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<SEC-DOCUMENT>0001193805-07-001706.txt : 20070622
<SEC-HEADER>0001193805-07-001706.hdr.sgml : 20070622
<ACCEPTANCE-DATETIME>20070622172006
ACCESSION NUMBER:		0001193805-07-001706
CONFORMED SUBMISSION TYPE:	SB-2
PUBLIC DOCUMENT COUNT:		5
FILED AS OF DATE:		20070622
DATE AS OF CHANGE:		20070622

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			GULF RESOURCES, INC.
		CENTRAL INDEX KEY:			0000885462
		STANDARD INDUSTRIAL CLASSIFICATION:	CHEMICALS & ALLIED PRODUCTS [2800]
		IRS NUMBER:				133637458
		STATE OF INCORPORATION:			DE
		FISCAL YEAR END:			1130

	FILING VALUES:
		FORM TYPE:		SB-2
		SEC ACT:		1933 Act
		SEC FILE NUMBER:	333-144001
		FILM NUMBER:		07937216

	BUSINESS ADDRESS:	
		STREET 1:		CHEMING INDUSTRIAL PARK
		STREET 2:		UNIT - HAOYUAN CHEMICAL COMPANY LIMITED
		CITY:			SHOUGUANG CITY, SHANDONG
		STATE:			F4
		ZIP:			262714
		BUSINESS PHONE:		(310) 470-2886

	MAIL ADDRESS:	
		STREET 1:		CHEMING INDUSTRIAL PARK
		STREET 2:		UNIT - HAOYUAN CHEMICAL COMPANY LIMITED
		CITY:			SHOUGUANG CITY, SHANDONG
		STATE:			F4
		ZIP:			262714

	FORMER COMPANY:	
		FORMER CONFORMED NAME:	DIVERSIFAX INC
		DATE OF NAME CHANGE:	19940331
</SEC-HEADER>
<DOCUMENT>
<TYPE>SB-2
<SEQUENCE>1
<FILENAME>e602295_sb2-gulf.txt
<DESCRIPTION>FORM SB-2
<TEXT>

      As filed with the Securities and Exchange Commission on June __, 2007
                                          Registration Statement No. 333-_______
================================================================================

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                               ------------------

                                    FORM SB-2
                        REGISTRATION STATEMENT UNDER THE
                             SECURITIES ACT OF 1933

                               ------------------

                              Gulf Resources, Inc.
             (Exact name of registrant as specified in its charter)

<TABLE>
<S>                                     <C>                                             <C>
            Delaware                                 7373                                     13-3637458
(State or Other Jurisdiction of         (Primary Standard Industrial                      (I.R.S. Employer
 Incorporation or Organization)          Classification Code Number)                    Identification Number)
</TABLE>

                            Chenming Industrial Park
                     Shouguang City, Shandong, China 262714
                                 (212) 561-3604
               (Address, including zip code, and telephone number,
        including area code, of registrant's principal executive offices
                        and principal place of business)

                               ------------------

                                  Ethan Chuang
                              Gulf Resources, Inc.
                           10880 Wilshire Blvd. #2250
                              Los Angeles, CA 90024
                                  (310)470-2886
            (Name, address, including zip code, and telephone number,
                   including area code, of agent for service)

                               ------------------

                                   Copies to:

                              Vincent McGill, Esq.
                             Eaton & Van Winkle LLP
                                  3 Park Avenue
                            New York, New York 10016
                            Telephone: (212) 779-9910
                            Telecopy: (212) 779-9928

      Approximate date of commencement of proposed sale to public: At such time
or times as may be determined by the selling stockholders after this
registration statement becomes effective.

      If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, check the following box. |X|

      If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. |_|

      If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_|

      If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_|

      If delivery of the prospectus is expected to be made pursuant to Rule 434
under the Securities Act, check the following box. |_|

                         CALCULATION OF REGISTRATION FEE

<TABLE>
<CAPTION>
Title of Each Class of          Amount to be       Proposed Maximum           Proposed Maximum           Amount of
Securities to be Registered      Registered     Offering Price Per Unit   Aggregate Offering Price    Registration Fee
- ----------------------------------------------------------------------------------------------------------------------
<S>                            <C>                       <C>                  <C>                        <C>
 Common Stock, $0.001 par
      value per share          30,000,000 (1)            $2.00                $60,000,000 (2)            $ 1,842.00
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>

(1)   Shares that we may issue under our equity credit facility.

(2)   Estimated solely for the purpose of computing the amount of the
      registration fee pursuant to Rule 457(c) under the Securities Act.

      The Registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act or until this registration statement shall become effective
on such date as the Securities and Exchange Commission, acting pursuant to said
Section 8(a), may determine.

<PAGE>

THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. THE
SELLING SHAREHOLDERS MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION
STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE
SECURITIES AND IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE
WHERE THE OFFER OR SALE IS NOT PERMITTED.

                    Subject to completion, dated June _, 2007

Preliminary Prospectus

                              Gulf Resources, Inc.

                                30,000,000 Shares
                                  Common Stock

This prospectus relates to the resale by the selling shareholders of Gulf
Resources, Inc. identified in this prospectus of 30,000,000 shares of our common
stock which they may acquire under our fixed-price equity credit facility.

We are not selling any shares of our common stock in this offering, and we will
not receive any of the proceeds from the sale of these shares by the selling
shareholders. All costs associated with this registration will be borne by us.

The selling shareholders identified in this prospectus, or their pledgees,
donees, transferees or other successors-in-interest, may offer the shares from
time to time through public or private transactions at prevailing market prices,
at prices related to prevailing market prices or at privately negotiated prices.
We do not know when or in what amounts a selling shareholder may offer shares
for sale. The selling shareholders may sell some, all or none of the shares
offered by this prospectus. Our common stock is quoted on the OTC Bulletin
Board, or OTCBB, under the symbol "GUFR.OB." The last reported sales price for
our common stock on the OTCBB on June 6, 2007, was $2.00 per share.

Investing in our common stock involves substantial risks. You should carefully
consider the risk factors beginning on page __ of this prospectus before
purchasing shares of our common stock.

No underwriter or person has been engaged to facilitate the sale of shares of
common stock in this offering. None of the proceeds from the sale of stock by
the selling shareholders will be placed in escrow, trust or any similar account.

Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary is a
criminal offense.

               The date of this prospectus is ____________, 2007.

<PAGE>

                                TABLE OF CONTENTS

                                                                            Page
                                                                            ----

SPECIAL NOTE REGARDING FORWARD-LOOKING INFORMATION                            1

PROSPECTUS SUMMARY                                                            2

RISK FACTORS                                                                  5

USE OF PROCEEDS                                                              11

OUR BUSINESS                                                                 11

MANAGEMENT'S DISCUSSION AND ANALYSIS                                         13

SECURITY OWNERSHIP                                                           19

SELLING STOCKHOLDERS                                                         20

PLAN OF DISTRIBUTION                                                         21

MARKET FOR OUR COMMON STOCK                                                  22

OUR DIRECTORS AND EXECUTIVE OFFICERS                                         23

EXECUTIVE COMPENSATION                                                       24

INDEMNIFICATION OF DIRECTORS                                                 26

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                               26

OUR SECURITIES                                                               26

DISCLOSURE OF SEC POSITION ON INDEMNIFICATION FOR
SECURITIES ACT LIABILITIES                                                   27

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE                                                         28

WHERE YOU CAN FIND MORE INFORMATION                                          28

LEGAL MATTERS                                                                28

EXPERTS                                                                      28

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS                                   F-1

               Special Note Regarding Forward Looking Information

      We desire to take advantage of the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995. This prospectus contains
forward-looking statements within the meaning of Section 21E of the Securities
Exchange Act of 1934, as amended, and Section 27A of the Securities Act of 1933,
as amended (the "Securities Act"), 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 prospectus 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," "plan, " "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 under "Risk Factors." 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. Except as required under the federal securities
laws, we do not undertake any obligation to update forward-looking statements
made by us.

      Readers should not place undue reliance on 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 prospectus. 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 prospectus, and the
risks discussed in our press releases and other communications to shareholders
issued by us from time to time. We undertake no obligation to publicly update or
revise any forward-looking statements, whether as a result of new information,
future events or otherwise.


                                       1
<PAGE>

                               Prospectus Summary

      This summary contains basic information about us and this offering.
Because it is a summary, it does not contain all of the information that may be
important to you. You should read the entire prospectus carefully, including the
section entitled "Risk Factors," and our consolidated financial statements and
the related notes to those statements included in this prospectus. This
prospectus contains certain forward-looking statements. The cautionary
statements made in this prospectus should be read as being applicable to all
related forward-looking statements wherever they appear in this prospectus. Our
actual results could differ materially from those discussed in this prospectus.
See "Special Note Regarding Forward-Looking Information."

      As used in this prospectus, the terms "we," "our," "company" and "Gulf
Resources," refers to Gulf Resources, Inc. and its wholly-owned subsidiaries,
unless otherwise stated or the context requires otherwise. All information in
this prospectus gives retroactive effect to a 1-for-100 reverse stock split of
our common stock effected on October 23, 2006.

Our Business

      We manufacture and trade bromine and crude salt, and manufacture and sell
chemical products used in oil and gas field exploration, oil and gas
distribution, oil field drilling, wastewater processing, papermaking chemical
agents and inorganic chemicals

      Upper Class Group Limited, incorporated in the British Virgin Islands in
July 2006, acquired all the outstanding stock of Shouguang City Haoyuan Chemical
Company Limited ("SCHC"), a company incorporated in Shouguang City, Shangdong
Province, the People's Republic of China in May 2005. Since the ownership of
Upper Class Group Limited and SCHC was then the same, the acquisition was
accounted for as a transaction between entities under common control, whereby
Upper Class Group Limited recognized the assets and liabilities transferred at
their carrying amounts.

      On December 12, 2006, we, then known as Diversifax, Inc., a public "shell"
company, acquired Upper Class Group Limited and SCHC. Under the terms of the
agreement, the stockholders of Upper Class Group Limited received 26,500,000
shares of voting common stock of Gulf Resources, Inc. in exchange for all
outstanding shares of Upper Class Group Limited. Under accounting principles
generally accepted in the United States, the share exchange is considered to be
a capital transaction rather than a business combination. That is, the share
exchange is equivalent to the issuance of stock by Upper Class Group Limited for
the net assets of Gulf Resources, Inc., 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 acquirer, Gulf Resources, Inc., are those of the legal
acquiree, Upper Class Group Limited. Share and per share amounts stated have
been retroactively adjusted to reflect the share exchange.

      On February 5, 2007, we acquired Shouguang Yuxin Chemical Industry Co.,
Limited ("SYCI"), a company incorporated in the People's Republic of China in
October 2000. Under the terms of the acquisition agreement, the stockholders of
SYCI received a total of 16,188,118 shares of common stock of Gulf Resources,
Inc. in exchange for all outstanding shares of SYCI's common stock.
Simultaneously with the completion of the acquisition, a dividend of $2,550,000
was paid to the former stockholders of SYCI. Since the ownership of Gulf
Resources, Inc. and SYCI are substantially the same, the acquisition was
accounted for as a transaction between entities under common control, whereby
Gulf Resources, Inc. recognized the assets and liabilities of SYCI at their
carrying amounts. Share and per share amounts have been retroactively adjusted
to reflect the acquisition.

