to customers by the Company.

The Company accounts for income taxes in accordance

10 unchanged sentences

A tax benefit from an uncertain tax

position may be recognized if it is “more likely than not”

that the position is sustainable based solely on its technical

position may be recognized if it is “more likely than not” that the position is sustainable based solely on its technical

Interests and penalties associated with unrecognized tax benefits are included within the (benefit from) provision for income

10 unchanged sentences

(Expressed in U.S.

NOTE 1 –

BASIS OF PRESENTATION AND SUMMARY

OF SIGNIFICANT ACCOUNTING POLICIES –

NOTE 1 – BASIS OF PRESENTATION AND SUMMARY

OF SIGNIFICANT ACCOUNTING POLICIES – Continued

For oil and gas properties, the successful efforts

11 unchanged sentences

such liabilities become probable and reasonably able to be estimated.

Such estimates may be based on advice from third parties or on management’s

judgment, as appropriate.

Revisions to accruals are reflected in income (loss) in the period in which different facts or information become

known or circumstances change that affect the Company’s previous assumptions with respect to the likelihood or amount of loss.

paid upon the ultimate resolution of such liabilities may be materially different from previous estimates.

9 unchanged sentences

the FASB issued ASU No.

2018-07, Compensation - Stock Compensation (Topic 7 I 8),

Improvements to Nonemployee Share-Based Payment Accounting.

The amendments in this Update expand the scope of Topic 718 to include

share-based payment transactions for acquiring goods and services from nonemployees.

Prior to this Update, Topic 718 applied only to share-based

transactions to employees.

Consistent with the accounting requirement for employee share-based payment awards, nonemployee share-based

payment awards within the scope of Topic 718 are measured at grant-date fair value of the equity instruments that an entity is obligated

to issue when the good has been delivered or the service has been rendered and any other conditions necessary to earn the right to benefit

from the instruments have been satisfied.

2018-07, Compensation - Stock Compensation (Topic 7 I8), Improvements to Nonemployee Share-Based

Payment Accounting.

The amendments in this Update expand the scope of Topic 718 to include share-based payment transactions for acquiring

goods and services from nonemployees.

Prior to this Update, Topic 718 applied only to share-based transactions to employees.

with the accounting requirement for employee share-based payment awards, nonemployee share-based payment awards within the scope of Topic

718 are measured at grant-date fair value of the equity instruments that an entity is obligated to issue when the good has been delivered

or the service has been rendered and any other conditions necessary to earn the right to benefit from the instruments have been satisfied.

The Company has elected to account for the forfeiture of stock-based awards as they occur.

5 unchanged sentences

In June 2016, the FASB issued ASU No.

Financial Instruments –

Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments.

Financial Instruments – Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments.

The amendments in this

12 unchanged sentences

(Expressed in U.S.

NOTE 2 –

NOTE 2 – INVENTORIES

Inventories consist of:

Inventories - Schedule of Inventories, Current

Raw materials

Finished goods

The was no allowance for slow-moving inventories

Inventory, net

There was no allowance for slow-moving inventories

as of December 31, 2021 and 2020.

NOTE 3 –

PREPAID LAND LEASES

NOTE 3 – PREPAID LAND LEASES

The Company has the rights to use certain parcels

8 unchanged sentences

As of January 1,

2019, all the leases in which term has commenced and were in use were classified as operating lease right-of-use assets (“ROU”).

In December 2017, the Company paid a one lump

sum upfront amount of $9,746,108 for a 50-year lease of a parcel of land at Bohai Marine Fine Chemical Industrial Park (“Bohai”)

sum upfront amount of $ 9,974,704 for a 50-year lease of a parcel of land at Bohai Marine Fine Chemical Industrial Park (“Bohai”)

for the new chemical factory to be built.

10 unchanged sentences

In June 2020, the construction of the new chemical

factory commenced and is expected to be completed around June 2021.

factory commenced and the civil works have basically been completed in June, 2021.

GULF RESOURCES, INC.

3 unchanged sentences

(Expressed in U.S.

NOTE 4 –

PROPERTY, PLANT AND EQUIPMENT,

NOTE 4 – PROPERTY, PLANT AND EQUIPMENT,

Property, plant and equipment, net consist of

the following:

Property, Plant and Equipment, Net -

Schedule of Property, Plant and Equipment

Mineral rights

4 unchanged sentences

Accumulated depreciation and amortization

( 123,229,974 )

( 173,212,554 )

( 18,641,596 )

Net book value

$ 162,657,546

$ 148,947,689

The Company has certain buildings and salt pans

4 unchanged sentences

respectively.

