<DOCUMENT>
<TYPE>10KSB
<SEQUENCE>1
<FILENAME>e601630_10ksb-diversifax.txt
<DESCRIPTION>ANNUAL REPORT
<TEXT>

                       SECURITIES AND EXCHANGE COMMISSION
                              Washington D.C. 20549
                                   FORM 10-KSB

|X|   ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934

                   For the fiscal year ended NOVEMBER 30, 2006

|_|   TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
      OF 1934

              For the transition period from _________ to _________

                         Commission File Number 0-20936

                                DIVERSIFAX, INC.
                 ----------------------------------------------
                 (Name of Small Business Issuer in Its Charter)

               DELAWARE                                13-3637458
    -------------------------------        ------------------------------------
    (State or Other Jurisdiction of        (I.R.S. Employer Identification No.)
    Incorporation or Organization)

        CHEMING INDUSTRIAL PARK, UNIT - HAOYUAN CHEMICAL COMPANY LIMITED,
                     SHOUGUANG CITY, SHANDONG, CHINA 262714
                    (Address of Principal Executive Offices)

                                 (212) 561-3604
                 (Issuer's Telephone Number Including Area Code)

            SHENNAN ZHONG ROAD, P O BOX 031-114, SHENZEN, CHINA 51800
          (Former name or former address, if changed since last report)

Securities registered under Section 12(b) of the Exchange Act: None

Securities registered under Section 12(g) of the Exchange Act: Common Stock, par
value $.001 per share

Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the Company was required to file such reports), and (2)has been
subject to such filing requirements for the past 90 days. YES |X| NO |_|

Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of Company's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. |X|

<PAGE>

Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). YES |_| NO |X|

The issuer's revenues for its most recent fiscal year: $359,174.

As of February 14, 2007, the aggregate market value of the voting stock held by
non-affiliates of the issuer was $349,152.75, based on the closing price of
$2.25 per share of its common stock on the OTC Bulleting Board on February 14,
2007. As of February 14, 2007, 43,205,380 shares of the issuer's common stock,
par value $.001 per share were outstanding.

Transitional Small Business Disclosure Format (check one): YES |_| NO |X|

Documents incorporated by reference: None

<PAGE>

                                     PART I

ITEM 1: DESCRIPTION OF BUSINESS

Cautionary Notice Regarding Forward Looking Statements

      Diversifax, Inc. (referred to herein as "we" or the "Company") desires to
take advantage of the "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995. This report contains a number of forward-looking
statements that reflect management's current views and expectations with respect
to our business, strategies, future results and events and financial
performance. All statements made in this annual report other than statements of
historical fact, including statements that address operating performance, events
or developments that management expects or anticipates will or may occur in the
future, including statements related to future reserves, cash flows, revenues,
profitability, adequacy of funds from operations, statements expressing general
optimism about future operating results and non-historical information, are
forward-looking statements. In particular, the words "believe," "expect,"
"intend," "anticipate," "estimate," "may," "will," variations of such words and
similar expressions identify forward-looking statements, but are not the
exclusive means of identifying such statements and their absence does not mean
that the statement is not forward-looking. These forward-looking statements are
subject to certain risks and uncertainties, including those discussed below. Our
actual results, performance or achievements could differ materially from
historical results as well as those expressed in, anticipated or implied by
these forward-looking statements. We do not undertake any obligation to revise
these forward-looking statements to reflect any future events or circumstances.

      Readers should not place undue reliance on these forward-looking
statements, which are based on management's current expectations and projections
about future events, are not guarantees of future performance, are subject to
risks, uncertainties and assumptions (including those described below) and apply
only as of the date of this report. Our actual results, performance or
achievements could differ materially from the results expressed in, or implied
by, these forward-looking statements. Factors that could cause or contribute to
such differences include, but are not limited to, those discussed in "Risk
Factors" below as well as those discussed elsewhere in this report, and the
risks discussed in our press releases and other communications to shareholders
issued by us from time to time, which attempt to advise interested parties of
the risks and factors that may affect our business. We undertake no obligation
to publicly update or revise any forward-looking statements, whether as a result
of new information, future events or otherwise.

Item 1. Description of Business.

History and Organization

      The Company was incorporated on February 28, 1989, in and under the laws
of the state of Delaware. At the time of our incorporation we were engaged in
the self-service public fax machine business. Since November 1993 through August
10, 2006, the Company had been engaged in the Business of owning, leasing and
operating coin and debit card pay-per copy photocopy machines, fax machines
microfilm reader-printers and accessory equipment. Due to the increased use of
internet services, demand for the services provided by the Company had declined
sharply, and on August 10, 2006, the Board of Directors of the Company therefore
decided to discontinue its operations and eliminate all of its debt. In
connection therewith, on August 10, 2006, the Company entered into, and
consummated, that certain Asset Transfer and Debt Resolution Agreement with
Irwin A. Horowitz, the then Company's chief executive officer, director and
controlling stockholder ("Horowitz"), whereby the Company transfer all of its
asserts to Horowitz in exchange the forgiveness of debt and liabilities of the
Company, which consisted of loans plus accrued interest thereon and unpaid
compensation, owed to Horowitz.

<PAGE>

      On August 25, 2006, Ms. Juxiang Yu ("Yu"), the Company's former officer
and director, and Horowitz consummated Yu's purchase of shares of capital stock
of the Company in accordance with the terms and conditions of that certain Stock
Purchase Agreement, dated as of August 25, 2006, by and between Yu and Horowitz
(the "Purchase Agreement"). Pursuant to the Purchase Agreement, Yu acquired
362,083 (on a post-reverse stock split adjusted basis (see below)) shares of the
Company's Common Stock, for an aggregate purchase price of $425,000 (the "Stock
Transaction"). Therefore, after giving effect to the Stock Transaction, Yu held,
on a post-reverse stock split adjusted basis (see below), an aggregate of
362,083 shares of the 517,262 (on a post-reverse stock split adjusted basis (see
below)) shares of the Company's Common Stock issued and outstanding,
constituting, in the aggregate, 70% of the issued and outstanding shares of
Common Stock of the Company, effecting a change in the controlling interest of
the Company.

      The Stock Transaction effected a change in control of the Company. Prior
to the closing of the Stock Transaction, Horowitz had been Chairman, Chief
Executive Officer, President and a director of the Company, and Lonnie L.
Sciambi had been a director of the Company. Effective upon the closing of the
Stock Transaction and the filing and distribution of such documents as required
under the Securities Exchange Act of 1934, as amended, and the expiration of all
applicable grace periods, Yu was appointed to, and Messrs. Horowitz and Sciambi
resigned from, the Board of Directors of the Company. In addition, Yu was
elected to serve as President and Secretary of the Company.

      On September 11, 2006, the Company's Board of Directors and the then
holder of a majority of the Company's then outstanding Common Stock approved the
implementation of a one-for-one-hundred (1-for-100) reverse stock split (the
"Reverse Stock Split") of the outstanding shares of the Company's Common Stock.
The Reverse Stock Spit became effective on October 23, 2006, whereby each 100
shares of the Company's issued and outstanding Common Stock was automatically
combined into and became one share of Common Stock, thereby reducing the
51,726,200 of shares of Common Stock which were outstanding on a fully diluted
basis immediately prior to the effectiveness of the Reverse Stock Split to
approximately 517,262 shares of Common Stock.

      On December 11, 2006, the Company consummated that certain Agreement and
Plan of Merger, dated as of December 10, 2006, by and among the Company, DFAX
Acquisition Vehicle, Inc. ("DFAX"), a wholly owned subsidiary of the Company,
Upper Class Group Limited ("UCG"), and the shareholders of UCG (the "Merger
Agreement"), whereby DFAX merged with and into UCG and the UCG Shareholders
received 26,500,000 shares of Common Stock of the Company in exchange for their
shares of UCG (the "Merger Transaction"), which were divided proportionally
among the UCG Shareholders in accordance with their respective ownership
interests in UCG immediately before the consummation of the Merger Transaction.
As a result of the Merger Transaction, UCG, the surviving corporation, became
the Company's wholly owned subsidiary, and DFAX ceased to exist. UCG owns all of
the issued and outstanding capital stock of Shouguang City Haoyuan Chemical
Company Limited, a company organized under the laws of China ("SCHC").

      As a result of the Merger Transaction, a change of control of the Company
occurred as of the Effective Date. Prior to the Effective Date, the controlling
shareholder of Company was Yu, who held approximately 70% of the then issued and
outstanding shares of Common Stock of the Company. As of the Effective Date, the
UCG Shareholders became the controlling shareholders of the Company, owning in
the aggregate 98% of the issued and outstanding shares of Common Stock of the
Company as of the Effective Date. Ming Yang ("Yang"), the Company's present
Chairman and Chief Executive Officer acquired 5,024,000 shares of the Common
Stock of the Company. After giving effect to the Share Exchange Transaction,
Yang is the owner of 18.6% of the issued and outstanding shares of the Common
Stock of the Company.

<PAGE>

      Prior to the closing of the Merger Transaction, Yu had been President,
Secretary and sole director of the Company. Effective upon the filing and
distribution of such documents as are required under the Securities Exchange Act
of 1934, as amended, and the expiration of all applicable grace periods, which
occurred on January 15, 2007, Yang, who prior to the Share Exchange Transaction
was a shareholder of UCG, and Naihui Miao were appointed to, and Yu resigned
from, the Board of Directors of the Company.

      Effective upon the close of business of December 29, 2006, Yu resigned
from his position as President and Secretary of the Company. As Sole Director of
the Company, Yu appointed Yang to the positions of Chairman and Chief Executive
Officer, Naihui Miao to the position of Secretary and Min Li to the position of
Chief Financial Officer, such appointments became effective upon the close of
business of December 29, 2006.

      On February 5, 2007, the Company entered into, and consummated, the Share
Exchange Agreement with UCG, SCHC, Shouguang Yuxin Chemical Industry Company
Limited ("SYCI"), and the shareholders of SYCI (the "SYCI Shareholders"),
pursuant to which SCHC acquired SYCI from the SYCI Shareholders in exchange for
issuance of 16,188,118 shares of Common Stock of the Company to the SCYI
Shareholders (the "Share Exchange Transaction"), which was divided
proportionally among the SCYI Shareholders in accordance with their respective
ownership interests in SCYI immediately before the completion of the Share
Exchange Transaction, and non-interest bearing promissory notes in the aggregate
principal amount of $2,550,000 to the SYCI Shareholders.

Our Business

SHOUGUANG CITY HAOYUAN CHEMICAL COMPANY LIMITED

      SCHC is engaged in manufacturing and trading Bromine and Crude Salt in
China. Bromine (Br2) is a halogen element and it is a red volatile liquid at
standard room temperature which has reactivity between chlorine and iodine.
Elemental bromine is used to manufacture a wide variety of bromine compounds
used in industry and agriculture. Bromine is also used in the manufacture of
fumigants, brominated flame-retardants, water purification compounds, dyes,
medicines, sanitizers, inorganic bromides for photography, and other items.

      The main competitors of SCHC include Shandong Hai Hua Holding Limited,
Shouguang Fu Kang Medicines Manufacturing Company Limited, Shouguang Wei Dong
Chemical Company Limited, and Shandong Cai Yang Zi Salt Field Company.

      The four largest suppliers of SCHC for the period January 2006 to June
2006 were Shandong Hai Ke Sheng Li Electrochemical Company Limited, Shouguang
Rui Tai Chemical Company Limited, Mao Xin Chemical Company Limited, and Heng
Lian Chemical Company Limited. The five largest suppliers of SCHC for year 2005
were Shandong Hai Ke Sheng Li Electrochemical Company Limited, Shouguang Rui Tai
Chemical Company Limited, Shouguang Xin Yi Fuel Trading Company Limited,
Dongying City Rui Xin Chemical Company Limited, and Mao Xin Chemical Company
Limited.

      The five largest customers for SCHC in year 2005 were Shouguang City Wei
Dong Chemical Company Limited, Shouguang City Rui Tai Chemical Company Limited,
Weifang City Lu Guang Chemical Company Limited, Shouguang City Fu Hai Chemical
Company Limited, and Dongying Hong Ze Chemical Company Limited.

<PAGE>

SHOUGUANG YUXIN CHEMICAL INDUSTRY COMPANY LIMITED

      SYCI, a company organized under the laws of China, is engaged in
manufacturing and sales of chemical products, with its headquarters located in
Shouguang City at 2nd Living District, Qinghe Oil Factory, Shouguang City,
Shandong Province, China. The company has certified with ISO9001-2000 and
received the Quality Products and Services Guarantee Certificate from China
Association for Quality, accredited by the Shandong as the Provincial Credit
Enterprises and is a Class One supplier for both China Petroleum & Chemical
Corporation (SINOPC) and PetroChina Company Limited. SYCI has been engaged in
the product innovation and R&D projects with Shandong University, Shandong
Institute of Light Industry, Southeast University and other higher education
institutions. SYCI also has hired 3 college professors and 3 professional who
hold PhD degree to lead their R& D department.

      SYCI concentrates its effort on the productions and sales of chemical
products that is use in oil and gas field explorations, oil and gas
distribution, oil field drilling, wastewater processing, papermaking chemical
agents, and inorganic chemical. SYCI also spends high amount of R&D on commonly
used chemical products as well as medicine intermediates. Currently, SYCI's
annual productions of oil & gas field explorations and related chemical products
are over 10,000 tons, and papermaking-related chemical products are over 7,000
tons. The sales of these products are mainly distributed to large domestic
papermaking manufacturers and major oilfields such as Shengli Oilfield, Daqing
Oilfield, Zhongyuan Oilfield, Huabei Oilfield, and Talimu Oilfields.

Employees

      At the current time, in addition to our officers, we have 103 full-time
employees.

Risk Factors

The reader should carefully consider each of the risks described below. If any
of the following risks develop into actual events, our business, financial
condition or results of operations could be materially adversely affected and
the trading price of our common stock could decline significantly.

Risk Factors of the Company

There is a limited public market for our common stock.