      As a result of our acquisitions of SCHC and SYCI, our historical financial
statements, the numbers in the Summary Condensed Consolidated Financial
Information below and Management's Discussion and Analysis reflect the accounts
of SCHC and SYCI.

      Our executive offices are located in China at Chenming Industrial Park,
Shouguang City, Shandong, People's Republic of China. Our telephone number is
(310) 470-2886. Our website address is www.gulfresourcesco.com. The information
on our website is not part of this prospectus.


                                       2
<PAGE>

The Offering and Our Equity Credit Facility

      This offering relates to the resale by the selling stockholders identified
in this prospectus of up to 30,000,000 shares of our common stock that we may
issue and sell to them from time to time, and that they are obligated to
purchase from us, at a fixed per share purchase price of $2.00, under our equity
credit facility for up to $60 million. Under the agreement relating to the
facility, we are obligated to file a registration for the resale of the shares
acquired by the selling stockholders under that facility.

      The maximum advance we may request at any time under the facility is $10
million, so that the maximum number of shares that the selling stockholders are
obligated to purchase from us on any single occasion is limited to 5 million
shares, except that the obligation of each selling stockholder to purchase
shares is limited to the extent that any purchase would result in that selling
stockholder owning more than 9.9% of our then outstanding shares.

      We may request advances from the selling stockholders under the facility
from time to time, but not more than 15 days after the most recent request. The
selling stockholders are obligated to purchase shares in an amount equal to the
advance we have requested on the fifth business day after our request, subject
to our satisfaction of certain conditions to closing.

      The commitment period under the facility is 18 months commencing on the
date the SEC declares effective the registration statement of which this
prospectus is a part, subject to earlier termination (i) on the date on which
the selling stockholders have purchased an aggregate amount of $60 million, or a
total of 30,000,000, shares of our common stock under the facility, or (ii) on
the date that (x) there occurs any stop order or suspension of the effectiveness
of that registration statement for an aggregate of sixty trading days, other
than due to the acts of the selling stockholders, or (y) if we fail to comply in
a material respect with the covenants in the agreement and that default is not
cured within thirty days after receipt of written notice from the selling
stockholders.

      The issuance of shares under our equity credit facility may result in a
change of control. If all or a significant block of these shares are held by one
or more stockholders acting together, then such stockholder or stockholders
would have enough shares to assume control of our company by electing its or
their own directors. This could happen, for example, if the selling stockholders
sold the shares purchased under the facility to the same purchaser.

Common Stock Offered                30,000,000 shares by selling shareholders

Offering Price                      Market price

Common Stock Outstanding            49,424,626 shares
Before the Offering

Use of Proceeds                     We will not receive any proceeds from the
                                    sale of shares of common stock, offered by
                                    the selling stockholders.

Risk Factors                        The securities offered hereby involve a high
                                    degree of risk and immediate substantial
                                    dilution. You should read carefully the
                                    factors discussed under Risk Factors
                                    beginning on page 5 and the other
                                    information included in this prospectus
                                    before investing in our securities. Several
                                    of the most significant risk factors
                                    include:

                                    o   Future sales by our stockolders may
                                        adversely affect our stock price and our
                                        ability to raise funds in new stock
                                        offerings;

                                    o   Existing shareholders will experience
                                        significant dilution from the sale of
                                        shares issued under our equity credit
                                        facility;


                                       3
<PAGE>

                                    o   The selling stockholders will acquire
                                        shares of our common stock at a fixed
                                        per share price of $2.00 under our
                                        equity credit facility which may be less
                                        than the then-prevailing market price
                                        for our common stock;

                                    o   The selling stockholders may sell the
                                        shares of common stock they acquire
                                        under equity credit facility in the
                                        public market, which sales may cause our
                                        stock price to decline; and

                                    o   The issuance of shares of our common
                                        stock under our equity credit facility
                                        could encourage short sales by third
                                        parties, which could contribute to the
                                        further decline of our stock price.

Recent Developments

      On April 7, 2007, we, acting through SCHC, acquired substantially all of
the assets of Wenbo Yu in the Shouguang City Qinshuibo Area under an Asset
Purchase Agreement dated April 4, 2007. These assets include a 50-year mineral
rights and land lease covering 1,846 acres, or 7.5 square kilometers of real
property, with proven and probable reserves of 34,400 tons of bromine being
serviced by 575 wells, as well as the related production facility, the wells,
the pipelines, other production equipment, and the buildings located on the
property. The total purchase price for the acquired assets was $5,100,000,
consisting of an aggregate of 799,286 shares of our common stock and cash in the
amount $3,051,282.

      On June 8, 2007, we, acting through SCHC, aquired substantially all of the
assets of Dong Hua Yang in the Dong Ying City Liu Hu Area under an Asset
Purchase Agreement dated June 8, 2007. These assets include a 50-year mineral
rights and land lease covering 2,317.85 acres, or 9.38 square kilometers of real
property, with proven and probable reserves of 235,000 tons of bromine being
serviced by 405 wells, as well as the related production facility, the wells,
the pipelines, other production equipment, and the buildings located on the
property. The total purchase price for the acquired assets was $6,667.538,
consisting of an aggregate of 409,795 shares of our common stock and cash in the
amount $4,837,233 and interest-free promissory note in the aggregate principal
amount of $889,005.


                                       4
<PAGE>

              Summary Condensed Consolidated Financial Information

<TABLE>
<CAPTION>
                                              For the years ended               For the three months ended
                                      -----------------------------------     ---------------------------------
                                       December 31,         December 31,          March 31,          March 31,
                                           2006                 2005                2007               2006
                                      --------------      ---------------     ----------------     ------------
                                                                                 (unaudited)        (unaudited)
<S>                                   <C>                 <C>                 <C>                  <C>
Statement of Operations Data:
Net revenue                           $   17,825,097      $    14,344,296     $    10.063,327      $  7,458,453
Income from operations                     1,728,746            4,944,544           3,856,445         2,574,074
Net income                                 1,162,273            3,312,230           2,556,813         1,699,573
Net income per share -
basic and diluted                     $         0.04      $          0.12     $          0.06      $       0.04
Basic and diluted weighted
average number of shares                  27,017,322           26,500,000          44,091,290        43,205,440
</TABLE>

<TABLE>
<CAPTION>
                                        At December         At March 31,
                                         31, 2006         2007 (unaudited)
                                      ---------------     ---------------
<S>                                   <C>                 <C>
Balance Sheet Data:
Current assets                        $     6,629,972     $     9,214,512
Working capital                               288,527           7,354,063
Total assets                                9,885,484          14,214,264
Retained earnings (unappropriated)    $     1,352,648     $     1,096,784
Total stockholders' equity            $     3,544,039     $    12,353,815
</TABLE>

                                  Risk Factors

      You should consider carefully each of the following risk factors and all
of the other information in this prospectus. The following risks relate
principally to our business and the offering described in the prospectus. If any
of the following risks and uncertainties develop into actual events, the
business, financial condition or results of our operations could be materially
adversely affected. If that happens, the trading price of our shares of common
stock could decline significantly. The risk factors below contain
forward-looking statements regarding the offering and our business. Actual
results could differ materially from those set forth in the forward-looking
statements. See "Special Note Regarding Forward-Looking Information."

Risks Relating to Our Business

The unsuccessful integration of a business or business segment we acquire could
have a material adverse effect on our results.

      As part of our business strategy, we expect to acquire assets and
businesses relating to or complementary to our operations. These acquisitions
will involve risks commonly encountered in acquisitions. These risks include
exposure to unknown liabilities of the acquired companies, additional
acquisition costs and unanticipated expenses. Our quarterly and annual operating
results will fluctuate due to the costs and expenses of acquiring and
integrating new businesses. We may also experience difficulties in assimilating
the operations and personnel of acquired businesses. Our ongoing business may be
disrupted and our management's time and attention diverted from existing
operations. Our acquisition strategy will likely require additional debt or
equity financing, resulting in additional leverage or dilution of ownership. We
cannot assure you that any future acquisition will be consummated, or that if
consummated, that we will be able to integrate such acquisition successfully.

We depend on revenues from a few significant relationships, and any loss,
cancellation, reduction, or interruption in these relationships could harm our
business.

      In general, we have derived a material portion of our revenue from a
limited number of customers. We expect that in future periods we may enter into
contracts with customers which represent a significant concentration of our


                                       5
<PAGE>

revenues. If such contracts were terminated, our revenues and net income could
significantly decline. Our success will depend on our continued ability to
develop and manage relationships with significant customers and suppliers. Any
adverse change in our relationship with our customers and suppliers may have a
material adverse effect on our business. Although we are attempting to expand
our customer base, we expect that our customer concentration will not change
significantly in the near future. We cannot be sure that we will be able to
retain our largest customers and suppliers or that we will be able to attract
additional customers and suppliers, or that our customers and suppliers will
continue to buy our products in the same amounts as in prior years. The loss of
one or more of our largest customers or suppliers, any reduction or interruption
in sales to these customers or suppliers, our inability to successfully develop
relationships with additional customers or suppliers or future price concessions
that we may have to make, could significantly harm our business.

Attracting and retaining key personnel is an essential element of our future
success.

      Our future success depends to a significant extent upon the continued
service of our executive officers and other key management and technical
personnel and on our ability to continue to attract, retain and motivate
executive and other key employees, including those in managerial, technical,
marketing and information technology support positions. Experienced management
and technical, marketing and support personnel are in demand and competition for
their talents is intense. The loss of the services of one or more of our key
employees or our failure to attract, retain and motivate qualified personnel
could have a material adverse effect on our business, financial condition and
results of operations.

If we lose the services of our chairman and chief executive officer, our
business may suffer.

      We are dependent on Ming Yang, our chairman and chief executive officer.
The loss of his services could materially harm our business because of the cost
and time necessary to retain and train a replacement. Such a loss would also
divert management attention away from operational issues. We do not have key-man
term life insurance policy on Mr. Yang.

Our inability to successfully manage the growth of our business may have a
material adverse effect on our business, results or operations and financial
condition.

      We expect to experience growth in the number of employees and the scope of
our operations as a result of internal growth and acquisitions. Such activities
could result in increased responsibilities for management. Our future success
will be highly dependent upon our ability to manage successfully the expansion
of operations. Our ability to manage and support our growth effectively will be
substantially dependent on our ability to implement adequate improvements to
financial, inventory, management controls, reporting, order entry systems and
other procedures, and hire sufficient numbers of financial, accounting,
administrative, and management personnel.

      Our future success depends on our ability to address potential market
opportunities and to manage expenses to match our ability to finance operations.
The need to control our expenses will place a significant strain on our
management and operational resources. If we are unable to control our expenses
effectively, our business, results of operations and financial condition may be
adversely affected.

We will face many of the difficulties that companies in the early stage may
face.