During the year ended December 31, 2021, there

were total $ 57,388,456 write off on the company plan and machinery, which mainly include the write off of the machinery, wells and aqueducts.

During the year ended December 31, 2021, depreciation

2 unchanged sentences

During the year ended December 31, 2020, depreciation

and amortization expense totaled $13,991,583 of which $ 10,796,085, $848,345 and $2,347,153 were recorded in direct labor and factory

overheads incurred during plant shutdown, administrative expenses and cost of net revenue respectively.

There were no impairment losses recorded in the

years ended December 31, 2020 and 2019.

The increase in the impairment of $1,206,607 from $17,434,989 at December 30, 2019 was due to

currency translation adjustment.

NOTE 5 –FINANCE LEASE RIGHT-OF-USE ASSETS

and amortization expense totaled $ 15,982,485 of which $ 5,512,920 , $ 815,605 and $ 9,653,960 were recorded in direct labor and factory overheads

incurred during plant shutdown, administrative expenses and cost of net revenue respectively.

5 – FINANCE LEASE RIGHT-OF-USE ASSETS

Property, plant and equipment under finance leases,

net consist of the following:

Plant and machinery

Finance Lease Right-Of-Use Assets - Schedule of Property,

Plant and Equipment Under Finance Leases

Buildings Buildings

Plant and machinery Plant and Machinery

Accumulated depreciation and amortization

( 2,305,478 )

( 2,247,032 )

Net book value

7 unchanged sentences

and amortization expense totaled $ 5,375 , respectively, which was recorded in direct labor and factory overheads incurred during plant

NOTE 6 –

OPERATING LEASE RIGHT–OF-USE

NOTE 6 – OPERATING LEASE RIGHT–OF-USE

As of December 31, 2021, the total operating lease

7 unchanged sentences

aggregate operating lease right-of-use assets amount of $ 7,964,164 as at December 31, 2021.

NOTE 7 –PAYABLE AND ACCRUED EXPENSES

7 – PAYABLE AND ACCRUED EXPENSES

Payable and accrued expenses consist of the following:

Payable and Accrued Expenses - Schedule of Accounts Payable and Accrued Liabilities

Accounts payable

2 unchanged sentences

Other payable-related party (see Note 8)

Deposit on subscription of a subsidiary’s share

Accrued expense for construction

Accrued expense-others

The deposit on subscription of a subsidiary’s

share of $153,260 as of December 31, 2020 relates to sale of non-controlling interests in DCHC.

NOTE 8 –

RELATED PARTY TRANSACTIONS

During the fiscal years 2020 and 2019, the Company

borrowed $0 and $419,995 from Jiaxing Lighting Appliance Company Limited (Jiaxing Lighting”), in which Mr.

Ming Yang, a shareholder

and the Chairman of the Company, has a 100% equity interest.

The amounts due to Jiaxing Lighting were unsecured, interest free and repayable

There was no balance owing to Jiaxing Lighting

as of December 31, 2020 and 2019.

NOTE 8 – RELATED PARTY TRANSACTIONS

On September 25, 2012, the Company purchased five

floors of a commercial building in the PRC, through SYCI, from Shandong Shouguang Vegetable Seed Industry Group Co., Ltd.

(the “Seller”)

at a cost of approximately $ 5.7 million in cash, of which Mr.

5 unchanged sentences

ended December 31, 2020 was $ 90,510 .

Amount owing to the Seller as of December 31, 2020 and 2019 was $95,616 and $89,424.

NOTE 9 –

TAXES PAYABLE

NOTE 8 – RELATED PARTY TRANSACTIONS – Continued

a) Related parties

Name of related parties

Chairman Of the Board

Chief Executive Officer

Chief Financial Officer

Chief Operating Officer

Amount due to related parties:

Considering that the Company has not performed well

in recent years, the Company and its executive officers mutually agreed and to returned all, or a portion of their cash compensation earned

for their services with the Company, which may be considered for future compensation should the Company improve its results of operations.

NOTE 9 – TAXES PAYABLE

Land use tax payable

Value added tax and other taxes payable

NOTE 10 –LEASE LIABILITIES-FINANCE AND OPERATING

Land use tax payable

10 – LEASE LIABILITIES-FINANCE AND OPERATING LEASE

The components of finance lease liabilities were

Lease Liabilities - Finance and Operating

Lease - Schedule of Finance Leased Liabilities

Interest rate

6 unchanged sentences

The components of operating lease liabilities

Lease Liabilities - Finance and Operating

Lease - Schedule of Operating Leased Liabilities

Total Operating lease liabilities

3 unchanged sentences

term at December 31, 2021 was 20.3 years and the weighted average discounts rate was 4.89 %, This discount rates used are based on the

base rate quoted by the People’s Bank of China and vary with the remaining term of the lease.