      There is currently a limited public market for the common stock. Holders
of our common stock may, therefore, have difficulty selling their common stock,
should they decide to do so. In addition, there can be no assurances that such
markets will continue or that any shares of common stock, which may be
purchased, may be sold without incurring a loss. Any such market price of the
common stock may not necessarily bear any relationship to our book value,
assets, past operating results, financial condition or any other established
criteria of value, and may not be indicative of the market price for the common
stock in the future. Further, the market price for the common stock may be
volatile depending on a number of factors, including business performance,
industry dynamics, and news announcements or changes in general economic
conditions.

Our common stock may be deemed penny stock with a limited trading market.

      Our common stock is currently listed for trading in the Over-The-Counter
Market on the NASD Electronic Bulletin Board or in the "pink sheets" maintained
by the National Quotation Bureau, Inc., which are generally considered to be
less efficient markets than markets such as NASDAQ or other national exchanges,
and which may cause difficulty in conducting trades and difficulty in obtaining

<PAGE>

future financing. Further, our securities are subject to the "penny stock rules"
adopted pursuant to Section 15 (g) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). The penny stock rules apply to non-NASDAQ
companies whose common stock trades at less than $5.00 per share or which have
tangible net worth of less than $5,000,000 ($2,000,000 if the company has been
operating for three or more years). Such rules require, among other things, that
brokers who trade "penny stock" to persons other than "established customers"
complete certain documentation, make suitability inquiries of investors and
provide investors with certain information concerning trading in the security,
including a risk disclosure document and quote information under certain
circumstances. Many brokers have decided not to trade "penny stock" because of
the requirements of the penny stock rules and, as a result, the number of
broker-dealers willing to act as market makers in such securities is limited. In
the event that we remain subject to the "penny stock rules" for any significant
period, there may develop an adverse impact on the market, if any, for our
securities. Because our securities are subject to the "penny stock rules"
investors will find it more difficult to dispose of our securities. Further, for
companies whose securities are traded in the Over-The-Counter Market, it is more
difficult: (i) to obtain accurate quotations; (ii) to obtain coverage for
significant news events because major wire services, such as the Dow Jones News
Service, generally do not publish press releases about such companies, and (iii)
to obtain needed capital.

New management's decision to change the business focus of the Company from the
photocopy and fax service industry to the chemical industry could ultimately
prove to be unsuccessful, harming our business operations and prospects.

      New management has recently changed the Company's business focus from the
photocopy service industry to the chemical industry. Accordingly, a substantial
portion of our management's time will be directed toward the pursuit of
identifying and acquiring business opportunities in the education industry.
There can be no assurance that new management will be able to properly manage
the direction of the Company or that any ultimate change in the Company's
business focus will be successful. If new management fails to properly manage
and direct the Company, the Company may be forced to scale back or abandon its
existing operations, which will cause the value of our shares to decline.

We have not and do not anticipate paying any dividends on our common stock,
because of this our securities could face devaluation in the market.

      We have paid no dividends on our common stock to date and it is not
anticipated that any dividends will be paid to holders of our common stock in
the foreseeable future. While our dividend policy will be based on the operating
results and capital needs of the business, it is anticipated that any earnings
will be retained to finance our future expansion and for the implementation of
our new business plan. As an investor, you should take note of the fact that a
lack of a dividend can further affect the market value of our stock, and could
significantly affect the value of any investment in our Company.

We will continue to incur significant increased costs as a result of operating
as a public company, and our management will be required to devote substantial
time to new compliance requirements.

      As a public company we incur significant legal, accounting and other
expenses under the Sarbanes-Oxley Act of 2002, together with rules implemented
by the Securities and Exchange Commission and applicable market regulators.
These rules impose various requirements on public companies, including requiring
certain corporate governance practices. Our management and other personnel will
need to devote a substantial amount of time to these new compliance
requirements. Moreover, these rules and regulations will increase our legal and
financial compliance costs and will make some activities more time-consuming and
costly.

<PAGE>

      In addition, the Sarbanes-Oxley Act requires, among other things, that we
maintain effective internal controls for financial reporting and disclosure
controls and procedures. In particular, commencing in 2007, we must perform
system and process evaluations and testing of our internal controls over
financial reporting to allow management and our independent registered public
accounting firm to report on the effectiveness of our internal controls over
financial reporting, as required by Section 404 of the Sarbanes-Oxley Act. Our
testing, or the subsequent testing by our independent registered public
accounting firm, may reveal deficiencies in our internal controls over financial
reporting that are deemed to be material weaknesses. Compliance with Section 404
may require that we incur substantial accounting expenses and expend significant
management efforts. If we are not able to comply with the requirements of
Section 404 in a timely manner, or if our accountants later identify
deficiencies in our internal controls over financial reporting that are deemed
to be material weaknesses, the market price of our stock could decline and we
could be subject to sanctions or investigations by the SEC or other applicable
regulatory authorities.

Our Board of Directors has the authority, without stockholder approval, to issue
preferred stock with terms that may not be beneficial to common stock holders
and with the ability to adversely affect stockholder voting power and perpetuate
the board's control over the Company.

      Our certificate of incorporation authorizes the issuance of up to
1,000,000 shares of preferred stock, par value $0.001 per share.

      The specific terms of the preferred stock have not been determined,
including: designations; preferences; conversions rights; cumulative, relative;
participating; and optional or other rights, including: voting rights;
qualifications; limitations; or restrictions of the preferred stock.

      The Board of Directors is entitled to authorize the issuance of up to
1,000,000 shares of preferred stock in one or more series with such limitations
and restrictions as may be determined in its sole discretion, with no further
authorization by security holders required for the issuance thereof.

      The issuance of preferred stock could adversely affect the voting power
and other rights of the holders of common stock. Preferred stock may be issued
quickly with terms calculated to discourage, make more difficult, delay or
prevent a change in control of our Company or make removal of management more
difficult. As a result, the Board of Directors' ability to issue preferred stock
may discourage the potential hostile acquirer, possibly resulting in beneficial
negotiations. Negotiating with an unfriendly acquirer may result in, among other
things, terms more favorable to us and our stockholders. Conversely, the
issuance of preferred stock may adversely affect any market price of, and the
voting and other rights of the holders of the common stock. We presently have no
plans to issue any preferred stock.

Risks related to doing business in China

Our business operations take place primarily in China. Because Chinese laws,
regulations and policies are continually changing, our Chinese operations will
face several risks summarized below.

Limitations on Chinese economic market reforms may discourage foreign investment
in Chinese businesses.

      The value of investments in Chinese businesses could be adversely affected
by political, economic and social uncertainties in China. The economic reforms
in China in recent years are regarded by China's central government as a way to
introduce economic market forces into China. Given the overriding desire of the
central government leadership to maintain stability in China amid rapid social
and economic changes in the country, the economic market reforms of recent years
could be slowed, or even reversed.

<PAGE>

Any change in policy by the Chinese government could adversely affect
investments in Chinese businesses.

      Changes in policy could result in imposition of restrictions on currency
conversion, imports or the source of suppliers, as well as new laws affecting
joint ventures and foreign-owned enterprises doing business in China. Although
China has been pursuing economic reforms for the past two decades, events such
as a change in leadership or social disruptions that may occur upon the proposed
privatization of certain state-owned industries, could significantly affect the
government's ability to continue with its reform.

We face economic risks in doing business in China.

      As a developing nation, China's economy is more volatile than that of
developed Western industrial economies. It differs significantly from that of
the U.S. or a Western European country in such respects as structure, level of
development, capital reinvestment, resource allocation and self-sufficiency.
Only in recent years has the Chinese economy moved from what had been a command
economy through the 1970s to one that during the 1990s encouraged substantial
private economic activity. In 1993, the Constitution of China was amended to
reinforce such economic reforms. The trends of the 1990s indicate that future
policies of the Chinese government will emphasize greater utilization of market
forces. For example, in 1999 the Government announced plans to amend the Chinese
Constitution to recognize private property, although private business will
officially remain subordinated to the state-owned companies, which are the
mainstay of the Chinese economy. However, there can be no assurance that, under
some circumstances, the government's pursuit of economic reforms will not be
restrained or curtailed. Actions by the central government of China could have a
significant adverse effect on economic conditions in the country as a whole and
on the economic prospects for our Chinese operations.

The Chinese legal and judicial system may negatively impact foreign investors.

      In 1982, the National Peoples Congress amended the Constitution of China
to authorize foreign investment and guarantee the "lawful rights and interests"
of foreign investors in China. However, China's system of laws is not yet
comprehensive. The legal and judicial systems in China are still rudimentary,
and enforcement of existing laws is inconsistent. Many judges in China lack the
depth of legal training and experience that would be expected of a judge in a
more developed country. Because the Chinese judiciary is relatively
inexperienced in enforcing the laws that do exist, anticipation of judicial
decision-making is more uncertain than would be expected in a more developed
country. It may be impossible to obtain swift and equitable enforcement of laws
that do exist, or to obtain enforcement of the judgment of one court by a court
of another jurisdiction. China's legal system is based on written statutes; a
decision by one judge does not set a legal precedent that is required to be
followed by judges in other cases. In addition, the interpretation of Chinese
laws may be varied to reflect domestic political changes.

      The promulgation of new laws, changes to existing laws and the pre-emption
of local regulations by national laws may adversely affect foreign investors.
However, the trend of legislation over the last 20 years has significantly
enhanced the protection of foreign investment and allowed for more control by
foreign parties of their investments in Chinese enterprises. There can be no
assurance that a change in leadership, social or political disruption, or
unforeseen circumstances affecting China's political, economic or social life,
will not affect the Chinese government's ability to continue to support and
pursue these reforms. Such a shift could have a material adverse effect on our
business and prospects.

<PAGE>

      The practical effect of the Peoples Republic of China legal system on our
business operations in China can be viewed from two separate but intertwined
considerations. First, as a matter of substantive law, the Foreign Invested
Enterprise laws provide significant protection from government interference. In
addition, these laws guarantee the full enjoyment of the benefits of corporate
Articles and contracts to Foreign Invested Enterprise participants. These laws,
however, do impose standards concerning corporate formation and governance,
which are not qualitatively different from the general corporation laws of the
several states. Similarly, the Peoples Republic of China accounting laws mandate
accounting practices, which are not consistent with U.S. Generally Accepted
Accounting Principles. China's accounting laws require that an annual "statutory
audit" be performed in accordance with Peoples Republic of China accounting
standards and that the books of account of Foreign Invested Enterprises are
maintained in accordance with Chinese accounting laws. Article 14 of the Peoples
Republic of China Wholly Foreign-Owned Enterprise Law requires a Wholly
Foreign-Owned Enterprise to submit certain periodic fiscal reports and
statements to designate financial and tax authorities, at the risk of business
license revocation. Second, while the enforcement of substantive rights may
appear less clear than United States procedures, the Foreign Invested
Enterprises and Wholly Foreign-Owned Enterprises are Chinese registered
companies, which enjoy the same status as other Chinese registered companies in
business-to-business dispute resolution. Generally, the Articles of Association
provide that all business disputes pertaining to Foreign Invested Enterprises
are to be resolved by the Arbitration Institute of the Stockholm Chamber of
Commerce in Stockholm, Sweden, applying Chinese substantive law. Any award
rendered by this arbitration tribunal is, by the express terms of the respective
Articles of Association, enforceable in accordance with the "United Nations
Convention on the Recognition and Enforcement of Foreign Arbitral Awards
(1958)." Therefore, as a practical matter, although no assurances can be given,
the Chinese legal infrastructure, while different in operation from its United
States counterpart, should not present any significant impediment to the
operation of Foreign Invested Enterprises.

Economic Reform Issues

      Although the Chinese government owns the majority of productive assets in
China, during the past several years the government has implemented economic
reform measures that emphasize decentralization and encourage private economic
activity. Because these economic reform measures may be inconsistent or
ineffectual, there are no assurances that:

-     We will be able to capitalize on economic reforms;

-     The Chinese government will continue its pursuit of economic reform
      policies;

-     The economic policies, even if pursued, will be successful;

-     Economic policies will not be significantly altered from time to time; and

-     Business operations in China will not become subject to the risk of
      nationalization.

      Since 1979, the Chinese government has reformed its economic systems.
Because many reforms are unprecedented or experimental, they are expected to be
refined and improved. Other political, economic and social factors, such as
political changes, changes in the rates of economic growth, unemployment or
inflation, or in the disparities in per capita wealth between regions within
China, could lead to further readjustment of the reform measures. This refining
and readjustment process may negatively affect our operations.

      Over the last few years, China's economy has registered a high growth
rate. Recently, there have been indications that rates of inflation have
increased. In response, the Chinese government recently has taken measures to
curb this excessively expansive economy. These measures have included
devaluations of the Chinese currency, the Renminbi (RMB), restrictions on the
availability of domestic credit, reducing the purchasing capability of certain
of its customers, and limited re-centralization of the approval process for
purchases of some foreign products. These austerity measures alone may not

<PAGE>

succeed in slowing down the economy's excessive expansion or control inflation,
and may result in severe dislocations in the Chinese economy. The Chinese
government may adopt additional measures to further combat inflation, including
the establishment of freezes or restraints on certain projects or markets.

      To date, reforms to China's economic system have not adversely impacted
our operations and are not expected to adversely impact operations in the
foreseeable future; however, there can be no assurance that the reforms to
China's economic system will continue or that we will not be adversely affected
by changes in China's political, economic, and social conditions and by changes
in policies of the Chinese government, such as changes in laws and regulations,
measures which may be introduced to control inflation, changes in the rate or
method of taxation, imposition of additional restrictions on currency conversion
and remittance abroad, and reduction in tariff protection and other import
restrictions.

ITEM 2: DESCRIPTION OF PROPERTY

      Presently, our executive offices are located in China at Unit - Haoyuan
Chemical Company Limited, Cheming Industrial Park, Shouguang City, Shandong,
P.R. China. The headquarters building is located on approximately 17,342 square
meters of state-owned land owned by Shouguang City Wo Pu Town Ba Mian He
Village. The lease for the land expires on March 31, 2054. The annual rent for
the land is RMB 46,230, or approximately US$5,778.75. The building area is
approximately 3,335 square meters and is owned by SCHC.