      We have a limited operating history as a chemical company, which may make
it difficult for you to assess our ability to identify merger or acquisition
candidates and our growth and earnings potential. Therefore, we may face many of
the difficulties that companies in the early stages of their development in new
and evolving markets often face as they are described below. We may continue to
face these difficulties in the future, some of which may be beyond our control.
If we are unable to successfully address these problems, our future growth and
earnings will be negatively affected.

We cannot accurately forecast our future revenues and operating results, which
may fluctuate.

      Our short operating history as a chemical company and the rapidly changing
nature of the markets in which we compete make it difficult to accurately
forecast our revenues and operating results. Furthermore, we expect our revenues
and operating results to fluctuate in the future due to a number of factors,
including the following:

      -     the success of identifying and completing mergers and acquisitions;

      -     the introduction of competitive products by different or new
            competitors;


                                       6
<PAGE>

      -     reduced demand for any given product;

      -     difficulty in keeping current with changing technologies;

      -     increased or uneven expenses, whether related to sales and
            marketing, product development or administration;

      -     deferral of recognition of our revenue in accordance with applicable
            accounting principles due to the time required to complete projects;
            and

      -     costs related to possible acquisitions of technology or businesses.

      Due to these factors, forecasts may not be achieved, either because
expected revenues do not occur or because they occur at lower prices or on terms
that are less favorable to us. In addition, these factors increase the chances
that our results could diverge from the expectations of investors and analysts.
If so, the market price of our stock would likely decline.

We may issue shares of our capital stock or debt securities to complete an
acquisition, which would reduce the equity interest of our stockholders.

      Although we have no commitments as of the date of this report to issue our
securities, we will, in all likelihood, issue additional shares of our common
stock or preferred stock, or a combination of common and preferred stock, to
complete an acquisition. The issuance of additional shares of our common stock
or any number of shares of our preferred stock may significantly reduce the
equity interest of our current stockholders, may subordinate the rights of
holders of our common stock if preferred stock is issued with rights senior to
the common stock and may adversely affect prevailing market prices for our
common stock.

      Similarly, if we issue debt securities, it could result in default and
foreclosure on our assets if our operating revenues after an acquisition were
insufficient to pay our debt obligations, acceleration of our obligations to
repay the indebtedness even if we have made all principal and interest payments
when due if the debt security contains covenants that require the maintenance of
certain financial ratios or reserves and any such covenant is breached without a
waiver or renegotiation of that covenant and our inability to obtain additional
financing, if necessary, if the debt security contains covenants restricting our
ability to obtain additional financing while such security is outstanding.

Possible conflicts of interest

      Ming Yang, our chairman, was a substantial owner of SCHC and SCYI before
their acquisition by us. There may have been conflicts of interest between Ming
Yang and our company as a result of such ownership interests. The terms on which
we acquired SCHC and SCYI may have been different from those that would have
been obtained if SCHC and SCYI were owned by unrelated parties.

Risks Related to Doing Business in the People's Republic of China

Our business operations take place primarily in the People's Republic of China.
Because Chinese laws, regulations and policies are 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.

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 supplies, as well as new laws affecting
joint ventures and foreign-owned enterprises doing business in China. Although
China has been pursuing economic reforms, 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.


                                       7
<PAGE>

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 subordinate to state-owned companies, which are the mainstay
of the Chinese economy. However, we cannot assure you 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 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 shift 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. We cannot assure
you 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.

      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 accounting laws and regulations of the Peoples
Republic of China 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 designated 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, 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.


                                       8
<PAGE>

Because our principal assets are located outside of the United States and all of
our directors and executive officers reside outside of the United States, it may
be difficult for you to enforce your rights based on the United States Federal
securities laws against us and our officers and directors in the United States
or to enforce judgments of United States courts against us or them in the
People's Republic of China.

      Our directors and executive officers reside outside of the United States.
In addition, our operating subsidiaries and substantially all of our assets are
located outside of the United States. You will find it difficult to enforce your
legal rights based on the civil liability provisions of the United States
Federal securities laws against us in the courts of either the United States or
the People's Republic of China and, even if civil judgments are obtained in
courts of the United States, to enforce such judgments in the courts of the
People's Republic of China. In addition, it is unclear if extradition treaties
in effect between the United States and the People's Republic of China would
permit effective enforcement against us or our officers and directors of
criminal penalties, under the United States Federal securities laws or
otherwise.

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
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

Risks Relating to our Common Stock and our Status as a Public Company

The price of our common stock may be affected by a limited trading volume and
may fluctuate significantly.

      There has been a limited public market for our common stock and we cannot
assure you that an active trading market for our stock will develop or if
developed, will be maintained. The absence of an active trading market may
adversely affect our stockholders' ability to sell our common stock in short
time periods, or possibly at all. In addition, we cannot assure you that you
will be able to sell shares of common stock that you have purchased without
incurring a loss. The market price of our 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. In addition, the market
price for our 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.


                                       9
<PAGE>

Future sales of our common stock may cause our stock price to decline.

      The sale of a large number of our shares, or the perception that such a
sale may occur, for example, by the selling stockholders named in this
prospectus, may lower our stock price. Such sales could make it more difficult
for us to sell equity securities in the future at a time and price that we
consider appropriate.

Issuance of our reserved shares of common stock may significantly dilute the
equity interest of existing shareholders.

      We have reserved shares of our common stock for issuance upon exercise or
conversion of stock options, warrants, or other convertible securities that are
presently outstanding. We have reserved an additional 30,000,000 shares in
connection with our equity credit facility. Issuance of these shares will have
the effect of diluting the equity interest of our existing stockholders and may
have an adverse effect on the market price of our common stock

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.

      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.

Lack of management control by purchasers of the common stock offered hereby.

      As of June 10, 2007, Ming Yang, our chairman and chief executive officer,
together with Shandong Haoyuan Industry Group Ltd., of which he is the
controlling shareholder and chairman and chief executive officer, beneficially
owned approximately 27% of our common stock. As of that date, the other
beneficial owners of more than 5% of our common stock in the aggregate owned
approximately an additional 48% of our common stock. As a result of this
concentration of ownership, you and our other stockholders, acting alone, do not
have the ability to influence the outcome of matters requiring stockholder
approval, including the election of our directors or significant corporate
transactions. In addition, this concentration of ownership, which is not subject
to any voting restrictions, may discourage or thwart efforts by third parties to
take-over or effect a change in control of our company, that may be desirable
for you and are other stockholders, and may limit the price that investors are
willing to pay for our common stock.


                                       10
<PAGE>

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

                                 Use of Proceeds

      This prospectus relates to shares of our common stock that may be offered
and sold from time to time by the selling stockholders named in this prospectus.
We will not receive any proceeds from the sale of shares of common stock in this
offering.

                                  Our Business

History and Organization

      From November 1993 through August 2006, we were 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 our services declined
sharply, and in August 2006, our Board of Directors decided to discontinue our
operations.

      On August 25, 2006, Ms. Juxiang Yu, our former officer and director,
purchased from our then controlling shareholder, 362,083 shares, or
approximately 70% of our then outstanding shares of common stock for an
aggregate purchase price of $425,000 in accordance with the terms and conditions
of a Stock Purchase Agreement, dated as of August 25, 2006 (the "Purchase
Agreement"), effecting a change in the controlling interest of our company.
Following the closing of that transaction, Ms.Yu was appointed to and Messrs.
Horowitz and Sciambi resigned from our Board of Directors. In addition, Ms.Yu
was elected to serve as our President and Secretary.

      Upper Class Group Limited, incorporated in the British Virgin Islands in
July 2006, acquired all the outstanding stock of Shouguang City Haoyuan Chemical
Company Limited ("SCHC"), a company incorporated in Shouguang City, Shangdong
Province, the People's Republic of China in May 2005. Since the ownership of
Upper Class Group Limited and SCHC was then the same, the acquisition was
accounted for as a transaction between entities under common control, whereby
Upper Class Group Limited recognized the assets and liabilities transferred at
their carrying amounts.

      On December 12, 2006, we, then known as Diversifax, Inc., a public "shell"
company, acquired Upper Class Group Limited and SCHC. Under the terms of the
agreement, the stockholders of Upper Class Group Limited received 26,500,000
shares of voting common stock of Gulf Resources, Inc. in exchange for all
outstanding shares of Upper Class Group Limited. Under accounting principles
generally accepted in the United States, the share exchange is considered to be
a capital transaction rather than a business combination. That is, the share
exchange is equivalent to the issuance of stock by Upper Class Group Limited for
the net assets of Gulf Resources, Inc., 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 acquirer, Gulf Resources, Inc., are those of the legal
acquiree, Upper Class Group Limited. Share and per share amounts stated have
been retroactively adjusted to reflect the share exchange.


                                       11
<PAGE>

      On February 5, 2007, we acquired Shouguang Yuxin Chemical Industry Co.,
Limited ("SYCI"), a company incorporated in the People's Republic of China in
October 2000. Under the terms of the acquisition agreement, the stockholders of
SYCI received a total of 16,188,118 shares of common stock of Gulf Resources,
Inc. in exchange for all outstanding shares of SYCI's common stock.
Simultaneously with the completion of the acquisition, a dividend of $2,550,000
was paid to the former stockholders of SYCI. Since the ownership of Gulf
Resources, Inc. and SYCI are substantially the same, the acquisition was
accounted for as a transaction between entities under common control, whereby
Gulf Resources, Inc. recognized the assets and liabilities of SYCI at their
carrying amounts. Share and per share amounts have been retroactively adjusted
to reflect the acquisition.

      In January 2007, shareholders holding approximately 62% of the then
outstanding shares, of our common stock consented in writing, without a meeting,
to change our corporate name from Diversifax, Inc. to Gulf Resources, Inc.
Accordingly, on February 20, 2007, we filed a Certificate of Amendment to our
Certificate of Incorporation changing our corporate name to Gulf Resources, Inc.

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.

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 professionals who
hold PhD degree to lead their R& D department.

      SYCI concentrates its effort on the production and sale of chemical
products that are in use in oil and gas field explorations, oil and gas
distribution, oil field drilling, wastewater processing, papermaking chemical
agents, and inorganic chemicals. SYCI also engages in research and development
of commonly used chemical products as well as medicine intermediates. Currently,
SYCI's annual productions of oil and gas field exploration products and related
chemicalc 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.


                                       12
<PAGE>

Employees

      As of March 31, 2007, in addition to our officers, we had approximately
100 full-time employees.

Property

      We do not own any real property. Our executive offices are located in
China at Chenming Industrial Park, Shouguang City, Shandong, People's Republic
of 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's headquarters are located in the 2nd Living District, Shouguang
City, Shandong Province, People's Republic of China. SYCI's headquarters are
located on approximately 18,768 square meters of state-owned land owned by
Shouguang City Houxin village. There are three buildings owned by SYCI located
on the property. Two of the buildings are operational plants of steel structure
with an aggregate of approximately 1,560 square meters of production space and a
total of 4,000 square meters for pump rooms, boiler rooms, finished products and
raw materials storage. The third building is primarily for administration and
has approximately 795 square meters.

      The company has a 50 years lease on the land from April 1, 1998 to March
31, 2048 at an annual rent of 200,000RMB or $25,641.

      As a result of the Merger Transaction, the executive offices of the
Company were relocated from Shennan Zhong Road, Shenzhen City, People's Republic
of China to our current location, which is also the headquarters of SCHC.