Lease payments for the years ended

1 unchanged sentence

Maturities of lease liabilities were as follows:

Lease Liabilities - Finance and Operating

Lease - Schedule of Financing and Operating Lease Maturities

Finance lease

8 unchanged sentences

Present value of net minimum lease payments

NOTE 11 ––EQUITY

Reverse Stock Split and Authorized Shares

On January 27, 2020, the Company completed a 1-for-5

reverse stock split of the company’s common stock, such that for each five shares outstanding prior to the stock split there was

one share outstanding after the reverse stock split.

All shares of common stock referenced in this report have been adjusted to reflect

the stock split figures.

There is no change to the authorized shares of

the Company' common stock which remain at 80,000,000.

Issuance of Restricted Shares

A restricted stock award (“RSA”) is

Restricted Shares

A restricted stock award (“RSA”) is

an award of common shares that is subject to certain restrictions during a specified period.

11 unchanged sentences

granted in the aggregate, 472,000 restricted shares of common stock to a consultant, the company's directors, officers and an employee.

The restricted shares award were granted under the 2019 Omnibus Equity Incentive Plan (See Note 13) and vested immediately.

The restricted shares award were granted under the 2019 Omnibus Equity Incentive Plan and vested immediately.

The fair value

of the award on the date of grant was $ 3,134,080 which was expensed in full during the year ended December 31, 2021.

year ended December 31, 2020, the Company granted in the aggregate, 480,050 restricted shares of common stock to a consultant, the company's

directors, officers and an employee.

The restricted shares award were granted under the 2019 Omnibus Equity Incentive Plan and vested

The fair value of the award on the date of grant was $ 2,350,250 which was expensed in full during the year ended December

Retained Earnings - Appropriated

In accordance with the relevant PRC regulations

and the PRC subsidiaries’

Articles of Association, the Company’s PRC subsidiaries are required to allocate its profit after

and the PRC subsidiaries’ Articles of Association, the Company’s PRC subsidiaries are required to allocate its profit after

tax to the following reserve:

9 unchanged sentences

and DCHC is 16%, 14% and 0% of its registered capital respectively.

Retained earnings - Unappropriated

SCHC transferred approximately $84 million ( equivalent

to RMB590 million) from its undistributed profit to its paid in capital during the year ended December 31, 2019.

NOTE 12 –

TREASURY STOCK

In January 2019, the Company issued 4,000 shares

of common stock from the treasury shares to one of its consultants.

The shares were valued at $21,600 based on the closing market price

on the date of the agreement and recorded as general and administrative expense in the consolidated statement of comprehensive income

(loss) for the year ended December 31, 2019.

The shares issued were deducted from the treasury shares at weighted average cost and the

excess of the cost over the closing market price was charged to additional paid-in-capital.

On September 13, 2019, the Company received a

deficiency notice from The Nasdaq Stock Market informing the Company that it failed to comply with Nasdaq’s shareholder approval

requirements relating to shares issued to this consultant.

A total of 8,000 restricted shares issued to this consultant from treasury

were canceled.

On January 14, 2020, the Company reissued the shares from the 2019 Omnibus Equity Incentive Plan adopted by the board of

directors of the Company and approved by the stockholders at the annual stockholders meeting held on December 18, 2019.

On January 23, 2020, the Company received a letter

from the Nasdaq Stock Market Listing Qualifications Staff (the “Staff”) notifying that the Company has regained compliance

with the shareholder approval requirements set forth in Nasdaq Listing Rule 5635(c) in connection with shares issued to the consultant

based on the Staff’s review of the Company’s submitted materials.

NOTE 13 –

STOCK-BASED COMPENSATION

Pursuant to the Company’s 2019 Omnibus Equity

Incentive Plan adopted and approved in 2019 (“

2019 Plan”), awards under the 2019 Plan is limited in the aggregate to 2,068,398

shares of our common stock, inclusive of the awards that were previously issued and outstanding under the Company’s 2007 Equity

Incentive Plan, as amended (the “2007 Plan”).