      SYCI has its headquarters located in Shouguang City at 2nd Living
District, Qinghe Oil Factory, Shouguang City, Shandong Province, China.

      As a result of the Merger Transaction, the executive offices of the
Company were relocated from Shennan Zhong Road, Shenzhen City, China to our
current location, which is also the headquarters of SCHC. Prior the closing of
Stock Transaction, our executive offices were located at 4274 Independence
Court, Sarasota, Florida 34234.

ITEM 3: LEGAL PROCEEDINGS

      The Company is not a party to any material legal proceedings.

ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

      In September 2006, our then majority shareholder (holding 362,083 shares,
on a post-Reverse Stock Split adjusted basis (approximately 70%) of the shares
of our Common Stock outstanding at such time) consented in writing, without a
meeting, to implement the Reverse Stock Split. On or about October 3, 2006, we
mailed to our shareholders an information statement on Schedule 14C with respect
to such matter and, on October 23, 2006, we implemented the Reverse Stock Split
as described above.

      In January 2007, shareholders holding 16,747,200 shares (approximately
62%) of the shares of our Common Stock outstanding at such time consented in
writing, without a meeting, to change our Company's name from Diversifax, Inc.
to Gulf Resources, Inc. On or about January 26, 2007, we mailed to our
shareholders an information statement on Schedule 14C with respect to such
matter, and, on February 20, 2007, we intend to implement the name change as
described above.

<PAGE>

                                     PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

      The Company's Common Stock is traded on the over-the-counter market (the
OTC Bulletin Board) with quotations reported on the National Association of
Securities Dealers Automatic Quotation System (NASDAQ), Small Cap Market, under
the symbol "DSFX."

      As of February 15, 2007, there were approximately 291 holders of record of
the Common Stock, including record holders which may hold such stock for
beneficial owners and which have not been polled to determine the extent of
beneficial ownership.

      The prices set forth below reflect the quarterly high and low bid price
information for shares of our common stock during the Fiscal Years ended
November 30, 2005 and 2006. These quotations reflect inter-dealer prices,
without retail markup, markdown or commission, and may not represent actual
transactions.

   Quarterly summary of stock price for the last two fiscal years (adjusted
                       for Reverse Stock Split - 1:100):
--------------------------------------------------------------------------------

                                 High                         Low
                                 ----                         ---
       Q1 2005                  $ 0.01                       $ 0.01
       Q2 2005                  $ 0.07                       $ 0.01
       Q3 2005                  $ 0.01                       $ 0.01
       Q4 2005                  $ 0.68                       $ 0.01
       Q1 2006                  $ 1.00                       $ 0.50
       Q2 2006                  $ 1.50                       $ 1.00
       Q3 2006                  $ 5.50                       $ 1.30
       Q4 2006                  $ 1.50                       $ 1.10

      Additionally, as of February 15, 2007, the Company is also authorized to
issue 1,000,000 shares, $0.001 par value, of Preferred Stock. As of the date of
this Annual Report, no shares of Preferred Stock were issued or outstanding.

      Our Common Stock is covered by an SEC rule that imposes additional sales
practice requirements on broker-dealers who sell such securities to persons
other than established customers and accredited investors. Established customers
are generally institutions with assets in excess of $5,000,000, and accredited
investors are individuals with net worth in excess of $1,000,000 or annual
income exceeding $200,000 individually or $300,000 jointly with their spouse.
For transactions covered by the rule, the broker-dealer must make a special
suitability determination for the purchaser and transaction prior to the sale.
Consequently, the rule may affect the ability of broker-dealers to sell our
securities, and also may affect the ability of purchasers of our common stock to
sell their shares in the secondary market. It may also cause fewer
broker-dealers to be willing to make a market in our common stock, and it may
affect the level of news coverage we receive.

<PAGE>

      The Company has never paid cash dividends on its Common Stock. Holders of
Common Stock are entitled to receive such dividends as may be declared and paid
from time to time by the Board of Directors out of funds legally available. The
Company intends to retain any earnings for the operation and expansion of its
business and does not anticipate paying cash dividends in the foreseeable
future. Any future determination as to the payment of cash dividends will depend
upon future earnings, results of operations, capital requirements, the Company's
financial condition and such other factors as the Board of Directors may
consider.

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS AND PLAN OF OPERATION

THE FISCAL YEAR ENDED NOVEMBER 30, 2006 COMPARED TO THE FISCAL YEAR ENDED
NOVEMBER 30, 2005

      Discontinued Operations : Pursuant to the Asset Transfer and Debt
Resolution Agreement, dated August 10, 2006, the Company effectively
discontinued its operations and eliminated all of its debt. In exchange for
Horowitz forgiving all of the outstanding debt owed to him as of August 10, 2006
by the Company, the Company transferred all of its assets and liabilities to
Horowitz.

      In the ordinary course of business, operating losses have been incurred
resulting in an accumulated deficit of approximately $14,000,000 at November 30,
2006.

      Sales of copier related items decreased $228,131 or 39% for the fiscal
year ended November 30, 2006 compared to fiscal 2005. This decrease represents
the continuing decline in demand for the Company's products, taking into
consideration that operations were only maintained through the date of asset
sale ( August 10, 2006) . The majority of the Company's customers are maintained
pursuant to contractual agreements, generally ranging from three to five years.
Over the past few years, the Company's business has become increasingly more
competitive. Accordingly, when contracts come up for renewal, the Company may be
out bid by its competitors. Secondly, the Company has continued a critical
review of its customer base, and has determined not to renew customer contracts
where the costs of maintaining such customers exceeded the benefits. This often
occurs when the required commission structure is excessive or the customer's
demands for equipment are not reasonable. Service income for 2005 was primarily
due to the recognition of $435,000 of income in connection with the receipt of
stock for services for Evolve One eBay activities. The service contract with
Evolve One, Inc. was effectively terminated on dissolution of that company at
the end of 2005.

      Cost of sales as a percentage of Coin revenue represented 43% of sales for
the fiscal year 2006 compared to 56% of sales for the fiscal year 2005. This
decrease is due to a change in the mix of machines used and the costs of
collections.

      Other income in 2005 arose to recording the Company's proportionate share
of Evolve One losses combined with an impairment loss in the amount of $430,000
relating to the Evolve One investment. The Company was issued $435,000 of stock
for services and purchased additional stock for $100,000. The remaining
investment balance at November 30, 2005 was $105,000. Also in 2005, other income
was offset by recognition of deferred income of $225,000 relating to the
Brooklyn Public Library lease termination. For the fiscal year 2006, other
income was nominal.

      Selling, general and administrative expenses decreased to $424,553, or
118% of total sales, for the year ended November 30, 2006 from $511,139, or 50%
of total sales and 87% of coin revenue, for the year ended November 30, 2005.
This amount was also incurred through the date of asset sale (August 10, 2006).

<PAGE>

      The Company's copier activities were subject to seasonal fluctuations.
Revenues from copiers tended to be lower during the summer months of June
through September and in the last weeks of December and the first weeks of
January due to school and employee vacation patterns.

      The above factors resulted in a net loss of $191,441 for the year ended
November 30, 2006 compared to $33,400 for the year ended November 30, 2005. The
contribution of discontinued operations is stated below:

DIVERSIFAX INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF DISCONTINUED OPERATIONS

                                                        For the Year Ended
                                                           November 30,
                                                   -----------------------------
                                                       2006             2005
                                                   ------------     ------------
SALES
  Coin and leasing revenue                         $    359,174     $    587,305
  Service fees                                                           436,171
                                                   ------------     ------------
                                                        359,174        1,023,476
                                                   ------------     ------------
COSTS AND EXPENSES
  Cost of Sales                                         153,148          331,301
  Depreciation                                            6,893            9,191
  Selling, general & administrative                     424,553          511,139
                                                   ------------     ------------
                                                        584,594          851,631
                                                   ------------     ------------
(LOSS) INCOME FROM DISCONTINUED OPERATIONS         $   (225,420)    $    171,845
                                                   ============     ============

      Presented below is a summary of the Asset transfer and Debt Resolution
Agreement. The net debt forgiveness was treated as an increase to capital.

Asset Sale - Summary of Asset Sale

Distribution of assets:
  Cash                                                              $    15,000
  Notes Receivable                                                       20,000
  Equipment and vehicles, net                                            16,000
                                                                    -----------
                                                                         51,000
                                                                    -----------
Assumption of debt:
  Accounts Payable & Accrued Expenses                               $   (18,000)
  Debt, vehicles                                                        (16,000)
  Loan payable, officer/stockholder                                  (2,247,000)
  Accrued payroll, stockholder                                         (295,000)
                                                                    -----------
                                                                     (2,576,000)
                                                                    -----------
Net forgiveness of Debt                                             $(2,525,000)
                                                                    ===========
(increase to additional paid in capital)

<PAGE>

PLAN OF OPERATIONS

Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995

The following discussion of the financial condition and results of operations of
the Company should be read in conjunction with the financial statements and the
related notes thereto included elsewhere in this annual report for the year
ended November 30, 2006. This annual report contains certain forward-looking
statements and the Company's future operating results could differ materially
from those discussed herein. Certain statements contained in this Report,
including, without limitation, statements containing the words "believes,"
"anticipates," "expects", "intends", "may", or "should" and the like, constitute
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended. Such forward-looking statements involve known and unknown risks,
uncertainties and other factors which may cause the actual results, performance
or achievements of the Company to be materially different from any future
results, performance or achievements expressed or implied by such
forward-looking statements. Given these uncertainties, readers are cautioned not
to place undue reliance on such forward-looking statements. The Company
disclaims any obligation to update any such factors or to announce publicly the
results of any revisions of the forward-looking statements contained or
incorporated by reference herein to reflect future events or developments.

      Subsequent to the fiscal year ended November 30, 2006, the Company
consummated the Merger Transaction, whereby the Company acquired UCG and SCHC
from the shareholders of UCG in exchange to the issuance of 26,500,000 shares of
the Company's common stock to the shareholders of UCG. The Merger Transaction is
treated as a capital transaction, rather than a business combination, and is
equivalent to the issuance of stock by UCG for the net monetary assets of the
Company, accompanied by a recapitalization, and is accounted for as a change in
capital structure. Accordingly, the accounting for the Merger Transaction will
be identical to that resulting from a reverse acquisition, except no goodwill
will be recorded. The operations of the Company will continue as that of UCG and
SCHC.

      In addition to the Merger Transaction, the Company, subsequent to the
fiscal year ended November 30, 2006, the Company consummated the Share Exchange
Transaction, whereby the Company acquired SYCI from the SYCI Shareholders in
exchange for the issuance of 16,188,118 shares of the Company's common stock to
the SYCI Shareholders.

      The financial statements of the UCG and SYCI are not included in this
Report because the acquisition occurred after November 30, 2006, and reference
is made to the Company's Report on Form 8-K dated December 10, 2006 and February
5, 2007, respectively, for information regarding financial results for each of
UCG and SYCI. For the immediate future the Company intends to focus its efforts
on the activities of SCHC and SYCI. The Company's short to mid-term strategic
plan is to focus on Chinese domestic market expansion. The Company's long-term
strategic goal is to expand its market to overseas countries.

<PAGE>

      The Company may issue additional shares of its capital stock to raise
additional cash for working capital during the next twelve months. The Company
has not decided on the amount of cash needed for working capital at this point.
Working capital will be used for expanding the Chinese domestic market by
establishing more sales points or owned chain stores in eastern China, hiring
more sales persons, and expanding current distribution channels.

LIQUIDITY AND CAPITAL RESOURCES

      At November 30, 2006, the Company had cash of $0 as compared to $15,741 at
November 30, 2005.

      The Company's primary need for funds is to finance working capital,
capital expenditures and the further development and the acquisition of new
businesses and the further growth of acquisitions to broaden and diversify its
revenue source making it less seasonal.

      Net cash used by operating activities of approximately $27,500 during the
fiscal year ended November 30, 2006 resulted from the net loss of $191,441
offset by non-cash items including a gain of approximately $157,000 on
discontinued operations, and depreciation of $6,893.

      There was no net cash used by investing activities. Net cash provided in
financing activities amounted to approximately $12,000 during the fiscal year
ended November 30, 2006.

      The above resulted in a net decrease in cash of $15,741 for the year ended
November 30, 2006.

      Subsequent to the fiscal year ended November 30, 2006, the Company
acquired UCG and SCHC, as a result of the Merger Transaction, and SYCI, as a
result of the Share Exchange Transaction. The Company anticipates that it will
generate sufficient revenues from SCHC and SYCI to fund its operations. If the
Company were to need additional cash to fund operations, it could seek to raise
such monies in the form of debt or equity. There can be no assurance that any
such debt or equity would be available to the Company or, if available, the
terms thereof.

CRITICAL ACCOUNTING POLICIES

      Our significant accounting policies are more fully described in Note 3 to
the audited financial statements included with this Annual Report. The
preparation of consolidated financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the consolidated financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.

      Equipment and vehicles are recorded at cost. Depreciation is computed
using the straight-line method over the estimated useful lives of the respective
assets, ranging generally from five to ten years. For income tax purposes, the
Company uses accelerated methods for all assets. Maintenance and repairs are
charged to operations when incurred. Betterments and renewals are capitalized.
When equipment and vehicles are sold or otherwise disposed of, the asset account
and related accumulated depreciation account are relieved, and any gain or loss
is included in operations.

<PAGE>

      Revenue from the Company's self-service coin and card reader operated
photocopy machines is principally recognized at the time payment is received.
Revenue from the Company's scanner units is recognized when the product is
shipped.

      The Company estimates the amount of cash in copy and change machines at
the end of each year. This estimate is determined based on the actual cash
collected for the first collection period subsequent to year end multiplied by
the pro-rata number of days of collection during the period. Management
estimated that there was approximately $14,000 in cash in copy and change
machines as of November 30, 2005. All cash and bank accounts were sold in terms
of the Asset Transfer and Debt Resolution Agreement.