Legal Proceedings

      We are not a party to any material legal proceedings.

           Management's Discussion and Analysis of Financial Condition
                           and Results of Operations

      This discussion and analysis of financial condition and results of
operations should be read in conjunction with our Financial Statements included
in this prospectus.

Introduction

      We, through our wholly-owned subsidiary, SCHC, manufacture and trade
bromine and crude salt, and through our wholly-owned subsidiary, SYCI,
manufacture and sell chemical products used in oil and gas field exploration,
oil and gas distribution, oil field drilling, wastewater processing, papermaking
chemical agents and inorganic chemicals

      On December 12, 2006, we acquired through a share exchange Upper Class
Group Limited, a British Virgin Islands holding corporation which then owned all
of the outstanding shares of SCHC. Under accounting principles generally
accepted in the United States, 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 for the net
monetary assets of our company, accompanied by a recapitalization, and is
accounted for as a change in capital structure. Accordingly, the accounting for
the share exchange was identical to that resulting from a reverse acquisition,
except no goodwill was recorded. Under reverse takeover accounting, the post
reverse acquisition comparative historical financial statements of the legal
acquirer, our company, are those of the legal acquiree, Upper Class Group
Limited, which is considered to be the accounting acquirer. Share and per share
amounts stated have been retroactively adjusted to reflect the merger.

      On February 5, 2007, we, acting through Upper Class Group Limited acquired
SYCI. Since the ownership of Gulf Resources, Inc. and SYCI was then
substantially the same, the transaction was accounted for as a transaction
between entities under common control, whereby we recognized the assets and
liabilities of SYCI at their carrying amounts. Share and per share amounts
stated have been retroactively adjusted to reflect the merger.


                                       13
<PAGE>

      As a result of our acquisitions of SCHC and SYCI, our historical financial
statements, the numbers in the Summary Condensed Consolidated Financial
Information below and Management's Discussion and Analysis reflect the accounts
of SCHC and SYCI.

Plan of Operations

      For the immediate future we intend to focus our efforts on the activities
of SCHC and SYCI. Our short to mid-term strategic plan is to focus on Chinese
domestic market expansion. Our long-term strategic goal is to expand our market
to overseas countries.

      We may issue additional shares of our capital stock to raise additional
cash for working capital during the next twelve months. We have 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 proprietary stores in eastern China, hiring more sales personnel
and expanding current distribution channels.

      We may not be able to identify, successfully integrate or profitably
manage any businesses or business segment we may acquire, or any expansion of
our business. The proposed expansion may involve a number of risks, including
possible adverse effects on our operating results, diversion of management
attention, inability to retain key personnel, risks associated with
unanticipated events and the financial statement effect of potential impairment
of acquired intangible assets, any of which could have a materially adverse
effect on the our condition and results of operations. In addition, if
competition for acquisition candidates or assumed operations were to increase,
the cost of acquiring businesses or assuming customers' operations could
increase materially. Our inability to implement and manage our expansion
strategy successfully may have a material adverse effect on our business and
future prospects. Furthermore, through the acquisition of additional businesses,
we may effect a business acquisition with a target business which may be
financially unstable, under-managed, or in its early stages of development or
growth. While we may, under certain circumstances, seek to effect business
acquisitions with more than one target business, as a result of our limited
resources, we, in all likelihood, will have the ability to effect only a single
business acquisition at one time.

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

Results of Operations

Three months ended March 31, 2007 as compared to the three months ended March
31, 2006

      The following table presents certain consolidated statement of operations
information derived from the consolidated statements of operations for the three
months ended March 31, 2007 and 2006.

<TABLE>
<CAPTION>
                                         Three months ended      Three months ended          Percentage
                                            March 31,2007           March 31, 2006             Change
                                            -------------           --------------             ------
<S>                                          <C>                     <C>                       <C>
Net Revenue                                  $10,063,327             $ 7,458,453                 +35%

Cost of net revenue                          $ 6,024,702             $ 4,781,647                 +26%

Gross profit                                 $ 4,038,625             $ 2,676,806                 +51%

General and administrative expenses          $   182,180             $   102,732                 +77%

Income from operations                       $ 3,856,445             $ 2,574,074                 +50%

Other income                                 $     6,842             $       420               +1529%

Income before taxes                          $ 3,863,287             $ 2,574,494                 +50%

Income Taxes                                 $ 1,306,474             $   874,921                 +49%

Net Income                                   $ 2,556,813             $ 1,699,573                 +50%
</TABLE>


                                       14
<PAGE>

Net Revenue. Net revenue was $10,063,327 in the quarter ended March 31, 2007
("First Quarter 2007"), an increase of $2,604,874 (or approximately 35%) from
net revenue of $7,458,453 in the quarter ended March 31, 2006 ("First Quarter
2006"). The increase in net revenue was primarily attributable to continued
growth in our sales of bromine which increased from $ 3,954,919 in the First
Quarter of 2006 to $5,301,727 in the First Quarter 2007 primarily as a result of
the completion of 280 new bromine wells during 2006. Since demand for bromine
within China exceeds the available domestic supply, all our sales of bromine are
made to satisfy the needs of the Chinese domestic market. A second factor
contributing to the increase in sales was the expansion of petrochemical
products used in biocide additives and maintenance services income, which was
primarily derived from maintenance and cleaning services rendered to oil
companies from October 2006 through the end of the First Quarter 2007. Total
Sales of petrochemical products and maintenance services increased from
$3,503,534 in the First Quarter 2006 to $4,761,600 in the First Quarter 2007.

Cost of net revenue. The reported cost of net revenue reflects raw materials
consumed, direct salaries and benefits, electricity and other manufacturing
costs. Our cost of net revenue was 59.9% of net revenue in the First Quarter
2007, compared to 64.1% in the First Quarter 2006, and improvement of 4.2%. This
improvement was due to a number of factors, including increased efficiencies in
production waste control and recycling; efficiencies in the use of electricity
which increased only 11% from the First Quarter 2006 to the First Quarter 2007;
the shifting of certain transportation costs to the customer which resulted in a
decrease in transportation costs of 25% and the fact that the cost of direct
salaries and benefits remained approximately unchanged despite the increase in
net sales because of reductions and reassignments of personnel the percentage
increase in the cost of net sales was significantly below the rate of increase
in net sales. Also contributing to the decrease in the cost of sales as a
percentage of sales in the First Quarter 2007 as compared to the First Quarter
2006 was the fact that the cost of raw material consumed in the First Quarter
2007 was only 25% above the cost of raw materials in the First Quarter 2006.

Gross Profit. Gross profit was 40.1% of net revenue in the First Quarter 2007,
compared to 35.9% the First Quarter 2006, an improvement of 4.2%. This
improvement was due to a number of factors as discussed above.

General and Administrative Expenses. General and administrative expenses were
$182,180 in the First Quarter 2007, an increase of $79,448 (or approximately
77%) from the general and administrative expenses of $102,732 during the First
Quarter 2006. This significant increase in general and administrative expenses
was primarily due to SEC legal, accounting, auditing, stock transfer agent
expenses of $86,339 which were associated with our February 2007 acquisition of
SYCI and becoming a public company in December 2006.

Income from Operations. Income from operations was $3,856,445 in the First
Quarter 2007, an increase of $1,282,371 (or approximately 50%) from income from
operations of $2,574,074 in the First Quarter 2006. The increase in income from
operations resulted primarily from the increase in revenues and relatively lower
increase in cost of net sales as discussed above. The increase in income from
operations resulted from increases in both the bromine and petrochemical
divisions of the Company. In the First Quarter 2007, income from operations in
the bromine division was $2,241,508, an increase of 42% from income from
operations of in this division of $1,582,340 in the First Quarter 2006. In the
First Quarter 2007, income from operations in the chemical products division was
$1,701,276, an increase of 72% from income from operations in this division of
$991,734 in the First Quarter 2006.

Other income. Other income was $6,842 in the First Quarter 2007, an increase of
$6,422 (or approximately 1529%) from the other revenue of $420 during the First
Quarter 2006. This significant increase in other revenue was primarily derived
from and interest income through the end of the First Quarter 2007.

Net Income. Net income was $2,556,813 in the First Quarter 2007, an increase of
$857,240 (or approximately 50%) from net income of $1,699,573 in the First
Quarter 2006. This increase of net income in the quarter ended March 31, 2007
resulted primarily from the increase in revenues and a number of improvements in
cost of net revenue as discussed above and reflects positive trends in both of
the Company's divisions.

Year ended December 31, 2006 as compared to the period from May 18, 2005 through
December 31, 2005


                                       15
<PAGE>

      The following table presents certain consolidated statement of operations
information derived from the consolidated statements of operations for the years
ended December 31, 2006 and December 31, 2005.

<TABLE>
<CAPTION>
                                                Year ended      Period May 18, 2005 through
                                            December 31, 2006        December 31, 2005
                                            -----------------        -----------------
<S>                                             <C>                     <C>
Net Sales                                       $17,825,097             $14,344,296

Cost of net sales                               $10,481,567             $ 9,095,301

Gross profit                                    $ 7,343,530             $ 5,248,995

General and administrative expenses             $ 5,614,784             $   304,451

Income from operations                          $ 1,728,746             $ 4,944,544

Other revenue                                   $     5,990             $       446

Income before taxes                             $ 1,734,736             $ 4,944,990

Income Taxes                                    $   572,463             $ 1,632,760

Net Income                                      $ 1,162,273             $ 3,312,230
</TABLE>

Net Sales. Net sales were $17,825,697 in the year ended December 31, 2006
("Fiscal 2006"), an increase of $3,480,801 (or approximately 24%) of the net
sales of $14,344,296 in the period ended December 31, 2005 ("Fiscal 2005"). The
increase in net sales was attributable to the production activity in Fiscal 2005
of seven months, whereas in Fiscal 2006 there were twelve months of production.
Monthly production and sales in Fiscal 2006 was below that of Fiscal 2005,
because the concentration of bromine in the ground decreased in Fiscal 2006
after the initial exploitation in Fiscal 2005. Furthermore, the price of bromine
was more stable during Fiscal 2006. Our net sales for the period were derived
wholly from the sales of bromine. No sales of crude salt were included, as all
the crude salt plants were only completed in December 2006.

      The Company focused on larger value of sales transactions to increase
efficiency during the year. Therefore, sales were made to the large customers
with large orders. Two of the Company customers represented 74% of the total
sales in Fiscal 2006 as compared to 60% in Fiscal 2005.

Cost of net sales. Cost of net sales was $10,481,567 in Fiscal 2006, an increase
of $1,386,266 (or approximately 15%) from the cost of net sales of $9,095,301 in
Fiscal 2005. The increase in the cost of net sales resulted from an increase in
the cost of electricity. However, the cost of net sales decreased from
approximately 63% of net sales in Fiscal 2005 to approximately 59% of net sales
in Fiscal 2006. This improvement of cost of net sales percentage was
attributable to an improved learning curve of newly trained employees, a greater
final bromine yield and the introduction of an advanced integrated production
process in Fiscal 2006.