NOTE 12 – TREASURY STOCK

NOTE 13 – STOCK-BASED COMPENSATION

Pursuant to the Company’s 2019 Omnibus Equity

Incentive Plan adopted and approved in 2019 (“2019 Plan”), awards under the 2019 Plan is limited in the aggregate to 2,068,398

shares of our common stock, inclusive of the awards that were previously issued and outstanding under the Company’s 2007 Equity

Incentive Plan, as amended (the “2007 Plan”).

Upon adoption and approval of the 2019 Plan, the 2007 Plan was frozen, no new

1 unchanged sentence

of the 2007 Plan and applicable award agreement.

As of December 31, 2020, the number of shares of the Company’s common stock available

As of December 31, 2021, the number of shares of the Company’s common stock available

for grant of stock options and issuance under the 2019 Plan is 1,056,801 shares.

4 unchanged sentences

on the annualized historical stock price volatility of the Company, and the expected life is based on the historical option exercise pattern.

On April 1, 2019, the Company granted to one employee

options to purchase 30,000 shares of the Company’s common stock, at an exercise price of $4.55 per share and the options vested

The options were valued at $45,900 fair value, with assumed 45.26% volatility, a four-year expiration term with an expected

tenor of 1.60 years, a risk free rate of 2.37% and no dividend yield.

For the year ended December 31, 2021 and 2020,

total compensation costs for options issued recorded in the consolidated statement of comprehensive income (loss) were $ 0 and $ 0 .

There were no related tax benefits as a full valuation allowance was recorded in the years ended December 31, 2020 and 2019.

NOTE 13 –

STOCK-BASED COMPENSATION –

were no related tax benefits as a full valuation allowance was recorded in the years ended December 31, 2021 and 2020.

NOTE 13 – STOCK-BASED COMPENSATION –

The following table summarizes all Company stock

option transactions between January 1, 2021 and December 31, 2021.

Stock-Based Compensation - Schedule of Stock

Option Activity

Number of Option

3 unchanged sentences

Balance, January 1, 2021

Expired/Canceled

Balance, December 31, 2021

$3.57 - $7.27

Stock and Warrants Options Exercisable and Outstanding

4 unchanged sentences

Exercisable and outstanding

$3.57 - $7.27

All options exercisable and outstanding at December

2 unchanged sentences

The aggregate intrinsic value of options outstanding

and exercisable as of December 31, 2020 and 2019 was $3,330 and $0.

The aggregate intrinsic value is calculated as the difference between

the exercise price of the underlining options and the stock price of $4.12 and $2.55 for the Company's common stock on December 31, 2020

The aggregate intrinsic value of options exercised

during the years ended December 31, 2020 and 2019 was $0 and $922,429.

During the year ended December 31, 2020 and 2019,

0 and 151,856 shares of common stock were issued upon cashless exercise of 0 and 379,400 options.

NOTE 14 –

and exercisable as of December 31, 2021 and 2020 was $ 0

and $ 3,330 .

The aggregate intrinsic value is calculated as the difference between the exercise price of the underlining options and the stock price

of $ 4.33 and $ 4.12 for the Company's common stock on December 31, 2021 and 2020.

year ended December 31, 2021, 2,447 shares of common stock were issued upon cashless exercise of 6,000 options.

NOTE 14 – INCOME TAXES

The Company utilizes the asset and liability method

2 unchanged sentences

tax asset will not be realized, a valuation allowance is recognized.

United States (“US”)

United States

Gulf Resources, Inc.

3 unchanged sentences

income for the years ended December 31, 2021 and 2020, and management believes that its earnings are permanently invested in the PRC.

British Virgin Islands (“BVI”)

Upper Class Group Limited, a subsidiary of Gulf

8 unchanged sentences

withholding tax in Hong Kong.

Enterprise income tax (“EIT”) for

SCHC, SYCI and DCHC in the PRC is charged at 25 % of the assessable profits.

The operating subsidiaries SCHC, SYCI and DCHC

are wholly foreign-owned enterprises (“FIE”) incorporated in the PRC and are subject to PRC Local Income Tax Law.

tax losses may be carried forward to be utilized against future taxable profit for ten years for High-tech enterprises and small and medium-sized

3 unchanged sentences

On February 22, 2008, the Ministry of Finance

(“MOF”) and the State Administration of Taxation (“SAT”) jointly issued CaiShui [2008] Circular 1 (“Circular

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 exempted 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 at 5% effective tax rate.

As of December 31, 2021 and 2020, the accumulated

distributable earnings under the Generally Accepted Accounting Principles (GAAP”) of PRC that are subject to WHT are $126,643,733

distributable earnings under the Generally Accepted Accounting Principles (GAAP”) of PRC that are subject to WHT are $ 140,006,862

and $ 126,643,733 , respectively.