      Earnings per share: Basic EPS is calculated based upon the weighted
average number of shares outstanding during the period, while diluted EPS also
gives effect to all potential dilutive common shares outstanding during each
period such as common stock options and warrants. All options and warrants were
rescinded pursuant to the Purchase Agreement, other than options to purchase 950
(on a post-Reverse Stock Split adjusted basis) shares of our common stock.

      As a result of the Reverse Stock Split, common stock value was reduced by
approximately $51,400 to reflect the reduced number of shares, off set by an
equal corresponding increase in additional paid-in capital. All references in
the accompanying financial statements to the number of common shares and
per-share amounts for 2006 and 2005 have been restated to reflect the stock
split.

IMPACT OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

      In February 2006, the FASB issued SFAS No. 155, "Accounting for Certain
Hybrid Financial Instruments-an amendment of FASB Statements No. 133 and 140",
to simplify and make more consistent the accounting for certain financial
instruments. SFAS No. 155 amends SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities", to permit fair value re-measurement for any
hybrid financial instrument with an embedded derivative that otherwise would
require bifurcation, provided that the whole instrument is accounted for on a
fair value basis. SFAS No. 155 amends SFAS No. 140, "Accounting for the
Impairment or Disposal of Long-Lived Assets", to allow a qualifying
special-purpose entity to hold a derivative financial instrument that pertains
to a beneficial interest other than another derivative financial instrument.
SFAS No. 155 applies to all financial instruments acquired or issued after the
beginning of an entity's first fiscal year that begins after September 15, 2006,
with earlier application allowed. This standard is not expected to have a
significant effect on the Company's future reported financial position or
results of operations.

      In March 2006, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 156, "Accounting for Servicing of
Financial Assets - an amendment of FASB No. 140" (SFAS 156"). SFAS 156 requires
an entity to recognize a servicing asset or liability each time it undertakes an
obligation to service a financial asset by entering into a servicing contract in
specified situations, such servicing assets or liabilities would be initially
measured at fair value, if practicable and subsequently measured at amortized
value or fair value based upon an election of the reporting entity. SFAS 156
also specifies certain financial statement presentation and disclosures in
connection with servicing assets and liabilities. SFAS 156 is effective for
fiscal years beginning after September 15, 2006 and may be adopted earlier but
only if the adoption is in the first quarter of the fiscal year. The Company
does not expect the adoption of SFAS No. 156 to have a material impact on its
financial condition or results of its consolidated operations.

      In September 2006, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 157, "Fair Value
Measurements." SFAS No. 157 clarifies the principle that fair value should be
based on the assumptions market participants would use when pricing an asset or
liability and establishes a fair value hierarchy that prioritizes the
information used to develop those assumptions. Under the standard, fair value
measurements would be separately disclosed by level within the fair hierarchy.
SFAS No. 157 is effective for financial statements issued for fiscal years
beginning after November 15, 2007 and interim periods within those fiscal years,
with early adoption permitted. The Company does not expect the adoption of SFAS
No. 157 to have a material impact on its financial condition or results of its
consolidated operations.

      In September 2006, SFAS 158, "Employers' Accounting for Defined Benefit
Pensions and Other Post-Retirement Plans" ("SFAS 158"), was issued by the

<PAGE>

Financial Accounting Standards Board ("FASB") and is effective for financial
statements for fiscal years ending after December 15, 2006. SFAS 158 improves
financial reporting by requiring an employer to recognize the over-funded or
under-funded status of a defined benefit postretirement plan (other than a
multiemployer plan) as an asset or liability in its statement of financial
position and to recognize the changes in that funded status in the year in which
the changes occurred through comprehensive income of a business entity or
changes in unrestricted net assets of a not-for-profit organization. This
Statement also improves financial reporting by requiring an employer to measure
the funded status of a plan as of the date of its year-end statement or
financial position, with limited exceptions. We anticipate that SFAS 158 will
not have a material impact on our financial statements.

      In September 2006, the Securities and Exchange Commission issued Staff
Accounting Bulletin ("SAB") No. 108, "Considering the Effects of Prior Year
Misstatements When Quantifying Current Year Misstatements." SAB No. 108 requires
analysis of misstatements using both an income statement (rollover) approach and
a balance sheet (iron curtain) approach in assessing materiality and provides a
one-time cumulative effect transition adjustment. SAB No. 108 is effective for
out 2006 annual financial statements. We are currently assessing the potential
impact that the adoption of SAB No. 108 will have on our consolidated financial
statements. The adoption of SAB No. 108 is not expected to have a material
impact on the consolidated financial statements.

      In July 2006, the Financial Accounting Standards Board (FASB) issued FASB
Interpretation No. 48 ("FIN 48"), Accounting for Uncertainty in Income Taxes,
which is an interpretation of SFAS No. 109, Accounting for Income Taxes. FIN 48
clarifies the accounting for income taxes by prescribing the minimum recognition
threshold a tax position is required to meet before being recognized in the
financial statements. FIN 48 also provides guidance on de-recognition,
measurement, classification, interest and penalties, accounting in interim
periods, disclosure and transition. In addition, FIN 48 clearly scopes out
income taxes from Financial Accounting Standards Board Statement No. 5,
Accounting for Contingencies. FIN 48 is effective for fiscal years beginning
after December 15, 2006. The Company anticipates adopting FIN 48 in the fiscal
year starting January 1, 2007 and cannot reasonably estimate the impact of this
interpretation at this time.

ITEM 7: FINANCIAL STATEMENTS

The response to this Item is submitted as a separate section to this report on
pages F-1 through F-24.

ITEM 8: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None

ITEM 8A: CONTROLS AND PROCEDURES

<PAGE>

      We maintain disclosure controls and procedures that are designed to ensure
that information required to be disclosed in its 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
disclosure based closely on the definition of "disclosure controls and
procedures" in Rule 13a-15(e). In designing and evaluating the disclosure
controls and procedures, 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 management necessarily was
required to apply its judgment in evaluating the cost-benefit relationship of
possible controls and procedures.

      At the end of the period covered by this Annual Report, we carried out an
evaluation, 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 the Company's disclosure controls
and procedures. Based upon the foregoing, our Chief Executive Officer and Chief
Financial Officer concluded that, as of November 30, 2006, the disclosure
controls and procedures of the Company were not effective to ensure that the
information required to be disclosed in the Company's Exchange Act reports was
recorded, processed, summarized and reported on a timely basis.

      There were no changes in internal controls over financial reporting that
occurred during the fiscal quarter ended November 30, 2006, that have materially
affected, or are reasonably likely to materially affect, our internal control
over financial reporting.

ITEM 8B. OTHER INFORMATION.

      None.

                                    PART III

ITEM 9: DIRECTORS, EXECUTIVE OFFICERS, AND CONTROL PERSONS: COMPLIANCE WITH
SECTION 16(A) OF THE EXCHANGE ACT

DIRECTORS AND EXECUTIVE OFFICERS

      The following table sets forth information with respect to the current
directors and executive officers of the Company.

Name                Age        Title
----                ---        -----
Ming Yang           40         Chairman, Chief Executive Officer and Director
Min Li              30         Chief Financial Officer
Naihui Miao         38         Secretary and Director

Ming Yang -

      Since July 2000, Ming Yang has served as Chairman of Shouguang City Yuxin
Chemical Company Limited. Since May 2005, Mr. Yang has served as Chairman of
Shouguang City Haoyuan Chemical Company Limited, Shouguang City He Mao Yuan
Bromize Company Limited, and Shouguang City Qing River Real Estate Construction
Company.

<PAGE>

Min Li -

      Since January 2006, Min Li has served as Chief Financial Officer for
Shouguang City Haoyuan Chemical Company Limited. From 2004 to 2006, Mr. Li
served as Manager of Financial and Asset Management Department for Shouguang
City Yuxin Chemical Company Limited. From 2000 to 2004, Mr. Li served as Manager
of Accounting Department for the Yang Kou Brach of the China Construction Bank.

Naihui Miao -

      Since January 2006, Naihui Miao has served as Vice President of Shouguang
City Haoyuan Chemical Company Limited. From 2005 to 2006, Mr. Miao served as
Vice President of Shouguang City Yuxin Chemical Company Limited. From 1991 to
2005, Mr. Miao served as a Manager and then Vice President of Shouguang City
Commercial Trading Center Company Limited.

CODE OF ETHICS

      The Company has not yet adopted a code of ethics to apply to its principal
executive officer, principal financial officer, principal accounting officer and
controller, or persons performing similar functions because, until recently, we
have not been an operating company. The Company expects to prepare a Code of
Ethics in the near future.

AUDIT COMMITTEE

      Presently we do not have an Audit Committee. We intend to establish an
Audit Committee and such other committees as may be required when sufficient
members and resources are available, and at such time the Company's Board of
Directors will establish the Audit Committee. The Audit Committee will have a
designated Audit Committee Financial Expert who will be responsible for
reviewing the results and scope of the audit, and other services provided by the
independent auditors, and review and evaluate the system of internal controls.
No final determination has yet been made as to the memberships of these
committees or when we will have sufficient members to establish the committees.

COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934

The Company's officers, directors and beneficial owners of more than 10% of any
class of its equity securities registered pursuant to Section 12 of the
Securities Exchange Act of 1934 ("Reporting Persons") are required under that
Act to file reports of ownership and changes in beneficial ownership of the
Company's equity securities with the Securities and Exchange Commission. Copies
of those reports must also be furnished to the Company. Based solely on a review
of the copies of reports furnished to the Company pursuant to that Act, the
Company believes that during fiscal year ended November 30, 2006 all filing
requirements applicable to Reporting Persons were complied with, and no Form 5
is required.

ITEM 10: EXECUTIVE COMPENSATION

SUMMARY COMPENSATION TABLE

      The following table sets forth information with respect to the
compensation of each of the named executive officers for services provided in
all capacities to the Company and its subsidiaries in the fiscal years ended

<PAGE>

November 30, 2006, 2005, and 2004. No other executive officer or former
executive officer received more than $100,000 in compensation in the fiscal
years reported below. For the purposes of this table, warrants are deemed to be
equivalent of stock options.

EXECUTIVE COMPENSATION IN LAST FISCAL YEAR

<TABLE>
<CAPTION>
                                                                              Long Term Compensation
                                                                       ------------------------------------
                                        Annual Compensation                   Awards                Payouts
                                 ---------------------------------     --------------------         -------
                                                 Non-Cash              Restricted  Options/         LTIP        All
Name & Position          Year     Salary         Bonus       Other     Stock       SARs             Payouts     Other
-----------------        ----    --------        --------    -----     ----------  --------         -------     -----
<S>                      <C>     <C>              <C>         <C>       <C>        <C>              <C>         <C>
Irwin A. Horowitz        2006    $ 93,750(2)      None        None      None       156,131(3)       None        None
Chairman, CEO &          2005    $125,000(2)      None        None      None       156,131(3)       None        None
President(1)             2004    $125,000(2)      None        None      None        56,131(3)       None        None
Juxiang Yu (4)           2006        None         None        None      None          None          None        None
</TABLE>

(1)   Mr. Horowitz resigned for all offices he held in, and as director of, the
      Company pursuant to the Purchase Agreement.
(2)   Mr. Horowitz's salary for years 2004, 2005 and 2006 was accrued and was
      waived pursuant to the Purchase Agreement.
(3)   The options granted to Mr. Horowitz were cancelled and rescinded pursuant
      to the Purchase Agreement.
(4)   Ms. Yu resigned from all offices (President and Secretary) she held in,
      and as director of, the Company pursuant to Merger Transaction.

STOCK OPTION GRANTS IN LAST FISCAL YEAR

      The following table sets forth stock options granted to the Named
Executive Officers during the 2006 fiscal year.

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------
   Name       Number of Options     % of Total Options       Exercise ($/Share)       Expiration Date         Grant Value $
              Granted in Fiscal        Granted to
                 Year ended         Employees in Fiscal
                  11/30/06              Year 2006
------------------------------------------------------------------------------------------------------------------------------
<S>                 <C>                    <C>                      <C>                     <C>                    <C>
None
------------------------------------------------------------------------------------------------------------------------------
</TABLE>

OPTION EXERCISES DURING AND STOCK OPTIONS HELD AT END OF 2005 FISCAL YEAR

      The following table indicates the total number and value of exercisable
stock options held by the Named Executive Officers during the 2006 fiscal year.

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------------
                       Number of Unexercised Options at Fiscal Year End       Value of Unexercised In-The-Money Options At
                                                                                             Fiscal Year End
-------------------------------------------------------------------------------------------------------------------------------
Name                  Exercisable               Unexercisable              Exercisable               Unexercisable
-------------------------------------------------------------------------------------------------------------------------------
<S>                   <C>                       <C>                        <C>                       <C>
Irwin Horowitz        156,131 (1)               0                          .001                      0
-------------------------------------------------------------------------------------------------------------------------------
      (1) The options granted to Mr. Horowitz were cancelled and rescinded pursuant to the Purchase Agreement.
-------------------------------------------------------------------------------------------------------------------------------
</TABLE>

EMPLOYMENT AGREEMENT

      On October 29, 1996, the Company entered into a renewable one year
Employment Agreement with Irwin Horowitz, pursuant to which the Company agreed
to pay Irwin Horowitz a salary of $125,000, together with an annual incentive
bonus equal to a percentage, which ranges from 6% to 18%, of the Company's
pre-tax profits. This Agreement was terminated pursuant to the Purchase
Agreement.

<PAGE>

      Currently, the Company has no formal written salary agreement with its
Chief Executive Officer and Chief Financial Officer.

COMPENSATION OF DIRECTORS

      The directors of the Company are not currently compensated, nor were they
during the last fiscal year.

INDEMNIFICATION OF DIRECTORS

      The Company's Certificate of Incorporation eliminates the liability of a
director of the Company for monetary damages for breach of duty as a director,
subject to certain exceptions. In addition, the Certificate of Incorporation
provides for the Company to indemnify, under certain conditions, directors,
officers, employees and agents of the Company against all expenses, liabilities
and losses reasonably incurred by such persons in connection therewith. The
foregoing provisions may reduce the likelihood of derivative litigation against
directors and may discourage or deter stockholders or management from suing
directors for breaches of their duty of care, even though such an action, if
successful, might otherwise benefit the Company and its stockholders.