      As noted above the cost of electricity increased in Fiscal 2006 to
$2,738,295, as compared to $1,062,181 in Fiscal 2005. The significant increase
of 158% in Fiscal 2006 compared to Fiscal 2005 was mainly due to the fact that
SCHC shared electricity with its supplier, (Shengli Oilfield), and supplier
recharged SCHC at a lower price in Fiscal 2005. No such sharing was in place for
Fiscal 2006, and SCHC paid at the standard rate to the local electricity
company. Also included in the cost of net sales is amortization of prepaid lease
payments. The land that the Company uses for the manufacture of bromine is
leased for 50 years ending on March 31, 2054. Cost of net sales included raw
material consumed, direct salaries and welfare, and other manufacturing costs.

      Two of the Company's largest suppliers represented 74% of the total
purchases in Fiscal 2006 as compared to 61% in Fiscal 2005. The top five
suppliers in Fiscal 2006 represented 100% of the total purchases, whereas in
Fiscal 2005, the top five suppliers represented 79% of the total purchases. The
increase in percentage of top five suppliers indicates that SCHC has built up
good relationships and improved our business reputation among the suppliers,
thereby increasing suppliers' confidence when trading with the Company.

Gross Profit. Gross profit was $7,343,530 in Fiscal 2006, an increase of
$2,094,535 (or approximately 40%) from gross profit of $5,248,995 in Fiscal
2005. The gross profit increased from approximately 37% of net sales in Fiscal
2005 to approximately 41% of net sales in Fiscal 2006. This improvement in gross
profit percentage was mostly due to more effective use of raw materials and
recyclable packaging materials. In addition, the increase was also attributable
to the shipping costs being borne by the Company's customers.


                                       16
<PAGE>

General and Administrative Expenses. General and administrative expenses were
$5,614,784 in Fiscal 2006, an increase of $5,310,333 (or approximately 1,744%)
from the general and administrative expenses of $304,451 in Fiscal 2005. This
significant increase in general and administrative expenses was mostly due to
consulting expenses of $5,344,295 which were incurred Fiscal 2006. The company
issued 4,413,450 shares of the common stock in March 2007 as a payment for
consulting fees. The consulting fees accounted for 95% of total general and
administrative expenses in Fiscal 2006. Unless we will have future acquisitions,
we expect the general and administrative expenses to be much lower in the year
ending December 31, 2007.

Income from Operations. Income from operations was $1,728,746 in Fiscal 2006, a
decrease of $3,215,798 (or approximately 65%) from income from operation of
$4,944,544 in Fiscal 2005. The decrease of income from operation in Fiscal 2006
resulted primarily from the increase of general and administrative expenses as
discussed above.

Net Income. Net income was $1,162,273 in Fiscal 2006, a decrease of $2,149,957
(or approximately 65%) from net income of $3,312,230 in Fiscal 2005. This
decrease of net income in Fiscal 2006 resulted primarily from the significant
increase in the general and administrative expenses as discussed above.

Liquidity and Capital Resources

      The company meets its working capital and capital investment requirements
mainly by using operating cash flows and, to a limited extent, bank loans. We
believe that our cash requirements in the next twelve months will be met by our
revenues from operations and our cash reserves.

Three months ended March 31, 2007

      We ended the quarter ended March 31, 2007 with a cash position of
$3,309,606. During the quarter we had positive cash flow from operating
activities of $1,095,573, primarily attributable to net income of $2,556,813 and
an increase of taxes payable of $402,952, partially offset by an increase in
deposits of $1,806,140 and accounts receivable of $195,170.

      Primarily as a result of dividend payments of $4,739,600, which was
partially offset by advances from a related party of $902,119 and an increase
due to parent of $318,655, we used approximately $3,468,826 in financing
activities during the First Quarter 2007.

      We anticipate that our available funds and cash flows generated from
operations will be sufficient to meet our anticipated needs for working capital
expenditures and business expansion through March 31, 2008. We may need to raise
additional funds in the future, however, in order to fund acquisitions, develop
new projects, or if our business otherwise grows more rapidly than we currently
predict. If we do need to raise such additional funds, we expect to raise those
funds through the issuance of additional shares of our equity securities in one
or more public or private offerings, or through credit facilities obtained with
lending institutions. There can be no guarantee that we will be able to obtain
such funding, whether through the issuance of debt or equity, on terms
satisfactory to management and our board of directors.

      On May 7, 2007, we entered into a Fixed Price Standby Equity Distribution
Agreement with eight investors listed therein (each, an "Investor",
collectively, the "Investors"). Pursuant to the Fixed Price Standby Equity
Distribution Agreement, the Company may, at its discretion, periodically sell to
the Investors up to 30 million shares of the Company's common stock, par value
$.001 per share, for a total purchase price of up to $60 million (a per share
purchase price of $2.00 per share). The Investors' obligation to purchase shares
of common stock under the Fixed Price Standby Equity Distribution Agreement is
subject to certain conditions, including the Company obtaining an effective
registration statement for the resale of the common stock sold under the Fixed
Price Standby Equity Distribution Agreement. The maximum amount of each advance
under the Fixed Price Standby Equity Distribution Agreement cannot exceed $10
million. In no event can the number of shares issued to any Investor pursuant to
an advance cause any Investor to own more than 9.9% of the shares of common
stock then outstanding. There can be no assurance that the Investors will honor
their obligations should the Company choose to exercise its rights under the
Fixed Price Standby Equity Distribution Agreement.


                                       17
<PAGE>

      On April 7, 2007, the Company acquired substantially all of the assets
located in the Shouguang City Qinshuibo Area owned by Wenbo Yu in exchange for
799,286 newly issued shares of the Company's common stock and $3,051,282. The
Company had paid a deposit of $1,813,000 to Wenbo Yu which is reflected as an
asset on its March 31, 2007 balance sheet. The assets include a 50 year mineral
rights and land lease covering 1,846 acres, or 7.5 square kilometers of real
property, with proven and probable reserves of 34,400 tons of bromine being
serviced by 575 wells, as well as the related production facility, the wells,
the pipelines, other production equipment, and the buildings located on the
property. The Company anticipates that it will be able to satisfy the balance
due Wenbo Yu out of cash generated from operations.

Year ended December 31, 2006

      We ended Fiscal 2006 with a cash position of $3,725,824. We had positive
cash flow from operating activities of $3,466,559, primarily attributable to net
income of $1,162,273 and an increase of accounts payable and accrued expenses of
$5,703,241, with an offset by an increase in accounts receivable of $834,051 and
an increase of income tax receivable of $1,169,196.

      During Fiscal 2006 we used $581,665 to acquire equipment. This use of cash
resulted in a reduction in the company's cash position.

      During Fiscal 2006 we used $1,674,771 in our financing activities. This
use of cash was mainly due to dividend payments of $2,473,729 and $71,822 due to
directors which were partially offset by capital contribution from stockholders
of $936,524.

Critical Accounting Policies and Estimates

      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.

      We have identified the policies below as critical to our business
operations and the understanding of our financial results.

Revenue Recognition

      The Company recognizes revenue in accordance with Securities and Exchange
Commission Staff Accounting Bulletin No. 104, Revenue Recognition. The Company
recognizes revenue when persuasive evidence of a customer or distributor
arrangement exists or acceptance occurs, receipt of goods by a customer occurs,
the price is fixed or determinable, and the sales revenues are considered
collectible. Subject to these criteria, the Company generally recognizes revenue
at the time of shipment or delivery to the customer, and when the customer takes
ownership and assumes the risk of loss based on shipping terms.

Income Taxes

      The Company accounts for income taxes under SFAS No. 109, Accounting for
Income Taxes, which requires an asset and liability approach to financial
accounting and reporting from income taxes. Under the liability method, deferred
income tax assets and liabilities are computed annually for temporary
differences between the financial statements and tax bases of assets and
liabilities that will result in taxable or deductible amounts in the future
based on enacted tax laws and rates applicable to the periods in which the
differences are expected to affect taxable income. Valuation allowances are
established when necessary to reduce deferred tax assets to the amount expected
to be realized. Income tax expense is the tax payable or refundable for the
period plus or minus the change during the period in deferred tax assets and
liabilities.

Mineral Rights

      The Company follows FASB Staff Position amending SFAS No. 141 and 142
which provides that certain mineral rights are considered tangible assets and
that mineral rights should be accounted for based on their substance. Mineral
rights, granted on two pieces of land located in China, are recorded at cost and
are amortized ratably over the 50-year term of the land leases. This method is
equivalent to the units of production method since the proven and probable
reserves of 780,000 tons exceed the expected production over 50 years
(8,000-12,000 tons of annual practical capacity).


                                       18
<PAGE>

Impact of Recently Issues Accounting Pronouncements

      In June 2006, the Financial Accounting Standards Board (FASB) issued
Interpretation No. 48 ("FIN 48"), Accounting for Uncertainty in Income Taxes.
FIN 48 prescribes detailed guidance for the financial statement recognition,
measurement and disclosure of uncertain tax positions recognized in an
enterprise's financial statements in accordance with FASB Statement No. 109,
Accounting for Income Taxes. Tax positions must meet a more-likely-than-not
recognition threshold at the effective date to be recognized upon adoption of
FIN 48 and in subsequent periods. FIN 48 will be effective for fiscal years
beginning after December 15, 2006 and the provisions of FIN 48 will be applied
to all tax positions under Statement No. 109 upon initial adoption. The
cumulative effect of applying the provisions of this interpretation will be
reported as an adjustment to the opening balance of retained earnings for that
fiscal year. The Company is currently evaluating the potential impact of FIN 48
on its consolidated financial statements.

      In September 2006, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 108 ("SAB No. 108") SAB No. 108 addresses the process
and diversity in practice of quantifying financial statement misstatements
resulting in the potential build up of improper amounts on the balance sheet.
The company is required to adopt the provisions of SAB No. 108 in fiscal 2006.
The adoption of SAB No. 108 did not have a material impact on its consolidated
financial statements.

      In September 2006, the FASB issued Statement of Financial Accounting
Standards ("SFAS") No. 157, Fair Value Measurements ("SFAS No. 157"). SFAS No.
157 establishes a framework for measuring fair value and expands disclosures
about fair value measurements. The changes to current practice resulting from
the application of SFAS no. 157 relate to the definition of fair value, the
methods used to measure fair value, and the expanded disclosure about fair value
measurements. SFAS No. 157 is effective for fiscal years beginning after
November 15, 2007 and interim periods within those fiscal years. The Company
does not believe that the adoption of the provisions of SFAS No. 157 will
materially impact its financial position and results of operations.

                               Security Ownership

      The following table sets forth certain information as of June 15, 2007
concerning the beneficial ownership of our common stock by (i) each person who,
to our knowledge, beneficially owns more than 5% of our common stock; (ii) each
of our directors and executive officers; and (iii) all of our directors and
executive officers as a group. As of June 15, 2007, we had outstanding
49,424,626 shares of common stock. Under SEC rules, a person is deemed to be the
beneficial owner of securities that he may acquire within 60 days upon the
exercise of warrants or options, or conversion or exchange of other of our
securities. The percent of common stock owned by each beneficial owner is
determined assuming the acquisition by him (but not any other beneficial owner)
of all shares he may acquire within 60 days upon exercise, conversion of
exchange of all derivative securities. Except as otherwise indicated, the
address for each beneficial owner is Chenming Industrial Park, Shouguang City,
Shandong, China 262714.