5 unchanged sentences

the unrecognized WHT are $ 5,932,051 and $ 5,288,346 , respectively.

NOTE 14 –

INCOME TAXES –

The Company’s income tax returns are subject

to the various tax authorities’

The federal, state and local authorities of the United States may examine the Company’s

NOTE 14 – INCOME TAXES – Continued

The Company’s income tax returns are subject

to the various tax authorities’ examination.

The federal, state and local authorities of the United States may examine the Company’s

income tax returns filed in the United States for three years from the date of filing.

The Company’s US income tax returns since

2017 are currently subject to examination.

Inland Revenue Department of Hong Kong (“IRD”)

may examine the Company’s income tax returns filed in Hong Kong for seven years from date of filing.

Inland Revenue Department of Hong Kong (“IRD”)

may examine the Company’s income tax returns filed in Hong Kong for seven years from date of filing.

For the years 2012 through

6 unchanged sentences

benefit (expense) from continuing operations are:

Current taxes –

Deferred taxes –

Deferred taxes –US entity

Income Taxes - Schedule of Components of Income Tax Expense Benefit

Current taxes – PRC

Deferred taxes – PRC entities

Deferred taxes –US entity

Change in valuation allowance

The effective income tax benefit (expense) rate

differs from the PRC statutory income tax rate of 25% from continuing operations in the PRC as follows:

Tax Expense Benefit

The effective

income tax benefit (expense) rate differs from the PRC statutory income tax rate of 25% from continuing operations in the PRC as follows:

Income Taxes - Schedule

of Income Tax Rate Reconciliation

Reconciliations

3 unchanged sentences

Effective income tax benefit (expense) rate

As of December 31, 2020 and 2019, the Company had a US Federal net

operating loss carry forwards of approximately $4,900,000 and $2,100,000 which are allowed for an indefinite carry forward period but

limited to 80% of each subsequent year's net income.

The timing and manner in which the Company can utilize operating loss carry forwards

in any year may be limited by provisions of the Internal Revenue Code regarding changes in ownership of corporations.

Such limitation

may have an impact on the ultimate realization of its carry forwards and future tax deductions.

In addition, since the Company intends

to reinvest its earnings to further expand its businesses in mainland China, its foreign invested enterprises do not intend to declare

dividends to their immediate foreign holding companies in the foreseeable future.

Accordingly, a 100% deferred tax asset valuation allowance

was recorded for these net operating losses.

Significant components of the Company’s

As of December

31, 2021 and 2020, the Company had a US Federal net operating loss carry forwards of approximately $ 8,470,000 and $ 4,900,000 which are

allowed for an indefinite carry forward period but limited to 80% of each subsequent year's net income.

The timing and manner in which

the Company can utilize operating loss carry forwards in any year may be limited by provisions of the Internal Revenue Code regarding

changes in ownership of corporations.

Such limitation may have an impact on the ultimate realization of its carry forwards and future

tax deductions.

In addition, since the Company intends to reinvest its earnings to further expand its businesses in mainland China, its

foreign invested enterprises do not intend to declare dividends to their immediate foreign holding companies in the foreseeable future.

Accordingly, a 100% deferred tax asset valuation allowance was recorded for these net operating losses.

Significant components of the Company’s

deferred tax assets and liabilities at December 31, 2021 and December 31, 2020 are as follows:

Income Taxes - Schedule of Deferred

Tax Assets and Liabilities

Deferred tax liabilities

9 unchanged sentences

Valuation allowance

( 9,982,758 )

( 9,872,706 )

Net deferred tax asset

3 unchanged sentences

ended December 31, 2020 is $ 886,873 .

The increase in valuation allowance in the year

ended December 31, 2019 is mainly attributable to valuation allowance recorded for the deferred tax assets related to a portion of the

PRC tax losses that more likely than not will expire before it could be utilized and the exploration costs which more likely than not

will not be realized.

There were no unrecognized tax benefits and accrual

4 unchanged sentences

during the years ended December 31, 2021 and 2020.

NOTE 15 –

BUSINESS SEGMENTS

An operating segment’s performance is primarily

NOTE 15 – BUSINESS SEGMENTS

An operating segment’s performance is primarily

evaluated based on segment operating income, which excludes share-based compensation expense, certain corporate costs and other income

5 unchanged sentences

the customers are located in PRC.