ITEM 11: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS

      The Company has 43,205,380 shares of Common Stock outstanding as of
February 15, 2007. The following table sets forth certain information regarding
the beneficial ownership of our Common Stock as of February 15, 2007 by (i) each
person who, to our knowledge, beneficially owns more than 5% of our Common
Stock; (ii) each of our current directors and executive officers; and (iii) all
of our current directors and executive officers as a group:

<TABLE>
<CAPTION>
                          Name and Address               Number of Shares of Stock          Percentage of
                      Of Beneficial Owner (1)               Beneficially Owned                Class (2)
                      ---------------------                 ------------------                --------
<S>                                                           <C>                               <C>
Ming Yang                                                     5,024,400 (3)                     11.6%
Min Li                                                              0                            0%
Naihui Miao                                                         0                            0%
Wenxiang Yu                                                    12,963,053                        30%
Shandong Haoyuan Industry Group Ltd.                            8,249,465                       19.1%
Zhi Yang                                                        3,349,600                       7.8%
First Capital Limited                                           2,915,000                       6.8%
China US Bridge Capital Limited                                 2,650,000                       6.1%
Shenzhen Dingyi Investment Company Limited                      2,517,500                       5.8%
Executive Officers and Directors as a Group                   5,024,400 (3)                     11.6%
</TABLE>

----------
(1)   A person is deemed to be the beneficial owner of securities that can be
      acquired by such person within 60 days from the date of this report upon
      the exercise of warrants or options. Each beneficial owner's percentage
      ownership is determined by assuming that options or warrants that are held
      by such person (but not those held by any other person) and which are
      exercisable within 60 days from the date of this report have been
      exercised. The address for each beneficial owner is Cheming Industrial
      Park, Unit - Haoyuan Chemical Company Limited, Shouguang City, Shandong,
      China 262714.

<PAGE>

(2)   The percentages listed in the "Percent of Class" column are based upon
      43,205,380 issued and outstanding shares of Common Stock.

(3)   Excludes 8,249,465 shares of our Common Stock beneficially owned by
      Shandong Haoyuan Industry Group Ltd. ("SHIG"), of which Ming Yang, our
      Chairman and Chief Executive Officer, is the controlling shareholder, a
      director and Chairman and Chief Executive Officer of SHIG.

ITEM 12: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

      On July 20, 2006, the Company issued a total of 250,000 (on a post-Reverse
Stock Split adjusted basis) shares of its common stock to Horowitz, the
Company's then chief executive officer, an accredited investor. Horowitz
purchased the shares at $0.017 per share, for an aggregate purchase price of
$425,000. Instead of the payment of cash consideration, the purchase price
reduced the Company's preexisting liability to Horowitz. Prior to the
transaction, Horowitz owned approximately 64% of our then outstanding shares
Common Stock. After the transaction, Horowitz owned approximately 81% of our
then outstanding shares of Common Stock. The transaction was exempt from
registration under Section 4(2) of the Securities Act of 1933 and Rule 506
promulgated thereunder and was not underwritten.

      Pursuant to the Stock Transaction, Yu acquired 362,083 (on a post-Reverse
Stock Split adjusted basis) shares of the Company's common stock. After giving
effect to the Stock Transaction, Yu held, on a post-Reverse Stock Split adjusted
basis, a total of 362,083 shares of the 517,262 shares of the Company's common
stock then issued and outstanding, constituting, in the aggregate, 70% of the
then issued and outstanding shares of the Company's common stock. Upon the
completion of the Stock Transaction, Yu became an officer and director of the
Company.

      Pursuant to the Merger Transaction, Yang acquired 5,024,400 shares of the
Company's common stock. After giving effect to the Merger Transaction, Yang held
a total of 5,024,400 shares of the 27,017,262 shares of the Company's common
stock then issued and outstanding, constituting, in the aggregate, 18.6% of the
then issued and outstanding shares of the Company's common stock. Upon the
completion of the Merger Transaction, Yang became an officer and director of the
Company. In addition, Wenxiang Yu

      Pursuant to the Share Exchange Transaction, Wenxiang Yu acquired 7,938,653
shares of the Company's common stock and Shandong Haoyuan Industry Group Ltd.
("SHIG") acquired 8,249,465 shares of the Company's common stock. After giving
effect to the Share Exchange Transaction, Wenxiang Yu held a total of 12,962,653
shares of the 43,205,380 shares of the Company's common stock issued and
outstanding, constituting, in the aggregate, 30% of the issued and outstanding
shares of the Common Stock and SHIG held a total of 8,249,465 shares of the
43,205,380 shares of the Company's common stock issued and outstanding,
constituting in the aggregate, 19.1% of the issued and oustanding shares of
common stock. Yang, our Chairman and Chief Executive Officer, is a director,
executive officer and shareholder of SHIG.

ITEM 13: EXHIBITS, LIST AND REPORT ON FORM 8-K

(a) Exhibits. The Exhibits are filed as part of, or incorporated by reference
into this report.

      Exhibit #   Description
      ---------   -----------

      31.1        Certification pursuant to Section 302 of the Sarbanes-Oxley
                  Act of 2002.

      31.2        Certification pursuant to Section 302 of the Sarbanes-Oxley
                  Act of 2002.

      32.1        Certification pursuant to 18 U.S.C. Section 1350, as adopted
                  pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

      32.2        Certification pursuant to 18 U.S.C. Section 1350, as adopted
                  pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

<PAGE>

ITEM 14: PRINCIPAL ACCOUNTANT FEES AND SERVICES

Audit Fees

During 2006, we were billed by our accountants, Pender Newkirk & Company,
approximately $42,000 for the audit and review fees associated with our 10-KSB
and 10-QSB filings. Fees were approximately $32,500 for 2005.

Tax Fees

During 2006 and 2005, our tax work was performed by a local accountant at
nominal cost.

All Other Fees

During 2006 and 2005, no other fees were billed by our accountants, Pender
Newkirk & Company.

Board of Directors Pre-Approval Process, Policies and Procedures

Our principal auditors have performed their audit procedures in accordance with
pre-approved policies and procedures established by our Board of Directors. Our
principal auditors have informed our Board of Directors of the scope and nature
of each service provided. With respect to the provisions of services other than
audit, review, or attest services, our principal accountants brought such
services to the attention of our Board of Directors prior to commencing such
services.

<PAGE>

                                   SIGNATURES

      In accordance with Section 13 or 15(d) of the Exchange Act, the Company
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.


                                                  DIVERSIFAX, INC.


Date: February 15, 2007                           By: /s/ Ming Yang
                                                      --------------------------
                                                      Ming Yang
                                                      Chief Executive Officer

      In accordance with the Exchange Act, this report has been signed below by
the following persons in behalf of the Company and in the capacities and on the
date indicated.

Signature                                                Date


/s/ Ming Yang                                            February 15, 2007
--------------------
Ming Yang
Chairman and Chief Executive Officer


/s/ Min Li                                               February 15, 2007
--------------------
Min Li
Chief Financial Officer
(Principal Financial and Accounting Officer)


/s/ Naihui Miao                                          February 15, 2007
--------------------
Naihui Miao
Director and Secretary

<PAGE>

                        Consolidated Financial Statements

                        Diversifax, Inc. and Subsidiaries

                     Years Ended November 30, 2006 and 2005
             Report of Independent Registered Public Accounting Firm

<PAGE>

                        Diversifax, Inc. and Subsidiaries

                        Consolidated Financial Statements

                     Years Ended November 30, 2006 and 2005

                                    Contents

Report of Independent Registered Public Accounting Firm on
  Consolidated Financial Statements..........................................F-1

Consolidated Financial Statements:

  Consolidated Balance Sheet.................................................F-2
  Consolidated Statements of Operations......................................F-3
  Consolidated Statements of Changes in Stockholders' Deficit................F-4
  Consolidated Statements of Cash Flows......................................F-5
  Notes to Consolidated Financial Statements..........................F-6 - F-24

<PAGE>

             Report of Independent Registered Public Accounting Firm

Board of Directors
Diversifax, Inc.
Shenzhen, China

We have audited the accompanying balance sheet of Diversifax, Inc. as of
November 30, 2006 and the related statements of operations, changes in
stockholders' deficit, and cash flows for the years ended November 30, 2006 and
2005. These financial statements are the responsibility of the management of
Diversifax, Inc. Our responsibility is to express an opinion on these financial
statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. The Company is not
required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audit included consideration of internal
control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, 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. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Diversifax, Inc. as of November
30, 2006 and the results of its operations and its cash flows for the years
ended November 30, 2006 and 2005 in conformity with accounting principles
generally accepted in the United States of America.


/s/ Pender Newkirk & Company LLP
Certified Public Accountants
Tampa, Florida
January 9, 2007, except for Notes 2 and 15, as
to which date is February 9, 2007


                                      F-1
<PAGE>

                        Diversifax, Inc. and Subsidiaries

                           Consolidated Balance Sheet
                      For the year ended November 30, 2006

Assets
Total assets                                                    $             0
                                                                ===============

Liabilities and Stockholders' Deficit
Total liabilities                                               $             0

Stockholders' deficit:
  Preferred stock, $.001 par value, 1,000,000 shares
    authorized 0 shares issued; 0 shares outstanding
  Common stock; $.001 par value; 70,000,000 shares
    authorized; 517,322 shares issued and outstanding                       517
  Additional paid-in capital                                         14,349,387
  Accumulated deficit                                               (14,349,904)
                                                                ---------------
  Total stockholders' deficit                                                 0
                                                                ---------------
 Total liabilities and stockholders' deficit                    $             0
                                                                ===============

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


                                      F-2
<PAGE>

                        Diversifax, Inc. and Subsidiaries

                      Consolidated Statements of Operations


                                                     Year Ended November 30,
                                                  -----------------------------
                                                      2006              2005
                                                  -----------------------------
Other income (expenses):
  Other income                                    $        31        $  259,776
  Gain on sale of investments                          64,002                 0
  Impairment & share of unconsolidated
    losses on investment in Evolve One                      0          (430,000)
  Interest income                                           0             6,984
  Interest expense                                    (30,054)          (42,005)
                                                  -----------------------------
                                                       33,979          (205,245)
                                                  -----------------------------
Net (loss) income from discontinued operations    $  (225,420)          171,845
                                                  -----------------------------
Net loss before income taxes                         (191,441)          (33,400)
Income tax provision                                        0                 0

Net loss                                          $  (191,441)      $   (33,400)
                                                  =============================


Loss per share of common stock -                  $     (0.37)      $     (0.13)
 basic and diluted                                =============================


NET EARNING (LOSS) PER SHARE FROM:

  OTHER INCOME (EXPENSE) - Basis and Diluted      $     0 .07       $    (0 .77)
                                                  -----------------------------
  DISCONTINUED OPERATIONS - Basic and Diluted     $     (0.44)      $     0 .64
                                                  -----------------------------
  NET LOSS - Basic and Diluted                    $     (0.37)      $     (0.13)
                                                  -----------------------------
Weighted average common shares outstanding            513,997           266,643
 - basic and diluted                              -----------------------------

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


                                      F-3
<PAGE>

                        Diversifax, Inc. and Subsidiaries

           Consolidated Statements of Changes in Stockholders' Deficit

                     Years Ended November 30, 2006 and 2005


                                       common stock
                               -------------------------------     Additional
                                   shares            amount     Paid in Capital
                               -------------     -------------  ---------------
Balance, 11/30/04                 26,626,200     $     26,626     $ 11,641,395

Excersise of common
stock options                        100,000              100

Net loss for year
                               -----------------------------------------------
Balance, 11/30/05                 26,726,200           26,726       11,641,395

Debt forgiveness, 7/18/06                                            2,525,131

Stock issue, 7/20/06              25,000,000           25,000          400,000

Retirement of Treasury
stock, 8/25/06                      (326,498)            (326)        (268,022)

Reverse Split, 10/23/06          (50,882,440)         (50,883)          50,883

Rounding of fractional shares             60               --

Net loss of the year
                               -----------------------------------------------
Balance, 11/30/06                    517,322     $        517     $ 14,349,387
                               ===============================================
<TABLE>
<CAPTION>
                                                                     Treasury         Total
                                 Accumulated                          Stock,      Stockholders'
                                   Deficit           Total            at cost        Deficit
                                ------------     ------------     ------------    ------------
<S>                             <C>              <C>                  <C>         <C>
Balance, 11/30/04               $(14,125,063)    $ (2,457,042)        (268,348)   $ (2,725,390)

Excersise of common
stock options                                             100                              100

Net loss for year                    (33,400)         (33,400)                         (33,400)
                                --------------------------------------------------------------
Balance, 11/30/05                (14,125,063)      (2,457,042)        (268,348)     (2,725,390)

Debt forgiveness, 7/18/06                           2,525,131                        2,525,131

Stock issue, 7/20/06                                  425,000                          425,000

Retirement of Treasury
stock, 8/25/06                                       (268,348)         268,348              --

Reverse Split, 10/23/06                                    --                               --

Rounding of fractional shares                              --                               --

Net loss of the year                (191,411)        (191,411)                        (191,411)
                                --------------------------------------------------------------
Balance, 11/30/06               $(14,349,904)    $         --     $         --    $         --
                                ==============================================================
</TABLE>

    The accompanying notes are an integral part of the financial statements.