Name and Address                                       Shares            Percent
- ----------------                                       ------            -------
Beneficial owners of more than 5%:
Ming Yang                                             5,024,400(1)        10.17%
Wenxiang Yu                                          12,963,053           26.23%
Shandong Haoyuan Industry Group Ltd.                  8,249,465           16.70%
Zhi Yang                                              3,349,600            6.78%
First Capital Limited                                 2,915,000            5.90%
China US Bridge Capital Limited                       2,650,000            5.37%
Shenzhen Dingyi Investment Company Limited            2,517,500            5.10%

Directors and Executive Officers:
Min Li                                                        0              --
Naihui Miao                                                   0              --
All directors and executive officers as a group       5,024,400(1)        10.17%

- ----------
(1) Does not include shares beneficially owned by Shandong Haoyuan Industry
Group Ltd. ("SHIG"). Ming Yang, our Chairman and Chief Executive Officer, is the
controlling shareholder and a director and Chairman and Chief Executive Officer
of SHIG.


                                       19
<PAGE>

                              Selling Stockholders

      The following table presents information as of date of this prospectus
concerning the number of shares beneficially owned and offered by each of the
selling shareholders. The number of shares beneficially owned represents the
maximum number of shares that each selling stockholder may acquire under the
Fixed Price Standby Equity Distribution Agreement within 60 days after the date
of this prospectus, and the number of shares offered is the maximum number of
shares that each selling stockholder is obligated to purchase under that
agreement. See "Prospectus Summary - The Offering and Our Equity Credit
Facility."

      Each selling stockholder may offer all or part of the shares of common
stock beneficially owned for resale from time to time. The table assumes that
the selling shareholders will sell all of the shares offered for sale and
accordingly, own no shares of common stock upon completion of the offering. A
selling shareholder is under no obligation, however, to sell any shares
immediately pursuant to this prospectus, nor is a selling shareholder obligated
to sell all or any portion of the shares at any time. Therefore, we are not able
to estimate the number of shares of common stock that will be sold pursuant to
this prospectus or the number of shares that will be owned by any selling
stockholder upon termination of this offering. Each selling stockholder may sell
all, some or none of the shares, depending upon our results of operations,
financial condition, business prospects, the market price of our common stock
and market conditions generally, its need for liquidity and other factors that
may influence its decision to dispose of or continue to own our shares. None of
the selling shareholders have held a position or office, or had any other
material relationship, with us.

<TABLE>
<CAPTION>
                                                          Shares
                                                    Beneficially Owned
Name                                              Number           Percent       Shares Offered      Shares After Offering
- ----                                              ------           -------       --------------      ---------------------
<S>                                             <C>                   <C>           <C>                       <C>
Guoqiong Yu*                                    2,475,000             %             3,750,000                 None
Topgood International Limited
2nd Living District, Qinghe Oil Factory
Shouguang City, Shandong Province
P.R. China 262714

Xiaobin Liu*                                    2,475,000             %             3,750,000                 None
Total Giant Group Limited
C/o Gulf Resources, Inc.
Chenming Industrial Park
Shouguang City
Shangdong, China 262714

Chao Zhang*                                     2,475,000             %             3,750,000                 None
Total Shine Group Limited
C/o Gulf Resources, Inc.
Chenming Industrial Park
Shouguang City
Shangdong, China 262714

Dong Wang*                                      2,475,000             %             3,750,000                 None
Victory High Investments Limited
C/o Gulf Resources, Inc.
Chenming Industrial Park
Shouguang City
Shangdong, China 262714

Hanzhi Mao*                                     2,475,000             %             3,750,000                 None
Think Big Trading Limited
C/o Gulf Resources, Inc.
Chenming Industrial Park
Shouguang City
Shangdong, China 262714
</TABLE>


                                       20
<PAGE>

<TABLE>
<S>                                             <C>                   <C>           <C>                       <C>
Qi Huang*                                       2,475,000             %             3,750,000                 None
Arjuno Investments Ltd.
C/o Gulf Resources, Inc.
Chenming Industrial Park
Shouguang City
Shangdong, China 262714

Lidong Li*                                      2,475,000             %             3,750,000                 None
Billion Hero Investments
C/o Gulf Resources, Inc.
Chenming Industrial Park
Shouguang City
Shangdong, China 262714

Jinming Hu*                                     2,475,000             %             3,750,000                 None
Even Bright Investments Ltd.
C/o Gulf Resources, Inc.
Chenming Industrial Park
Shouguang City
Shangdong, China 262714
</TABLE>

- ----------
* President and sole director of selling stockholder

                              Plan of Distribution

      The selling stockholders and any of their pledgees, donees, assignees and
successors-in-interest may, from time to time, sell any or all of their shares
of common stock being offered under this prospectus on any stock exchange,
market or trading facility on which shares of our common stock are traded or in
private transactions. These sales may be at fixed or negotiated prices. The
selling stockholders may use any one or more of the following methods when
disposing of shares:

      o     ordinary brokerage transactions and transactions in which the
            broker-dealer solicits purchasers;

      o     block trades in which the broker-dealer will attempt to sell the
            shares as agent but may position and resell a portion of the block
            as principal to facilitate the transaction;

      o     purchases by a broker-dealer as principal and resales by the
            broker-dealer for its account;

      o     an exchange distribution in accordance with the rules of the
            applicable exchange;

      o     privately negotiated transactions;

      o     to cover short sales made after the date that the registration
            statement of which this prospectus is a part is declared effective
            by the SEC;

      o     broker-dealers may agree with the selling stockholders to sell a
            specified number of such shares at a stipulated price per share;

      o     a combination of any of these methods of sale; and

      o     any other method permitted pursuant to applicable law.

      The shares may also be sold under Rule 144 under the Securities Act, if
available, rather than under this prospectus. The selling stockholders have the
sole and absolute discretion not to accept any purchase offer or make any sale
of shares if they deem the purchase price to be unsatisfactory at any particular
time.

      The selling stockholders may pledge their shares to their brokers under
the margin provisions of customer agreements. If a selling stockholder defaults
on a margin loan, the broker may, from time to time, offer and sell the pledged
shares.


                                       21
<PAGE>

      Broker-dealers engaged by the selling stockholders may arrange for other
broker-dealers to participate in sales. Broker-dealers may receive commissions
or discounts from the selling stockholders (or, if any broker-dealer acts as
agent for the purchaser of shares, from the purchaser) in amounts to be
negotiated, which commissions as to a particular broker or dealer may be in
excess of customary commissions to the extent permitted by applicable law.

      If sales of shares offered under this prospectus are made to
broker-dealers as principals, we would be required to file a post-effective
amendment to the registration statement of which this prospectus is a part. In
the post-effective amendment, we would be required to disclose the names of any
participating broker-dealers and the compensation arrangements relating to such
sales.

      The selling stockholders may be deemed to be, and any broker-dealers or
agents that are involved in selling the shares offered under this prospectus may
be deemed to be, "underwriters" within the meaning of the Securities Act in
connection with these sales. Commissions received by these broker-dealers or
agents and any profit on the resale of the shares purchased by them may be
deemed to be underwriting commissions or discounts under the Securities Act. Any
broker-dealers or agents that are deemed to be underwriters may not sell shares
offered under this prospectus unless and until we set forth the names of the
underwriters and the material details of their underwriting arrangements in a
supplement to this prospectus or, if required, in a replacement prospectus
included in a post-effective amendment to the registration statement of which
this prospectus is a part.

      The selling stockholders and any other persons participating in the sale
or distribution of the shares offered under this prospectus will be subject to
applicable provisions of the Exchange Act, and the rules and regulations under
that act, including Regulation M. These provisions may restrict activities of,
and limit the timing of purchases and sales of any of the shares by, the selling
stockholders or any other person. Furthermore, under Regulation M, persons
engaged in a distribution of securities are prohibited from simultaneously
engaging in market making and other activities with respect to those securities
for a specified period of time prior to the commencement of such distributions,
subject to specified exceptions or exemptions. All of these limitations may
affect the marketability of the shares.

      If any of the shares of common stock offered for sale pursuant to this
prospectus are transferred other than pursuant to a sale under this prospectus,
then subsequent holders could not use this prospectus until a post-effective
amendment or prospectus supplement is filed, naming such holders. We offer no
assurance as to whether any of the selling stockholders will sell all or any
portion of the shares offered under this prospectus.

      We have agreed to pay all fees and expenses we incur incident to the
registration of the shares being offered under this prospectus. However, each
selling stockholder and purchaser is responsible for paying any discounts,
commissions and similar selling expenses they incur.

      We and the selling stockholders have agreed to indemnify one another
against certain losses, damages and liabilities arising in connection with this
prospectus, including liabilities under the Securities Act.

                           Market for Our Common Stock

      Our common stock is traded in 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 "GUFR."

      The prices set forth below reflect the quarterly high and low bid price
information for shares of our common stock for the periods indicated. These
quotations reflect inter-dealer prices, without retail markup, markdown or
commission, and may not represent actual transactions.


                                       22
<PAGE>

                                                        High                Low
                                                       -------------------------

2005

First Quarter                                           $0.01              $0.01
Second Quarter                                          $0.07              $0.01
Third Quarter                                           $0.01              $0.01
Fourth Quarter                                          $0.68              $0.01

2006

First Quarter                                           $1.00              $0.50
Second Quarter                                          $1.50              $1.00
Third Quarter                                           $5.50              $1.30
Fourth Quarter                                          $1.50              $1.10

2007
FirstQuarter                                            $4.00              $1.45
Second Quarter (through June  21, 2007                  $3.95              $1.85

      As June 15, 2007, our common stock was held of record by approximately 291
stockholders, some of whom may hold shares for beneficial owners and have not
been polled to determine the extent of beneficial ownership.

      We have never paid cash dividends on our common stock. Holders of our
common stock are entitled to receive dividends, if any, declared and paid from
time to time by the Board of Directors out of funds legally available. We intend
to retain any earnings for the operation and expansion of our business and do
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, our financial condition
and other factors that our Board of Directors may consider.

                      Our Directors and Executive Officers

      Our directors and executive officers are:

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 has served as Chairman of Shouguang City Yuxin Chemical Company
Limited since July 2000. 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.

Min Li has served as Chief Financial Officer for Shouguang City Haoyuan Chemical
Company Limited. since January 2006. 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 has served as Vice President of Shouguang City Haoyuan Chemical
Company Limited since January 2006 . 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

      We have not adopted a code of ethics to apply to our 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. We expect to prepare a Code of Ethics in the
near future.

Audit Committee

      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 as our 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.


                                       23
<PAGE>

                             Executive Compensation

      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 us and our subsidiaries in the fiscal years ended December 31,
2006 and 2005. 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.