December 31, 2020

(external customers)

(intersegment)

Loss from operations before income tax expense

Income tax (expense) benefit

Loss from operations after

Income (loss) from operations before income tax expense

( 1,078,320 )

( 2,550,561 )

( 4,357,759 )

Income tax (expense) benefit

( 3,349,220 )

( 3,218,784 )

( 6,298,218 )

Income (loss) from operations after

tax (expense) benefit

( 5,769,345 )

( 4,357,759 )

( 1,087,348 )

Depreciation and amortization

Capital expenditures

December 31, 2019

(external customers)

1 unchanged sentence

Loss from operations before income tax expense

( 3,589,494 )

( 2,745,297 )

( 4,922,763 )

( 4,760,629 )

( 9,683,392 )

Income tax (expense) benefit

1 unchanged sentence

income tax (expense) benefit

( 2,699,163 )

( 2,123,022 )

( 3,814,292 )

( 4,760,629 )

( 8,574,921 )

Depreciation and amortization

4 unchanged sentences

Reconciliations

Total segment operating loss

Total segment operating Profit (loss)

$ ( 4,922,763 )

Corporate costs

( 3,575,099 )

( 2,928,603 )

Unrealized gain (loss) on translation of intercompany balance

Loss from operations

( 1,832,026 )

Profit (loss) from operations

( 9,683,392 )

Other income, net of expense

Loss before taxes

Income (loss) before taxes

$ ( 9,528,515 )

The following table shows the major customers

(10% or more) for the year ended December 31, 2021

(000’s)

Chemical Products

(000’s)

Percentage of

Business Segments - Schedule of

Revenue by Major Customers

Shandong Morui Chemical Company Limited

1 unchanged sentence

Shouguang Weidong Chemical Company Limited

Shandong Shouguang Shenrunfa Ocean Chemical Company Limited

Dongying Bomeite Chemical Company Limited

The following table shows the major customers

(10% or more) for the year ended December 31, 2020.

(000’s)

Chemical Products

(000’s)

Percentage of

Shandong Morui Chemical Company Limited

Shandong Brother Technology Limited

Shouguang Weidong Chemical Company Limited

Shandong Brother Technology Limited, Kuerle Xingdong Trading Limited

Shandong Shouguang Shenrunfa Ocean Chemical Company Limited

Dongying Bomeite Chemical Company Limited

NOTE 16–

16 – CUSTOMER CONCENTRATION

9 unchanged sentences

As of December 31, 2020, amounts due from these customers were $ 5,417,101 .

NOTE 17–

17 – MAJOR SUPPLIERS

5 unchanged sentences

As of December 31, 2020, amounts due to those suppliers were

NOTE 18 –

FAIR VALUE OF FINANCIAL INSTRUMENTS

NOTE 18 – FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying values of financial instruments,

2 unchanged sentences

There were no material unrecognized financial assets and liabilities as of December 31, 2021 and

NOTE 19 –

CAPITAL COMMITMENT AND OTHER SERVICE

NOTE 19 – CAPITAL COMMITMENT AND OTHER SERVICE

CONTRACTUAL OBLIGATIONS

The following table sets forth the Company’s

contractual obligations as of December 31, 2021:

Capital Commitment and Other Service

Contractual Obligations - Schedule of Contractual Obligations

Property Management Fees

5 unchanged sentences

the next 37 to 48 months

NOTE 20 –LOSS CONTINGENCIES

20 – LOSS CONTINGENCIES

On or about August 3, 2018, written decisions

6 unchanged sentences

295 and Shou Guo Tu Zi Fa Gao Zi [2018]

296 (together, the “Written Decisions”) were served on Shouguang City Haoyuan Chemical Company Limited (“SCHC”)

by Shouguang City Natural Resources and Planning Bureau (the “Bureau”), naming SCHC as respondent respectively thereof.

296 (together, the “Written Decisions”) were served on Shouguang City Haoyuan Chemical Company Limited (“SCHC”)

by Shouguang City Natural Resources and Planning Bureau (the “Bureau”), naming SCHC as respondent respectively thereof.

Decisions challenged the land use of Factory nos.

10 unchanged sentences

penalty payment in a timely manner.

Subsequently, the Bureau filed enforcement actions to the People’s Court of Shouguang City,

Shandong Province (the “Court”), naming SCHC as enforcement respondent and alleged, among other things, that SCHC failed to

Subsequently, the Bureau filed enforcement actions to the People’s Court of Shouguang City,

Shandong Province (the “Court”), naming SCHC as enforcement respondent and alleged, among other things, that SCHC failed to

perform its obligations under each of the Written Decisions within the specified timeframe.