                                      F-4
<PAGE>

                        Diversifax, Inc. and Subsidiaries

                      Consolidated Statements of Cash Flows

<TABLE>
<CAPTION>
                                                              Year Ended November 30,
                                                              -----------------------
                                                                2006          2005
                                                              -----------------------
<S>                                                           <C>           <C>
Operating activities
  Net loss                                                    $(191,441)    $ (33,400)
                                                              -----------------------
  Adjustments to reconcile net loss to net cash used
   by operating activities:
     Gain on sale and disposal of vehicles                                    (31,850)
     Depreciation on discontinued assets                          6,893         9,191
     Write off of note receivable                                              39,160
     Impairment loss on investment in Evolve One, Inc                         430,000
     Investment in Evolve One received for services                          (435,000)
     Amortization of deferred revenue                                        (225,000)
     Cash used from operating activities
       - discontinued operations                                156,960       142,719
                                                              -----------------------
  Total adjustments                                             163,853       (70,780)
                                                              -----------------------
  Net cash used by operating activities                         (27,588)     (104,180)
                                                              -----------------------

Investing activities

  Collections on note receivable                                               31,106
  Investment, Evolve One, Inc                                                (100,000)
                                                              -----------------------
  Net cash used by investing activities                               0       (68,894)
                                                              -----------------------

Financing activities
  Net proceeds from (repayments on) loan
   payable to officer/stockholder                                17,355       (88,725)
  Repayments on long-term debt                                   (5,508)      (10,034)
  Exercise of stock options                                                       100
                                                              -----------------------
  Net cash provided (used) by financing activities               11,847       (98,659)
                                                              -----------------------

Net decrease in cash                                            (15,741)     (271,733)

Cash at beginning of year                                        15,741       287,474
                                                              -----------------------

Cash at end of year                                           $       0     $  15,741
                                                              =======================

Supplemental disclosure of cash flow information and non
  cash investing and financing activities:

  Cash paid for interest                                      $      54     $   2,005
                                                              =======================
</TABLE>

The Company received $435,000 in stock for services to an affiliated company in
the year ended November 30, 2005.

The Company sold all fully depreciated equipment of a subsidiary to a related
party in exchange for a note in the amount of $31,850 in the year ended November
30, 2005.

On July 20, 2006 the Company issued 25,000,000(pre reverse split) shares of
common stock, at $.017 per share, in exchange for $425,000 of pre-existing debt
owed to an officer/stockholder.

The Company sold all of its assets in exchange for the assumption and
forgiveness of all its debt as of August 10, 2006 per the terms of the Asset
Transfer and Debt Resolution Agreement. The forgiveness of debt was treated as a
capital transaction.

    The accompanying notes are an integral part of the financial statements.


                                      F-5
<PAGE>

                        Diversifax, Inc. and Subsidiaries

                        Consolidated Financial Statements

                     Years Ended November 30, 2006 and 2005

1. Background Information

Effective November 1, 1993, Diversifax, Inc. acquired all of the outstanding
common stock of IMSG Systems, Inc. ("IMSG") and its affiliated companies,
(collectively the "Company") , National Copy Corp. ("National"), Capital Copy
Corp. ("Capital") and Advanced Business Systems, Inc. ("Advanced") (IMSG,
National, Capital and Advanced collectively "IMSG and Affiliates") in exchange
for the issuance of 662,000 shares of Series A, convertible preferred stock. The
preferred stock was automatically converted into an aggregate of 6,620,200
shares of common stock of the Company in November, 1995.

IMSG and Affiliates owned, supplied and maintained self-service coin and card
reader operated photocopy machines in colleges, universities, libraries,
courthouses, government agencies, pharmacies and other retail establishments
located in Florida and New York.

Due to the increased use of internet services, demand for the services provided
by the Company has declined sharply. The board of directors therefore decided on
August 10,2006 to discontinue operations, and has eliminated all of the debt of
the Company. This was achieved by exchanging the operations of the Company, as
well as all of its assets and liabilities for forgiveness of the debt owed to
Dr. I. A. Horowitz pursuant to the terms of the Asset Transfer and Debt
Resolution Agreement.

2. Subsequent Events

MERGER AGREEMENT

On December 10, 2006, the Company and its wholly-owned subsidiary, DFAX
Acquisition Vehicle, Inc. ("SUB"), entered into, and in December 11, 2006
consummated, an agreement and plan of merger with Upper Class Group Limited
("UCG"), Ming Yang, Wenxiang Yu, Zhi Yang, Hyundai Liu, Yongqi Cao, First
Capital Limited, China US Bridge Capital Limited, Shenzhen Dingyi Investment
Company Limited, and Shenzhen Haying Guaranty and Investment Company Limited
(the "Merger Agreement"). Pursuant to the terms of the Merger Agreement, in
exchange for their shares in UCG, the UCG Shareholders received stock
consideration consisting of 26,500,000 newly issued shares of the Company's
common stock, to be divided proportionally among the UCG Shareholders in
accordance with their respective ownership interests in UCG, and UCG merged with
and into SUB, with UCG as the survivor of the merger (the "Merger Transaction").
As a result of the Merger Transaction, UCG became a wholly owned subsidiary of
the Company, which, in turn, made the Company the indirect owner of the Chinese
operating company, Shouguang City Haoyuan Chemical Company Limited ("SCHC").

A summary of the Merger Transaction, as well as the material terms and
conditions of the Merger Agreement, are set forth in the Company's Current
Report on Form 8K, dated December 12, 2006.


                                      F-6
<PAGE>

                        Diversifax, Inc. and Subsidiaries

                        Consolidated Financial Statements

                     Years Ended November 30, 2006 and 2005

2. Subsequent Events (continued)

The Merger Agreement contained customary terms and conditions for a transaction
of this type, including representations, warranties and covenants, as well as
provisions describing the merger consideration, the process of exchanging the
consideration and the effect of the merger. The Merger Agreement contained
reciprocal indemnification provisions that provide for indemnification in the
event of a breach of a representation or warranty. The indemnification
provisions survive the closing of the Merger Transaction for 18 months.

NAME CHANGE

In January 2007, shareholders holding 16,747,200 shares (approximately 62%) of
the shares of our Common Stock outstanding at such time consented in writing,
without a meeting, to change our Company's name from Diversifax, Inc. to Gulf
Resources, Inc. On or about January 26, 2007, we mailed to our shareholders an
information statement on Schedule 14C with respect to such matter, and, on
February 20, 2007, we intend to implement the name change as described above.

SHARE EXCHANGE AGREEMENT

On February 5, 2007, the Company entered into, and consummated, the Share
Exchange Agreement with UCG, SCHC, Shouguang Yuxin Chemical Industry Company
Limited ("SYCI"), and the shareholders of SYCI (the "SYCI Shareholders"),
pursuant to which SCHC acquired SYCI from the SYCI Shareholders in exchange for
issuance by the Company of 16,188,118 shares of Common Stock of the Company to
the SCYI Shareholders, which was divided proportionally among the SCYI
Shareholders in accordance with their respective ownership interests in SCYI
immediately before the completion of the Share Exchange Transaction, and
non-interest bearing promissory notes in the aggregate principal amount of
$2,550,000 to the SYCI Shareholders (the "Share Exchange Transaction").

As a result of the Share Exchange Transaction, SYCI became a wholly owned
subsidiary of the SCHC, which, in turn, made the Company the indirect owner of
SYCI. A summary of the Share Exchange Transaction, as well as the material terms
and conditions of the Share Exchange Agreement, are set forth in the Company's
Current Report on 8K, dated February 9, 2007.


                                      F-7
<PAGE>

                        Diversifax, Inc. and Subsidiaries

                        Consolidated Financial Statements

                     Years Ended November 30, 2006 and 2005

2. Subsequent Events (continued)

     Diversifax, Inc. and Subsidiaries (DSFX) Unaudited Pro Forma Financial
                                   Statements

The following unaudited pro forma financial statements for DSFX have been
prepared to illustrate the acquisition of Shouguang Yuxin Chemical Industry Co.,
Limited (YUXIN) in a merger transaction. Since the ownership of DSFX and YUXIN
are the same, the merger is accounted for as a transaction between entities
under common control, whereby DSFX recognized the assets and liabilities
transferred at their carrying amounts.

The unaudited pro forma financial information combines the historical financial
information of DSFX and YUXIN as of and for the year ended December 31, 2005 and
for the nine months ended September 30, 2006. The unaudited pro forma balance
sheet as of September 30, 2006 assumes the merger was completed on that date.
The unaudited pro forma statements of operations give effect to the merger as if
the merger had been completed on January 1, 2005.

Under the terms of the merger agreement, as of the effective dates describe
therein, upon completion of the proposed merger, all shareholders of YUXIN will
receive a total amount of 16,188,118 shares of voting common stock of DSFX in
exchange for all shares of YUXIN common stock held by all shareholders. Also,
upon the completion of the proposed merger, DSFX will be obligated to pay
$2,550.000 to the original YUXIN shareholders, in accordance with non-interest
bearing promissory notes issued by the DSFX to the original YUXIN shareholders.

In addition, the following unaudited pro forma financial statements for DSFX
have been prepared to illustrate the previous acquisition of Upper Class Group
Limited and Subsidiary in a merger transaction. Under accounting principles
generally accepted in the United States, the share exchange is considered to be
a capital transaction in substance, rather than a business combination. That is,
the share exchange is equivalent to the issuance of stock by Upper Class Group
Limited and Subsidiary for the net monetary assets of DSFX, accompanied by a
recapitalization, and is accounted for as a change in capital structure.
Accordingly, the accounting for the share exchange will be identical to that
resulting from a reverse acquisition, except no goodwill will be recorded. Under
reverse takeover accounting, the post reverse acquisition comparative historical
financial statements of the legal aquirer, DSFX, are those of the legal
acquiree, Upper Class Group Limited and Subsidiary, which are considered to be
the accounting acquirer.

The unaudited pro forma financial information combines the historical financial
information of DSFX and Upper Class Group Limited as of and for the period ended
December 31, 2005 and for the nine months ended September 30, 2006. The
unaudited pro forma balance sheet as of September 30, 2006 assumes the merger
was completed on that date. The unaudited pro forma statements of operations
give effect to the merger as if the merger had been completed on January 1,
2005.

Under the terms of the merger agreement, as of the effective dates describe
therein, upon completion of the proposed merger, all shareholders of Upper Class
Group Limited received a total amount of 26,500,000 shares of voting common
stock of DSFX in exchange for all shares of Upper Class Group Limited common
stock held by all shareholders.

These unaudited pro forma financial statements are for information purposes
only. They do not purport to indicate the results that would have actually been
obtained had the acquisition been completed on the assumed dates or for the
periods presented, or which may be realized in the future. The accounting
adjustments reflected in these unaudited pro forma consolidated financial
statements included herein are preliminary and are subject to change. The
accompanying notes are an integral part of these pro forma consolidated
financial statements.


                                      F-8
<PAGE>

                        Diversifax, Inc. and Subsidiaries

                        Consolidated Financial Statements

                     Years Ended November 30, 2006 and 2005

2.      Subsequent Events (continued)

                             Proforma Balance Sheet
                                SEPTEMBER 30,2006
                                   (unaudited)

<TABLE>
<CAPTION>
                                              DIVERSIFAX,       UPPER CLASS       Shouguang
                                              INC.              GROUP             Yuxin chemical    PRO-FORMA
                                              (8/31/06)         LTD AND SUB       Industry          ADJUSTMENT        Pro Forma
<S>                                              <C>                 <C>               <C>             <C>                <C>
                 Assets

Current Assets

Cash                                                       0         3,296,672         2,312,835                           5,609,507
Prepayments and other receivables                          0                 0            11,394                              11,394
Accounts receivable                                        0                 0           136,561                             136,561
Inventories                                                0           148,610           419,686                             568,296
Prepaid land lease                                         0               496               506                               1,002
Due from related party                                     0                 0            47,294                              47,294
                                              --------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS                                       0         3,445,778         2,928,276                           6,374,054
                                              ======================================================================================
Due from related party                                     0         1,166,340         1,266,000                           2,432,340
Property, plant and equipment, net                         0         2,129,095           790,376                           2,919,471
Prepaid land lease, net of current portion                 0            23,938            23,421                              47,359
Note receivable                                            0                 0                 0                                   0
                                              --------------------------------------------------------------------------------------
TOTAL ASSETS                                               0         6,765,151         5,008,073                          11,773,224
                                              ======================================================================================

   LIABILITIES AND STOCKHOLDERS'EQUITY

CURRENT LIABILITIES
Current maturities of long-term debt and
notes payable                                              0                 0                 0                                   0
 Accounts payable and accrued expenses                     0            50,704           448,816                             499,520
Other current liabilities                                  0                 0                 0                                   0
Accrued payroll, stockholder                               0                 0                 0                                   0
Loan payable, officer/stockholder                          0                 0                 0                                   0
Due to director                                            0             9,111            50,417                              59,528
Due to related party                                       0            47,294                 0                              47,294
Taxes payable                                              0           921,433           460,468                           1,381,901
Note payable                                               0                 0                 0         2,550,000         2,550,000
                                              --------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES                                  0         1,028,542           959,701         2,550,000         4,538,243
                                              ======================================================================================
Long-term debt and notes payables, less
current maturities                                         0                 0                 0                                   0
TOTAL LIABILITIES                                          0         1,028,542           959,701         2,550,000         4,538,243
                                              ======================================================================================

          STOCKHOLDERS'EQUITY
Paid-in capital                                            0         1,332,430         1,329,592           256,743         2,918,765
Retained earnings unappropriated                           0         3,239,875         1,684,042        (2,550,000)        2,373,917
Retained earnings-appropriated
      Statutory common reserve fund                        0           669,447           571,761                           1,241,208
      Statutory public welfare fund                        0           334,738           285,880                             620,618
Cumulative translation adjustment                          0           128,489           177,097                             305,586
Common stock, $0.001par value, 70,000,000
shares authorized; 43,205,380 shares
issued; 43,202,115 shares outstanding                    517            31,600                 0            11,088            43,205
Additional paid-in capital                        14,617,735                 0                 0       -14,617,735                 0
Accumulated deficit                              -14,349,904                 0                 0        14,349,904                 0
                                              --------------------------------------------------------------------------------------
                                                     268,348         5,736,609                 0                           6,004,957
                                              --------------------------------------------------------------------------------------
Less:Treasury stock; 3,265 shares at cost           -268,348                 0                 0                            -268,348
TOTAL STOCKHOLDERS'EQUITY                                  0         5,736,609         4,048,372                 0         9,784,981
                                              ======================================================================================
TOTAL LIABILITIES AND STOCKHOLDERS'EQUITY                  0         6,765,151         5,008,073                          11,773,224
                                              ======================================================================================
</TABLE>

Pro-Forma Adjustments:

1.) To record the issuance of 26,500,000 shares of DSFX common stock to acquire
Upper Class Group Limited.