                           Summary Compensation Table

<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
      Name         Year      Salary    Bonus   Stock     Option      Non-Equity       Change in        All Other           Total
       and                    ($)       ($)   Awards     Awards    Incentive Plan   Pension Value    Compensation           ($)
    Principal                                   ($)        ($)      Compensation         and             ($)
    Position                                                            ($)         Nonqualified
                                                                                       Deferred
                                                                                     Compensation
                                                                                       Earnings
                                                                                         ($)
       (a)          (b)       (c)       (d)     (e)        (f)           (g)             (h)             (i)                (j)
- ------------------------------------------------------------------------------------------------------------------------------------
<S>                <C>    <C>           <C>     <C>    <C>               <C>             <C>             <C>       <C>
     Irwin         2006   $93,750 (2)   N/A     N/A    1561.31 (3)       N/A             N/A             N/A        95,311,31 (2)(3)
  Horowitz (1)     2005   $125,000 (2)                 1561.31 (3)                                                 126,561.31 (2)(3)
                   2004   $125,000 (2)                  561.31 (3)                                                 125,561.31 (2)(3)
- ------------------------------------------------------------------------------------------------------------------------------------
 Juxiang Yu (4)    2006   $0            N/A     N/A        N/A           N/A             N/A             N/A       $0
                   2005   N/A                                                                                      N/A
                   2004   N/A                                                                                      N/A
- ------------------------------------------------------------------------------------------------------------------------------------
    Ming Yang      2006   $0            N/A     N/A        N/A           N/A             N/A             N/A       $0
Chairman & Chief   2005   $0                                                                                       $0
Executive Officer  2004   N/A                                                                                      N/A
- ------------------------------------------------------------------------------------------------------------------------------------
     Min Li,       2006   $4,487        N/A     N/A        N/A           N/A             N/A             N/A       $4,487
 Chief Financial   2005   $4,487                                                                                   $4,487
     Officer       2004   None                                                                                     None
- ------------------------------------------------------------------------------------------------------------------------------------
  Naihui Miao,     2006   $4,487        N/A     N/A        N/A           N/A             N/A             N/A       $4,487
   Secretary       2005   $4.487                                                                                   $4,487
                   2004   None                                                                                     None
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

      (1) Mr. Horowitz, our former Chairman, Chief Executive Officer and
President, resigned from all offices he held in, and as a Director of, our
company under the Stock Purchase Agreement, dated August 25, 2006, with Juxiang
Yu.

      (2) Mr. Horowitz's salary for the years 2004, 2005 and 2006 was accrued,
but has been waived by him under the Stock Purchase Agreement with Ms. Yu.

      (3) The options granted to Mr. Horowitz have been cancelled and rescinded
under the Stock Purchase Agreement with Ms. Yu.

      (4) Ms. Yu resigned from all offices (President and Secretary) she held
in, and as director of, our company on December 29, 2006.


                                       24
<PAGE>

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

               Outstanding Equity Awards at Fiscal Year-End Table

<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
                                          Option Awards                                                     Stock Awards
- ------------------------------------------------------------------------------------------------------------------------------------
Name                 Number of      Number of        Equity       Option      Option      Number     Market     Equity      Equity
                    Securities     Securities       incentive    Exercise   Expiration      of       Value    Incentive    Incentive
                    Underlying     Underlying         Plan         Price       Date       Shares       of        Plan        Plan
                    Unexercised    Unexercised       Awards:        ($)                  or Units    Shares     Awards:      Awards:
                      Options        Options        Number of                               of         or       Number      Market
                        (#)            (#)         Securities                              Stock     Units        of       or Payout
                    Exercisable   Unexercisable    Underlying                              That        of      Unearned     Value of
                                                   Unexercised                             Have      Stock      Shares,     Unearned
                                                    Unearned                                Not       That     Units or      Shares,
                                                     Options                              Vested      Have       Other      Units or
                                                       (#)                                  (#)       Not        Rights       Other
                                                                                                     Vested       That       Rights
                                                                                                      ($)       Have Not      That
                                                                                                                 Vested     Have Not
                                                                                                                   (#)       Vested
                                                                                                                               ($)
        (a)             (b)            (c)             (d)          (e)         (f)         (g)       (h)          (i)         (j)
- ------------------------------------------------------------------------------------------------------------------------------------
<S>                  <C>              <C>              <C>          <C>        <C>          <C>        <C>        <C>         <C>
Ming Yang  CEO       None             None             None         None       None         None       None       None        None
- ------------------------------------------------------------------------------------------------------------------------------------
Min Li  CFO          None             None             None         None       None         None       None       None        None
- ------------------------------------------------------------------------------------------------------------------------------------
Naihui Miao          None             None             None         None       None         None       None       None        None
Secretary
- ------------------------------------------------------------------------------------------------------------------------------------
Irwin Horowitz,      156,131 (1)      0                N/A          0.01       (1)          None       None       None        None
Former CEO
- ------------------------------------------------------------------------------------------------------------------------------------
Juxiang Yu, Former   None             None             None         None       None         None       None       None        None
President
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

      (1) The options granted to Mr. Horowitz were cancelled and rescinded under
the Stock Purchase Agreement with Ms. Yu.

Employment Agreements

      On October 29, 1996, we entered into a renewable one year employment
agreement with Irwin Horowitz, under which we agreed to pay him a salary of
$125,000, together with an annual incentive bonus equal to a percentage, which
ranged from 6% to 18%, of our pre-tax profits. The agreement was terminated
under the Purchase Agreement.

      We do not have an employment agreement with our Chief Executive Officer or
Chief Financial Officer.

Compensation of Directors

      Our directors did not receive compensation for their services as members
of our Board of Directors in 2006, and we have continued that policy for 2007.


                                       25
<PAGE>

                          Indemnification of Directors

      Our Certificate of Incorporation eliminates the liability of a director
for monetary damages for breach of duty as a director, subject to certain
exceptions. In addition, our Certificate of Incorporation provides for
indemnification, under certain conditions, of our directors, officers, employees
and agents against all expenses, liabilities and losses reasonably incurred by
them in the course of their duties. These 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 us and
our stockholders.

                 Certain Relationships and Related Transactions

      On July 20, 2006, we issued a total of 250,000 shares of common stock to
Irwin Horowitz, our then chief executive officer for an aggregate purchase price
of $425,000 ($0.017 per share), which was applied to reduce our preexisting
liability to Mr. Horowitz. Prior to the transaction, Mr. 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.

      As a result of her purchase of 362,083 shares, or approximately 70% of our
then outstanding shares, of common stock, from Mr. Horowitz under the Stock
Purchase Agreement, dated August 25, 2006, under the Stock Purchase Agreement,
dated August 25, 2006, Juxiang Yu became an officer and director of our company

      Since December 2006, Ming Yang, a stockholder and Chairman of Shandong
Haoyuan Industry Group Ltd. and chief executive officer of SYCI, has served as
our chairman of the board and chief executive officer and has been a member of
our board of directors, and Min Li, the chief financial officer of both Shandong
Haoyuan Industry Group Ltd. and SYCI, also has served as our chief financial
officer. As a result of the share exchange on December 11, 2006 in which we
acquired Upper Class Group Limited and SCHC, each of Ming Yang and Wenxiang Yu
acquired 5,024,400 shares, or approximately 18.6% of our then outstanding
shares, of common stock, and Mr. Yang became an officer and director of our
company.

      As a result of the merger on February 5, 2007, in which we acquired SYCI,
Wenxiang Yu acquired an additional 7,938,653 shares of our common stock, giving
him a total of 12,962,653 shares, or approximately 30% of our then outstanding
shares, of common stock.

      During the fiscal year ended December 31, 2005, SCHC, our subsidiary,
advanced to Shanguang Hong Ye Economic Trading Co. Ltd. ("Hong Ye"), a company
organized under the laws of China, of which Ming Yang, our Chairman and Chief
Executive Officer, is the controlling stockholder and an executive officer and
director, approximately $1,913,000, of which approximately $1,409,000 was repaid
by Hong Ye, leaving a balance of $503,787 as of December 31, 2005. During the
fiscal year ended December 31, 2006, SCHC advanced approximately $1,568,000 to
Hong Ye, of which approximately $1,532,000 was repaid, leaving a balance of
$540,081 as of December 31, 2006. On February 27, 2007, Hong Ye repaid the
remaining balance on this loan in full.

                                 Our Securities

      We are authorized to issue up to: 70,000,000 shares of common stock,
$0.001 par value per share, and 1,000,000 shares of preferred stock, $0.001 par
value per share. Below is a description of our outstanding securities, including
our common stock, options, warrants and debt.

Preferred Stock

      Our Board of Directors expressly is authorized, subject to limitations
prescribed by the Delaware General Corporation Law and the provisions of our
Certificate of Incorporation, to provide, by resolution and by filing an
amendment to the Certificate of Incorporation under the Delaware General
Corporation Law, for the issuance from time to time of the shares of Preferred
Stock in one or more series, to establish from time to time the number of shares
to be included in each series, and to fix the designation, powers, preferences
and other rights of the shares of each such series and to fix the
qualifications, limitations and restrictions thereon, including, but without
limiting the generality of the foregoing, the following:

      a)    the number of shares constituting that series and the distinctive
            designation of that series;


                                       26
<PAGE>

      b)    the dividend rate on the shares of that series, whether dividends
            shall be cumulative, and, if so, from which date or dates, and the
            relative rights of priority, if any, of payment of dividends on
            shares of that series;

      c)    whether that series shall have voting rights, in addition to voting
            rights provided by law, and, if so, the terms of such voting rights;

      d)    whether that series shall have conversion privileges, and, if so,
            the terms and conditions of such conversion, including provisions
            for adjustment of the conversion rate in such events as the Board of
            Directors shall determine;

      e)    whether or not the shares of that series shall be redeemable, and,
            if so, the terms and conditions of such redemption, including the
            dates upon or after which they shall be redeemable, and the amount
            per share payable in case of redemption, which amount may vary under
            different conditions and at different redemption dates;

      f)    whether that series shall have a sinking fund for the redemption or
            purchase of shares of that series, and, if so, the terms and amount
            of such sinking fund;

      g)    the rights of the shares of that series in the event of voluntary or
            involuntary liquidation, dissolution or winding up of the
            corporation, and the relative rights of priority, if any, of payment
            of shares of that series; and

      h)    any other relative powers, preferences and rights of that series,
            and qualifications, limitations or restrictions on that series.

      In the event of our liquidation, dissolution or winding up, whether
voluntary or involuntary, the holders of Preferred Stock of each series shall be
entitled to receive only such amount or amounts as shall have been fixed by the
certificate of designations or by the resolution or resolutions of the Board of
Directors providing for the issuance of such series.

Common Stock

      Each holder of our common stock is entitled to one vote for each share
held of record. Holders of our common stock have no preemptive, subscription,
conversion, or redemption rights. Upon liquidation, dissolution or winding-up,
the holders of our common stock are entitled to receive our net assets pro rata.
Each holder of our common stock is entitled to receive ratably any dividends
declared by our board of directors out of funds legally available for the
payment of dividends. We have not paid any dividends on our common stock and do
not contemplate doing so in the foreseeable future. We anticipate that any
earnings generated from operations will be used to finance our growth.

      As of May 10, 2007, we had outstanding 49,424,626 shares of common stock.