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and (2019) Lu 0783 Xing Shen No.

394, respectively (together, the “Court Rulings”) were made by the Court in favor of the

The Court orders, among other relief, to enforce each of the Written Decisions, to return each subject land to its legal owners

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The Court Rulings became enforceable immediately upon service on SCHC on May 5, 2019.

In the last twenty years, to the Company’s

knowledge, there were no government regulations requiring bromine manufacturers to obtain land use and planning approval document.

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They are facing the same issues in connection with land use and planning as the

To the Company’s knowledge, the local government has submitted its plan to solve the issues to higher authority and are

waiting for approval from the higher authority.

The Company is in the process of resolving the issues in connection

with SCHC’s land use and planning diligently.

The Company has been in discussions regularly with the local government authorities

with the help from Shouguang City Bromine Association to seek reliefs and, based on verbal confirmation by local government authorities,

believes the administrative penalties imposed by the Bureau according to the Written Decisions are being re-assessed by local government

authorities and may be revoked.

Pursuant to a Written Application dated October 28, 2019 addressed to the Court by the Bureau, the Bureau

withdrew its application for the enforcement proceedings regarding the administrative penalty imposed on Factory No.

7, Factory No.

The Company is in the process of resolving the

issues in connection with SCHC’s land use and planning diligently.

The Company has been in discussions closely with the local government

authorities with the help from Shouguang City Bromine Association to seek reliefs and, based on verbal confirmation by local government

authorities, believes the administrative penalties imposed by the Bureau according to the Written Decisions are being re-assessed by local

government authorities and may be revoked.

Pursuant to a Written Application dated October 28, 2019 addressed to the Court by the Bureau,

the Bureau withdrew its application for the enforcement proceedings regarding the administrative penalty imposed on Factory No.

8 and Factory No.10.

Pursuant to a written decisions of administrative ruling captioned (2019) Lu 0783 Xing Shen No.

389 Zhi Yi, dated November

25, 2020, the Court orders to terminate the enforcement of the case captioned (2019) Lu 0783 Xing Shen No.

Production of Factory

389 Zhi Yi, dated

November 25, 2020, the Court orders to terminate the enforcement of the case captioned (2019) Lu 0783 Xing Shen No.

Production of

7 was allowed to resume in April 2019.

The Company received a notification from the Shouguang City Government in February 2019 informing

the Company that Factory No.

The Company received a notification from the Shouguang City Government in February

2019 informing the Company that Factory No.

9 have passed inspection and were approved to resume operation

In addition, on August 28, 2019, the People’s

Government of Shandong Province, issued a regulation titled “Investment Project Management Requirements of Chemical Companies in

Shandong Province”

permitting the construction of facilities on existing sites or infrastructure of bromine manufacturing and other

In addition, on August 28, 2019, the People’s

Government of Shandong Province, issued a regulation titled “Investment Project Management Requirements of Chemical Companies in

Shandong Province” permitting the construction of facilities on existing sites or infrastructure of bromine manufacturing and other

chemical industry-related types of projects (clause 11 of section 3).

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NOTE 21 - SUBSEQUENT EVENT

On November 30, 2020, Gulf Resources announced

that the government of Shouguang City, ordered that all bromine facilities be temporarily closed from December 25, 2020 until February

The Company believed the seasonal closure ordered by the government was part of governmental action plan to curb air pollution

in the winter and improve the comprehensive development efficiency of brine resources.

On February 19, 2021, as planned, the Company reopened

its four operating bromine and crude salt factories.

The Company received an oral notification from

the government of Shouguang City on December 23, 2021, pursuant to which all bromine facilities in Shouguang City will be temporarily

closed from December 28, 2021 until February 21, 2022 8:00 AM China Time.

The Company believed the seasonal closure ordered by the

government was part of governmental action plan to curb air pollution in the winter and improve the comprehensive development efficiency

of brine resources.

On February 21, 2022, as planned, the Company reopened its four operating bromine and crude salt factories.

GULF RESOURCES, INC.

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(Expressed in U.S.