2.) To record the issuance of 16,188,118 shares of DSFX common stock to acquire
Shouguang Yuxin Chemical Industry Co., Limited and dividend payable


                                      F-9
<PAGE>

                                    PROFORMA
                            STATEMENTS OF OPERATIONS
                                   (unaudited)
                                    30-Sep-06

<TABLE>
<CAPTION>
                                                                              Upper Class       SHOUGUANG
                                                                              Group Limited     YUXIN CHEMICAL
                                                            DSFX              and sub           INDUSTRY          Pro Forma
REVENUE
<S>                                                               <C>             <C>               <C>               <C>
     Net sales                                                           0        12,760,106        11,507,636        24,267,742
     Maintenance service income                                          0                 0           106,168           106,168
                                                                         0        12,760,106        11,613,804        24,373,910
                                                            --------------------------------------------------------------------
OPERATING EXPENSES                                                                                                             0
                                                                              --------------
    Cost of net sales                                                    0           7518749           8362876        15,881,625
                                                                              --------------
    General and administrative expenses                                  0           206,589           114,643           321,232
                                                            --------------------------------------------------------------------
                                                                         0         7,725,338         8,477,519        16,202,857
                                                            --------------------------------------------------------------------
INCOME FROM OPERATIONS                                                   0         5,034,768         3,136,285         8,171,053
                                                            --------------------------------------------------------------------
                                                                                                                               0
                                                                                                                               0
OTHER(INCOME)EXPENSES                                                                                                          0
     Rental income                                                       0                 0           -11,248           -11,248
     Other income                                                      -31                 0                 0               -31
     (Gain) on sale of investments                                 -64,002                 0                 0           -64,002
     Interest income                                                     0              -791              -423            -1,214
     Interest expense                                               30,054                 0                 0            30,054
                                                            --------------------------------------------------------------------
                                                                   -33,979              -791           -11,671           -46,441
                                                            --------------------------------------------------------------------

NETINCOME (LOSS) FROM DISCONTINUED OPERATIONS,NET OF TAX          -225,420                 0                 0          -225,420
INCOME TAXES                                                             0         1,653,018         1,085,311         2,738,329
NET INCOME (LOSS)                                                 -191,441         3,382,541         2,062,645         5,253,745
                                                            ====================================================================
EPS                                                                                                                         0.12
Weighted Average Number of Shares
Outstanding                                                                                                           42,780,618
</TABLE>


                                      F-10
<PAGE>

                                    PROFORMA
                            STATEMENTS OF OPERATIONS
                                   (unaudited)
                                    31-Dec-05

<TABLE>
<CAPTION>
                                                          DSFX              Upper Class       SHOUGUANG
                                                          (year ended       Group Limited     YUXIN CHEMICAL
                                                          11/30/2005)       and sub           INDUSTRY          Pro Forma
REVENUE
<S>                                                            <C>              <C>               <C>               <C>
     Net sales                                                 1,023,476        14,344,296         9,776,858        25,144,630
     Maintenance service income                                        0                 0         1,371,535         1,371,535
                                                                 1023476        14,344,296        11,148,393        26,516,165
                                                          --------------------------------------------------------------------
OPERATING EXPENSES
    Cost of net sales                                            331,301         9,095,301           7013513        16,440,115
    Depreciation expense                                           9,191                 0                 0
    General and administrative expenses                          511,139           304,451           797,879         1,613,469
                                                                                              --------------------------------
                                                                 851,631         9,399,752         7,811,392        18,062,775
                                                          --------------------------------------------------------------------
INCOME FROM OPERATIONS                                           171,845         4,944,544         3,337,001         8,453,390
                                                          --------------------------------------------------------------------

OTHER(INCOME)EXPENSES
     Rental income                                                     0                 0            14,666            14,666
     Other income                                                259,776                 0                 0           259,776
     (Gain) on sale of investments on Evolve One                -430,000                 0                 0          -430,000
     Interest income                                               6,984               446               415             7,845
     Interest expense                                            -42,005                 0                 0           -42,005
                                                                            --------------------------------------------------
                                                                -205,245               446            15,081          -189,718
                                                          --------------------------------------------------------------------

NETINCOME (LOSS) FROM DISCONTINUED OPERATIONS,NET OF TAX               0                 0                 0                 0
INCOME TAXES                                                           0         1,632,760         1,048,512         2,681,272
NET INCOME (LOSS)                                                -33,400         3,312,230         2,303,570         5,582,400
                                                          ====================================================================
EPS                                                                                                                       0.12
Weighted Average Number of Shares Outstanding                                                                       43,511,701
</TABLE>


                                      F-11
<PAGE>

                        Diversifax, Inc. and Subsidiaries

                        Consolidated Financial Statements

                     Years Ended November 30, 2006 and 2005

3. Significant Accounting Policies

The significant accounting policies followed are:

The preparation of consolidated financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the consolidated financial statements and the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.

The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated.

The Company considers all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents.

The majority of cash is maintained with a major financial institution in the
United States. Deposits with this bank may exceed the amount of insurance
provided on such deposits. Generally, these deposits may be redeemed upon demand
and, therefore, bear minimal risk.

The equity method of accounting is used when the Company has a 20% to 50%
interest in other entities or less then 50% interest with the ability to
exercise significant influence over the other entity's operating and financial
activities. Under the equity method, original investments are recorded at cost
and adjusted by the Company's share of undistributed earnings or losses of these
entities. Non-marketable investments in which the Company has less than 20%
interest and in which it does not have the ability to exercise significant
influence over the investee are initially recorded at cost. Both methods require
periodic review of the investment for impairment.

Equipment and vehicles are recorded at cost. Depreciation is computed using the
straight-line method over the estimated useful lives of the respective assets,
ranging generally from five to ten years. For income tax purposes, the Company
uses accelerated methods for all assets. Maintenance and repairs are charged to
operations when incurred. Betterments and renewals are capitalized. When
equipment and vehicles are sold or otherwise disposed of, the asset account and
related accumulated depreciation account are relieved, and any gain or loss is
included in operations.


                                      F-12
<PAGE>

                        Diversifax, Inc. and Subsidiaries

                        Consolidated Financial Statements

                     Years Ended November 30, 2006 and 2005

3. Significant Accounting Policies (continued)

The Company accounts for income taxes in accordance with Statement of Financial
Accounting Standards No. 109, "Accounting For Income Taxes" ("SFAS 109"), which
requires recognition of deferred tax assets and liabilities for the expected
future tax consequences of events that have been included in the financial
statements or tax returns. Under this method, deferred tax assets and
liabilities are determined based on the differences between the consolidated
financial statement and tax bases of assets and liabilities using enacted tax
rates in effect for the year in which the differences are expected to reverse.

The Company has in the past granted warrants and options to purchase shares of
its common stock to various employees and other individuals based on the
discretion of the Company's Board of Directors.

Options were generally granted at the fair market value of the stock on the date
of grant, and generally have immediate vesting. During the year ended November
30, 2006, there were no options granted or exercised. All outstanding options to
purchase shares were rescinded pursuant to the Stock Purchase Agreement dated
August 25, 2006, except for 950 (post-split) options.

Effective January 1, 2006, the Company adopted the provisions of Statement of
Financial Accounting Standards ("SFAS") No. 123 (R), "Share-Based Payment."
Prior to the adoption of SFAS 123(R) we accounted for stock option grants using
the intrinsic value method prescribed in APB Opinion No. 25, "Accounting for
Stock Issued to Employees," and accordingly, recognized no compensation expense
for stock option grants.

Under the modified prospective approach, SFAS 123(R) applies to new awards
granted subsequent to the date of adoption, January 1, 2006. Compensation cost
recognized during the year ended November 30, 2006 includes compensation cost
for all share-based payments granted prior to, but not yet vested as of January
1, 2006, based on the grant date fair value estimated in accordance with the
original provisions of SFAS 123, and compensation cost for all share based
payments granted subsequent to January 1, 2006, based on the grant date fair
value estimated in accordance with the provisions of SFAS 123(R). Prior periods
were not restated to reflect the impact of adopting the new standard, and there
is no cumulative effect.

As a result of adopting SFAS 123(R), there was no impact to our loss from
operations, and basic and diluted earnings per share for the year ended November
30, 2006.


                                      F-13
<PAGE>

                        Diversifax, Inc. and Subsidiaries

                        Consolidated Financial Statements

                     Years Ended November 30, 2006 and 2005

3. Significant Accounting Policies (continued)

We use the Black-Scholes option pricing model to estimate the fair value of
stock-based awards on the date of grant, using weighted average assumptions as
noted in the following table. We have used one grouping for the assumptions as
our option grants are primarily basic with similar characteristics. The expected
term of options granted has been derived based upon the Company's history of
actual exercise behavior and represents the period of time that options granted
are expected to be outstanding. Historical data was also used to estimate option
exercises and employee terminations. Estimated volatility is based upon the
Company's historical market price at consistent points in a period equal to the
expected life of the options. The risk-free interest rate is based on the U.S.
Treasury yield curve in effect at the time of grant and the dividend yield is
based on the Company's historical dividend yield.

                                                         2006          2005
                                                     ------------  -------------
Dividend yield                                            0.00%        0.00%
 Expected volatility                                    255.00%      421.00%
 Risk-free interest rate                                  4.17%        4.17%

 Expected life of options                             5-7 years    5-7 years
 Grant date fair value                                  $    --      $    --

At November 30, 2006, there was no unrecognized compensation cost related to
share-based payments.


                                      F-14
<PAGE>

                        Diversifax, Inc. and Subsidiaries

                        Consolidated Financial Statements

                     Years Ended November 30, 2006 and 2005

3. Significant Accounting Policies (continued)

The following table represents stock option activity (post reverse stock split)
for the year ended November 30, 2006:

                                                            Weighted Average
                                                           ---------------------
                                                                      Remaining
                                             Number of     Exercise  Contractual
                                              Shares        Price      Life
                                             ---------     --------  -----------
Options Outstanding - December 1, 2005          157,080    $  0.01
Granted                                              --
Exercised                                            --
Forfeited                                            --
Rescinded (*)                                  (156,130)
                                             -----------------------------------
Outstanding Exercisable - November 30, 2006         950    $  0.05    3.58 years
                                             ===================================

(*) These options have been rescinded in terms of the Stock Purchase Agreement,
dated August 25, 2006.

The outstanding stock options were excluded from weighted average common shares
outstanding, for the purpose of calculating earnings per share, since they are
anti-dilutive.

Revenue from the Company's self-service coin and card reader operated photocopy
machines was principally recognized at the time payment is received. Revenue
from the Company's scanner units was recognized when the product was shipped.

Deferred revenue was recorded for amounts received but not earned as of the
balance sheet dates. Income from these transactions was recognized as earned or
on a straight-line basis over the term of the contract.

The Company considers that the carrying amount of assets and liabilities
approximates their fair value.


                                      F-15
<PAGE>

                        Diversifax, Inc. and Subsidiaries

                        Consolidated Financial Statements

                     Years Ended November 30, 2006 and 2005

3. Significant Accounting Policies (continued)

Earnings per share: Basic EPS is calculated based upon the weighted average
number of shares outstanding during the period, while diluted EPS also gives
effect to all potential dilutive common shares outstanding during each period
such as common stock options and warrants. All options and warrants were
rescinded pursuant to the Asset Transfer Debt Resolution Agreement, other than
950 (post-split) options.

On September 19, 2006, the Board of Directors authorized a 100-for-1 reverse
stock split of the company's $.001 par value common stock. As a result of the
split, no additional shares were issued. Common stock value was reduced by
approximately $51,400 to reflect the reduced number of shares, off set by an
equal corresponding increase in additional paid-in capital. All references in
the accompanying financial statements to the number of common shares and
per-share amounts for 2006 and 2005 have been restated to reflect the stock
split.

4. Impact of Recently Issued Accounting Pronouncements

In February 2006, the FASB issued SFAS No. 155, "Accounting for Certain Hybrid
Financial Instruments-an amendment of FASB Statements No. 133 and 140", to
simplify and make more consistent the accounting for certain financial
instruments. SFAS No. 155 amends SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities", to permit fair value re-measurement for any
hybrid financial instrument with an embedded derivative that otherwise would
require bifurcation, provided that the whole instrument is accounted for on a
fair value basis. SFAS No. 155 amends SFAS No. 140, "Accounting for the
Impairment or Disposal of Long-Lived Assets", to allow a qualifying
special-purpose entity to hold a derivative financial instrument that pertains
to a beneficial interest other than another derivative financial instrument.
SFAS No. 155 applies to all financial instruments acquired or issued after the
beginning of an entity's first fiscal year that begins after September 15, 2006,
with earlier application allowed. This standard is not expected to have a
significant effect on the Company's future reported financial position or
results of operations.

In March 2006, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 156, "Accounting for Servicing of
Financial Assets - an amendment of FASB No. 140" (SFAS 156"). SFAS 156 requires
an entity to recognize a servicing asset or liability each time it undertakes an
obligation to service a financial asset by entering into a servicing contract in
specified situations, such servicing assets or liabilities would be initially
measured at fair value, if practicable and subsequently measured at amortized
value or fair value based upon an election of the reporting entity. SFAS 156
also specifies certain financial statement presentation and disclosures in
connection with servicing assets and liabilities. SFAS 156 is effective for
fiscal years beginning after September 15, 2006 and may be


                                      F-16
<PAGE>

                        Diversifax, Inc. and Subsidiaries

                        Consolidated Financial Statements

                     Years Ended November 30, 2006 and 2005

4. Impact of Recently Issued Accounting Pronouncements (continued)

adopted earlier but only if the adoption is in the first quarter of the fiscal
year. The Company does not expect the adoption of SFAS No. 156 to have a
material impact on its financial condition or results of its consolidated
operations.

In September 2006, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 157, "Fair Value Measurements." SFAS
No. 157 clarifies the principle that fair value should be based on the
assumptions market participants would use when pricing an asset or liability and
establishes a fair value hierarchy that prioritizes the information used to
develop those assumptions. Under the standard, fair value measurements would be
separately disclosed by level within the fair hierarchy. SFAS No. 157 is
effective for financial statements issued for fiscal years beginning after
November 15, 2007 and interim periods within those fiscal years, with early
adoption permitted. The Company does not expect the adoption of SFAS No. 157 to
have a material impact on its financial condition or results of its consolidated
operations.