SCHEDULE I –

PARENT ONLY FINANCIAL INFORMATION

SCHEDULE I – PARENT ONLY FINANCIAL INFORMATION

The following presents condensed parent company

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Total non-current assets

Liabilities and Stockholders’

$ 287,598,624

$ 277,493,813

Liabilities and Stockholders’ Equity

Current Liabilities

Other payables and accrued expenses

Amounts due to related party

Amounts due to group companies

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Total Liabilities

Stockholders’

Stockholders’ Equity

PREFERRED STOCK;

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Cumulative translation adjustment

Total Stockholders’

Total Liabilities and Stockholders’

Total Stockholders’ Equity

Total Liabilities and Stockholders’ Equity

$ 287,598,624

$ 277,493,813

Condensed Statements of Comprehensive Loss

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General and administrative expenses

$ ( 3,572,334 )

$ ( 2,922,671 )

TOTAL OPERATING EXPENSES

( 3,572,334 )

( 2,922,671 )

OTHER EXPENSES

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TOTAL EXPENSES

Equity in net Loss of subsidiaries

( 3,572,334 )

( 2,923,038 )

Equity in net income (loss) of

( 5,497,004 )

LOSS BEFORE INCOME TAXES

( 8,420,044 )

$ ( 924,718 )

$ ( 8,420,044 )

Condensed Statements of Cash Flows

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CASH FLOWS FROM OPERATING ACTIVITIES

$ ( 924,718 )

$ ( 8,420,044 )

Adjustments to reconcile net Loss to

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In the condensed parent-company-only

financial statements, the Company’s investment in subsidiaries is stated at cost plus equity in undistributed earnings of subsidiaries

since the date of acquisition.

The Company’s share of net loss of its subsidiaries is included in condensed statements of comprehensive

loss using the equity method.

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For purposes of the above test,

restricted net assets of consolidated subsidiaries shall mean that amount of the registrant’s proportionate share of net assets

of consolidated subsidiaries (after intercompany eliminations) which as of the end of the most recent fiscal year may not be transferred

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exceed 25% of the consolidated net assets of Gulf Resources, Inc.

The ability of the Company’s Chinese operating

subsidiaries to pay dividends may be restricted due to the foreign exchange control policies and availability of cash balances of the

Chinese operating subsidiaries.

Because a significant portion of the Company’s operations and revenues are conducted and generated

in China, a significant portion of the revenues being earned and currency received are denominated in RMB.

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control regulation in China, and, as a result, the Company may be unable to distribute any dividends outside of China due to PRC exchange

control regulations that restrict the Company’s ability to convert RMB into US Dollars.

Changes in and Disagreements with Accountants on

Accounting and Financial Disclosure.

control regulations that restrict the Company’s ability to convert RMB into US Dollars.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

Previous Independent Accountants

On June 30, 2021, the Company was notified by

Morison Cogen LLP (“MC”) that the firm resigned as the Company’s independent registered public accounting firm, which

resignation was effective on June 30, 2021.

The audit reports of MC on the financial statements

of the Company as of and for the years ended December 31, 2020 and 2019 did not contain any adverse opinion or disclaimer of opinion,

nor was it qualified or modified as to uncertainty, audit scope, or accounting principles.

There were no disagreements with MC on any matter

of accounting principles or practices, financial statement disclosure, or auditing scope or procedures, from the time of MC’s engagement

up to the date of resignation which disagreements that, if not resolved to MC’s satisfaction, would have caused MC to make reference

in connection with its opinion to the subject matter of the disagreement.

None of “reportable events”, as that term is described

in Item 304(a)(1)(v)(A)-(D)of Regulation S-K occurred within the two fiscal years of the Company ended December 31, 2020 and 2019 and

subsequently up to the date of resignation.

The Company provided MC with a copy of this disclosure

before its filing with the SEC, providing MC with the opportunity to furnish the Company with a letter addressed to the SEC containing

any new information, clarification of the Company’s expression of its views, or the respect in which MC does not agree with the

above statements.

A copy of MC’s letter addressed to the SEC dated July 7, 2021 has been filed as an exhibit to the Company’s

Current Report on Form 8-K filed with the SEC on July 7, 2021.

New Independent Accountants

On July 1, 2021, the Company engaged WWC, P.C.

Certified Public Accountants (“WWC”) to serve as its independent auditor.

The decision to engage WWC as the Company’s

principal independent accountant was approved by the Audit Committee of the Company on July 1, 2021.

During the two fiscal years of the

Company ended December 31, 2020 and 2019, and through the date of WWC’s engagement, the Company did not consult WWC regarding either:

(i) the application of accounting principles to a specified transaction (either completed or proposed), or the type of audit opinion that

might be rendered on the Company’s financial statements;

or (ii) any matter that was either the subject of a “disagreement”

or “reportable event” within the meaning set forth in Regulation S-K, Item 304 (a)(1)(iv) or (a)(1)(v).

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data