In September 2006, SFAS 158, "Employers' Accounting for Defined Benefit Pensions
and Other Post-Retirement Plans" ("SFAS 158"), was issued by the Financial
Accounting Standards Board ("FASB") and is effective for financial statements
for fiscal years ending after December 15, 2006. SFAS 158 improves financial
reporting by requiring an employer to recognize the over-funded or under-funded
status of a defined benefit postretirement plan (other than a multiemployer
plan) as an asset or liability in its statement of financial position and to
recognize the changes in that funded status in the year in which the changes
occurred through comprehensive income of a business entity or changes in
unrestricted net assets of a not-for-profit organization. This Statement also
improves financial reporting by requiring an employer to measure the funded
status of a plan as of the date of its year-end statement or financial position,
with limited exceptions. We anticipate that SFAS 158 will not have a material
impact on our financial statements.

In September 2006, the Securities and Exchange Commission issued Staff
Accounting Bulletin ("SAB") No. 108, "Considering the Effects of Prior Year
Misstatements When Quantifying Current Year Misstatements." SAB No. 108 requires
analysis of misstatements using both an income statement (rollover) approach and
a balance sheet (iron curtain) approach in assessing materiality and provides a
one-time cumulative effect transition adjustment. SAB No. 108 is effective for
out 2006 annual financial statements. We are currently assessing the potential
impact that the adoption of SAB No. 108 will have on our consolidated financial
statements. The adoption of SAB No. 108 is not expected to have a material
impact on the consolidated financial statements.


                                      F-17
<PAGE>

                        Diversifax, Inc. and Subsidiaries

                        Consolidated Financial Statements

                     Years Ended November 30, 2006 and 2005

4. Impact of Recently Issued Accounting Pronouncements (continued)

In July 2006, the Financial Accounting Standards Board (FASB) issued FASB
Interpretation No. 48 ("FIN 48"), Accounting for Uncertainty in Income Taxes,
which is an interpretation of SFAS No. 109, Accounting for Income Taxes. FIN 48
clarifies the accounting for income taxes by prescribing the minimum recognition
threshold a tax position is required to meet before being recognized in the
financial statements. FIN 48 also provides guidance on de-recognition,
measurement, classification, interest and penalties, accounting in interim
periods, disclosure and transition. In addition, FIN 48 clearly scopes out
income taxes from Financial Accounting Standards Board Statement No. 5,
Accounting for Contingencies. FIN 48 is effective for fiscal years beginning
after December 15, 2006. The Company anticipates adopting FIN 48 in the fiscal
year starting January 1, 2007 and cannot reasonably estimate the impact of this
interpretation at this time.

5. Note Receivable

During 2005, the Company entered into a non-interest bearing note receivable for
$31,850 in connection with the sale of equipment to a former employee. The note
requires 182 weekly installments, and matures November 2008. This note is not
collateralized. During 2006, the Company accepted full settlement of the note
balance as part of the asset Transfer and Debt Resolution Agreement.

During 2001, the Company entered into a note receivable for $250,000 in
connection with the sale of equipment. At November 30, 2004, the note balance
was $131,431 and management established an allowance equal to 50 percent of the
outstanding balance since the note was in default. During 2005, management
entered into a settlement agreement whereby the Company agreed to accept $25,000
for full and final settlement of the note balance. The settlement amount was
received and as of November 30, 2005, the note balance has been satisfied.

6. Investments

The Company had an investment in an affiliated corporation, Evolve One, Inc
("Evolve One"), where the President and CEO of Diversifax was also the President
and CEO of the Evolve One. Accordingly, the Company was considered to have
significant influence over the affiliated corporation and, therefore, the
investment was accounted for using the equity method under APB 18, "The Equity
Method of Accounting for Investments in Common Stock (as amended)."


                                      F-18
<PAGE>

                        Diversifax, Inc. and Subsidiaries

                        Consolidated Financial Statements

                     Years Ended November 30, 2006 and 2005

6. Investments (continued)

On April 28, 2006, a group of investors, including Diversifax, Inc.,
representing 80% of the issued shares of Evolve One sold their interest in
Evolve One. The Company sold 12,137,784 of its total holding of the 12,848,916
shares, retaining 711,132 shares and 6,000,000 warrants, which expire on June
20, 2010. The Company received $108,553 for the shares, as well as receiving
reimbursement of $53,339 for expenses incurred and paid by Diversifax. The
company recorded a gain of $64,002 for the sale and an impairment charge of
$7,111 for the shares and warrants of Evolve One that were retained. The gain
and impairment charges are included in the consolidated statement of operations,
as other income. As of August 10, 2006 the investment in Evolve One was part of
the assets exchanged in terms of the Asset Transfer and Debt Resolution
Agreement.

7. Equipment and Vehicles

The Company sold all of its assets, including equipment and vehicles, in
exchange for the assumption and forgiveness of all its debt as of August 10,
2006 per the terms of the Asset Transfer and Debt Resolution Agreement.

8. Related Party Transactions

Notes Payable and Long-Term Debt The board of directors decided on August 10,
2006 to discontinue operations, and has eliminated all of the debt of the
Company. This was achieved by exchanging the operations of the Company, as well
as all of its assets and liabilities for forgiveness of the debt owed to Dr. I.
A. Horowitz pursuant to the terms of the Asset Transfer and Debt Resolution
Agreement.

Expenses The company is not currently operating and management activities are
minimal. There have been no charges for management or overhead, as there has not
been material activities.

The amounts and terms of the above transactions may not necessarily be
indicative of the amounts and terms that would have been incurred had comparable
transactions been entered into with independent third parties.


                                      F-19
<PAGE>

                        Diversifax, Inc. and Subsidiaries

                        Consolidated Financial Statements

                     Years Ended November 30, 2006 and 2005

9. Discontinued Operations

Through the acceptance of the Asset Transfer and Debt Resolution Agreement,
dated August 10, 2006, the board of directors effectively discontinued
operations and eliminated all of the debt of the Company. This was achieved by
the exchanging the operations of the Company, as well as all of its assets and
liabilities for forgiveness of the debt owed to Dr. I A Horowitz in terms of the
Asset Transfer and Debt Resolution Agreement.

Since all of the revenue producing assets were sold, discontinuing operations,
the financial operations have been restated for comparative purposes. The
comparative operations were as follows:

DIVERSIFAX INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF DISCONTINUED OPERATIONS

                                                         For the Year Ended
                                                            November 30,
                                                    ----------------------------
                                                       2006             2005
                                                    -----------      -----------
SALES
  Coin and leasing revenue                          $   359,174      $   587,305
  Service fees                                                           436,171
                                                    -----------      -----------
                                                        359,174        1,023,476
                                                    -----------      -----------

COSTS AND EXPENSES
  Cost of Sales                                         153,148          331,301
  Depreciation                                            6,893            9,191
  Selling, general & administrative                     424,553          511,139
                                                    -----------      -----------
                                                        584,594          851,631
                                                    -----------      -----------
(LOSS) INCOME FROM DISCONTINUED OPERATIONS          $  (225,420)     $   171,845
                                                    ===========      ===========

The Asset Transfer and Debt Resolution Agreement, dated August 10, 2006
effectively eliminated all of the debt of the Company through the exchanging all
of its assets and liabilities for forgiveness of the debt owed to Dr. I. A.
Horowitz. Presented below is a summary of the Asset transfer and Debt Resolution
Agreement. The net debt forgiveness was treated as an increase to capital.


                                      F-20
<PAGE>

                        Diversifax, Inc. and Subsidiaries

                        Consolidated Financial Statements

                     Years Ended November 30, 2006 and 2005

9. Discontinued Operations (continued)

Asset Sale - Summary of Asset Sale

Distribution of assets:
  Cash                                                              $    15,000
  Notes Receivable                                                       20,000
  Equipment and vehicles, net                                            16,000
                                                                    -----------
                                                                         51,000
                                                                    -----------
Assumption of debt:
  Accounts Payable & Accrued Expenses                               $   (18,000)
  Debt, vehicles                                                        (16,000)
  Loan payable, officer/stockholder                                  (2,247,000)
  Accrued payroll, stockholder                                         (295,000)
                                                                    -----------
                                                                     (2,576,000)
                                                                    -----------
Net forgiveness of Debt                                             $(2,525,000)
  (increase to additional paid in capital)                          ===========


10. Warrants and Options

The Company grants warrants and options to purchase shares of its common stock
to various employees and other individuals based on the discretion of the
Company's Board of Directors.

11. Income Taxes

The Company has incurred significant operating losses since its inception that
have been carried forward for income tax purposes and, therefore, no tax
liabilities have been incurred for the years presented. These operating losses
and other timing differences give rise to deferred tax assets as follows:

                                                                2006
                                                             ----------
          Deferred tax assets:
            Net operating loss                               $3,022,800
            Valuation allowance                              (3,022,800)
                                                             ----------

          Net deferred tax assets                                     0
                                                             ----------

          Deferred tax liabilities:


                                      F-21
<PAGE>

                        Diversifax, Inc. and Subsidiaries

                        Consolidated Financial Statements

                     Years Ended November 30, 2006 and 2005

11. Income Taxes (continued)

           Depreciation                                         0
                                                         --------

         Net deferred tax liabilities                    $      0
                                                         ========
         Net deferred taxes                              $      0
                                                         ========

Differences between the federal benefit computed at a statutory rate and the
Company's effective tax rate and provision are as follows:

                                                             2006        2005
                                                          ---------------------
Statutory provision                                       $(65,100)    $(11,300)
Penalties assessed by government                               100          300
State tax provision, net of federal effect                  (9,500)      (1,600)
Increase in deferred income tax valuation allowance         74,500       12,600
                                                          ---------------------
                                                          $      0     $      0
                                                          =====================

The Company has available at November 30, 2006 approximately $7.7 million of
unused operating loss carryforwards that may be applied against future taxable
income, which would reduce taxes payable by approximately $3.0 million in the
future. These operating loss carryforwards begin expiring in November 2009.
Income tax benefits resulting from these carryforwards are limited, due to
ownership changes. Under the Internal Revenue Code Section 382 the limitations
on the net operating losses would be approximately $27,500 per year for 20 years
for a total of approximately $550,000. Subsequent events, involving changes in
ownership, may further limit these benefits.

The Company has provided a full valuation allowance related to the realizability
of the deferred tax asset. The valuation allowance is based on evidence that the
deferred tax asset will more likely than not, not be realized. Such valuation
allowance may be increased or decreased in the future based on the likelihood of
achieving future taxable earnings.

12. Contingencies, Commitments, and Concentrations

From time to time, the Company is party as plaintiff or defendant to various
legal proceedings related to its normal business operations. In the opinion of
management, although the outcome of any legal proceeding cannot be predicted
with certainty, the ultimate liability of the Company in connection with its
legal proceedings will not have a material adverse effect on the Company's
financial position, but could be material to the results of operations in any
one future accounting period. The Company makes appropriate reserves for
litigation, if necessary. Defense costs are expensed as incurred.


                                      F-22
<PAGE>

                        Diversifax, Inc. and Subsidiaries

                        Consolidated Financial Statements

                     Years Ended November 30, 2006 and 2005

12. Contingencies, Commitments, and Concentrations (continued)

During the fiscal years ended November 30, 2006 and 2005, revenues derived from
two of the Company's Copier customers, a public library and a college located in
New York City, amounted to approximately 43 percent of the Company's revenues.

The Company rented office space on a month-to-month basis. The total rent
expense for the years ended November 30, 2006 and 2004 were $26,322 and $52,755,
respectively.

13. Issue of Stock

On July 20, 2006, Diversifax issued a total of 25,000,000 shares (pre reverse
split) of its common stock to Dr. Irwin Horowitz, Diversifax's chief executive
officer, who is an accredited investor. Dr. Horowitz purchased the shares at
$0.017 per share, for an aggregate purchase price of $425,000. He paid the
consideration by reducing the Company's preexisting liability to him. Prior to
the transaction, Dr. Horowitz owned approximately 64% of the Company's
outstanding common stock. After the transaction, Dr. Horowitz owned
approximately 81% of the Company's outstanding common stock. The transaction was
exempt from registration under Section 4(2) of the Securities Act of 1933 and
Rule 506 promulgated there under and was not underwritten.

14. Reverse Stock Split

The Company implemented a reverse stock split of our capital stock effective as
of the open of trading on Monday, October 23, 2006. In the reverse stock split
each 100 shares of the Company's issued and outstanding common stock was
automatically combined and became one share of common stock. The reverse stock
split did not change the authorized number of shares of Common Stock, and there
was no change in the par value of our Common Stock. Any of our stockholders who,
as a result of the reverse split, would hold a fractional share of Common Stock
will receive a whole share of Common Stock in lieu of such fractional share. The
reverse stock split reduced the 51,726,200 of shares of Common Stock which we
have outstanding on a fully diluted basis immediately prior to the effectiveness
of the reverse stock split to 517,262 shares of Common Stock.

15. Amendments to Articles of Incorporation or Bylaws

Change in Fiscal Year On October 19, 2006 the Board of Directors of Diversifax,
Inc. unanimously adopted resolutions to change its fiscal year end from November
30 to December 31.


                                      F-23
<PAGE>

                        Diversifax, Inc. and Subsidiaries

                        Consolidated Financial Statements

                     Years Ended November 30, 2006 and 2005

15. Amendments to Articles of Incorporation or Bylaws (continued)

Change in Corporate Name

In January 2007, shareholders holding 16,747,200 shares (approximately 62%) of
the shares of our Common Stock outstanding at such time consented in writing,
without a meeting, to change our Company's name from Diversifax, Inc. to Gulf
Resources, Inc. On or about January 26, 2007, we mailed to our shareholders an
information statement on Schedule 14C with respect to such matter, and, on
February 20, 2007, we intend to implement the name change as described above.


                                      F-24
</TEXT>
</DOCUMENT>