  Disclosure of SEC Position on Indemnification for Securities Act Liabilities

      Under Article 10 of our Restated Certificate of Incorporation, we have
agreed to indemnify our officers, directors, employees and agents to the fullest
extent permitted by the laws of the State of Delaware, as amended from time to
time. In addition, under Section 9 of our Restated Certificate of Incorporation,
our directors are not subject to personal liability to us or our stockholders
for monetary damages for breach of their fiduciary duties as a director to the
fullest extent provided by Delaware law. Section 102 (b) (7) of the Delaware
General Corporation Law provides for the elimination off such personal
liability, except for liability (i) for any breach of the director's duty of
loyalty to the Registrant or its stockholders, (ii) for acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, (iii) under Section 174 of the Delaware General Corporation Law or (iv) for
any transaction from which the director derived any improper personal benefit

      Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to our Directors, officers and controlling persons, we have
been informed that in the opinion of the SEC such indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by us of expenses incurred or paid by a
Director, officer or controlling person in the successful defense of any action,
suit or proceeding) is asserted by such Director, officer or controlling person
in connection with the securities being registered, we will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.


                                       27
<PAGE>

                Changes in and Disagreements with Accountants on
                      Accounting and Financial Disclosure

      On February 20, 2007, we appointed the firm of Morison Cogen LLP ("New
Auditor") as our independent auditor and dismissed the firm of Pender Newkirk &
Company LLP ("Former Auditor"), which had served as our independent auditor
until that date. The New Auditor had been the auditor of UCG and SCHC prior to
its engagement by the Company. The Former Auditor was our auditor prior to the
acquisition of our company by UCG and SCHC.

      The reports of the Former Auditor on our financial statements for the
fiscal years ended November 30, 2005 and November 30, 2006 did not contain an
adverse opinion, a disclaimer of opinion or any qualifications or modifications
related to uncertainty, limitation of audit scope or application of accounting
principles, except that report of the Former Auditor on our financial statements
for the fiscal year ended November 30, 2005 expressed "substantial doubt about
our ability to continue as a going concern" and state that "The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty". During the fiscal years ending November 30, 2005 and November
30, 2006 and the period from November 30, 2006 to February 20, 2007, the Company
did not have any disagreements (within the meaning of Instruction 4 of Item 304
of Regulation S-K) with the Former Auditor as to any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure and there have been no reportable events (as defined in Item 304 of
Regulation S-K).

                       Where You Can Find More Information

      We file reports, proxy statements and other documents with the SEC. You
may read and copy any document we file with the SEC at the public reference
facilities the SEC maintains at Room 1024, Judiciary Plaza, 100 F Street, N.E.,
Washington, D.C. 20549. You may also obtain copies of these materials by mail
from the Public Reference Section of the SEC at 100 F Street, N.E., Washington,
D.C. 20549 at prescribed rates. Please call the SEC at 1-800-SEC-0330 for
further information on the public reference rooms.

      The SEC also maintains a web site, the address of which is
http://www.sec.gov. That site also contains our annual, quarterly and special
reports, proxy statements, information statements and other information.

      This prospectus is part of a registration statement that we filed with the
SEC. You can obtain a copy of the registration statement from the SEC at any
address listed above or from the SEC's web site.

                                  Legal Matters

      Certain legal matters in connection with the shares of our common stock
offered for resale in this prospectus have been passed upon for us by Eaton &
Van Winkle LLP, 3 Park Avenue, New York, N.Y. 10016.

                                     Experts

      Morison Cogen LLP, Bala Cynwyd, Pennsylvania, has audited our consolidated
financial statements for each of the years in the two-year period ended December
31, 2006, as set forth in its report, which appears herein, given upon its
authority in accounting and auditing.


                                       28
<PAGE>

                   Index to Consolidated Financial Statements

                GULF RESOURCES, INC. (formerly DIVERSIFAX, INC.)
                                AND SUBSIDIARIES

                                    INDEX TO
                        CONSOLIDATED FINANCIAL STATEMENTS

                                                                        Page No.
                                                                        --------

Audited Consolidated Financial Statements for December 31, 2006
and 2005

Report of Independent Registered Public Accounting Firm                    F-2

Consolidated Balance Sheet at December 31, 2006 and December 31,
2005                                                                       F-3

Consolidated Statement of Operations for the year ended December
31, 2006 and the period May 18, 2005 (Date of Inception) through
December 31, 2005                                                          F-4

Consolidated Statement of Comprehensive Income Operations for
the for the year ended December 31, 2006 and the period May 18,
2005 (Date of Inception) through December 31, 2005                         F-5

Consolidated Statement of Stockholders' Equity for the year
ended December 31, 2006 and the period May 18, 2005 (Date of
Inception) through December 31, 2005                                       F-6

Consolidated Statement of Cash Flows for the year ended December
31, 2006 and the period May 18, 2005 (Date of Inception) through
December 31, 2005                                                          F-7

Notes to Consolidated Financial Statements                                 F-8

Unaudited Consolidated Financial Statements for the three months
ended March 31, 2007:

Consolidated Balance Sheet as of March 31, 2007 (unaudited)
and December 31, 2006                                                     F-16

Consolidated Statement of Operations for the three month period
ended March 31, 2007 (unaudited) and 2006 (unaudited)                     F-17

Consolidated Statement of Comprehensive Income for the three
month period ended March 31, 2007 (unaudited) and 2006
(unaudited)                                                               F-18

Consolidated Statement of Stockholders' Equity for the three
months ended March 31, 2007 (unaudited)                                   F-19

Consolidated Statement of Cash Flow for the three month
period ended March 31, 2007 (unaudited) and 2006 (unaudited)              F-20

Notes to Consolidated Financial Statements                                F-22


                                      F-1
<PAGE>

             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders and Board of Directors
Gulf Resources, Inc. (formerly Diversifax, Inc.) and Subsidiaries
Shouguang City, Shandong Province

We have audited the accompanying consolidated balance sheets of Gulf Resources,
Inc. (formerly Diversifax, Inc.) and Subsidiaries as of December 31, 2006 and
2005, and the related consolidated statements of operations, comprehensive
income, stockholders' equity, and cash flows for the year ended December 31,
2006 and for the period May 18, 2005 (date of inception) through December 31,
2005. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audit.

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 audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Gulf Resources, Inc.
(formerly Diversifax, Inc.) and Subsidiaries as of December 31, 2006 and 2005,
and the results of their operations and their cash flows for the year ended
December 31, 2006 and for the period May 18, 2005 (date of inception) through
December 31, 2005, in conformity with accounting principles generally accepted
in the United States.


/s/ MORISON COGEN LLP

Bala Cynwyd, Pennsylvania
March 2, 2007


                                      F-2
<PAGE>

                GULF RESOURCES, INC. (formerly DIVERSIFAX, INC.)
                                AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                           DECEMBER 31, 2006 AND 2005

<TABLE>
<CAPTION>
                                                                2006          2005
                                                             ----------    ----------
<S>                                                          <C>           <C>
        ASSETS

CURRENT ASSETS
  Cash                                                       $3,725,824    $2,409,781
  Accounts receivable                                         1,187,727       325,193
  Inventories                                                    53,263        89,383
  Due from related party                                        540,081       503,787
  Prepaid land lease                                             11,923           496
  Income tax receivable                                       1,111,154            --
                                                             ----------    ----------
                                                              6,629,972     3,328,640

PROPERTY, PLANT AND EQUIPMENT, Net                            2,673,281     2,220,319

PREPAID LAND LEASE, Net of current portion                      582,231        23,808
                                                             ----------    ----------

TOTAL ASSETS                                                 $9,885,484    $5,572,767
                                                             ==========    ==========

        LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
  Accounts payable and accrued expenses                      $6,148,974    $  330,472
  Due to director                                                    --        70,924
  Due to related party                                           15,384        46,322
  Taxes payable                                                 177,087     1,325,863
                                                             ----------    ----------

TOTAL LIABILITIES                                             6,341,445     1,773,581
                                                             ----------    ----------

        STOCKHOLDERS' EQUITY

COMMON STOCK; $0.001 par value; 70,000,000 shares
  authorized; 27,017,322 and 26,500,000 shares issued and
  outstanding                                                    27,017        26,500

ADDITIONAL PAID-IN CAPITAL                                    1,355,413       419,900

RETAINED EARNINGS - UNAPPROPRIATED                            1,352,648     2,815,396

RETAINED EARNINGS - APPROPRIATED
  Statutory Common Reserve Fund                                 447,450       331,223
  Statutory Public Welfare Fund                                 223,725       165,611

CUMULATIVE TRANSLATION ADJUSTMENT                               137,786        40,556
                                                             ----------    ----------

TOTAL STOCKHOLDERS' EQUITY                                    3,544,039     3,799,186
                                                             ----------    ----------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                   $9,885,484    $5,572,767
                                                             ==========    ==========
</TABLE>

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


                                      F-3
<PAGE>

                GULF RESOURCES, INC. (formerly DIVERSIFAX, INC.)
                                AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                        YEAR ENDED DECEMBER 31, 2006 AND
                   THE PERIOD MAY 18, 2005 (DATE OF INCEPTION)
                            THROUGH DECEMBER 31, 2005

                                                        2006             2005
                                                    -----------      -----------

NET SALES                                           $17,825,097      $14,344,296
                                                    -----------      -----------

OPERATING EXPENSES
  Cost of net sales                                  10,481,567        9,095,301
  General and administrative expenses                 5,614,784          304,451
                                                    -----------      -----------
                                                     16,096,351        9,399,752
                                                    -----------      -----------

INCOME FROM OPERATIONS                                1,728,746        4,944,544

OTHER INCOME
  Interest income                                         5,990              446
                                                    -----------      -----------

INCOME BEFORE INCOME TAXES                            1,734,736        4,944,990

INCOME TAXES - current                                  572,463        1,632,760
                                                    -----------      -----------

NET INCOME                                          $ 1,162,273      $ 3,312,230
                                                    ===========      ===========

BASIC AND DILUTED EARNINGS PER SHARE                $      0.04      $      0.12
                                                    ===========      ===========

BASIC AND DILUTED WEIGHTED AVERAGE
  NUMBER OF SHARES                                   27,017,322       26,500,000
                                                    ===========      ===========

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


                                      F-4
<PAGE>

                GULF RESOURCES, INC. (formerly DIVERSIFAX, INC.)
                                AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
                        YEAR ENDED DECEMBER 31, 2006 AND
                   THE PERIOD MAY 18, 2005 (DATE OF INCEPTION)
                            THROUGH DECEMBER 31, 2005

                                                         2006            2005
                                                      ----------      ----------

NET INCOME                                            $1,162,273      $3,312,230

OTHER COMPREHENSIVE INCOME
  Foreign currency translation adjustment                 97,230          40,556
                                                      ----------      ----------

COMPREHENSIVE INCOME                                  $1,259,503      $3,352,786
                                                      ==========      ==========

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


                                      F-5
<PAGE>

                GULF RESOURCES, INC. (formerly DIVERSIFAX, INC.)
                                AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                        YEAR ENDED DECEMBER 31, 2006 AND
                   THE PERIOD MAY 18, 2005 (DATE OF INCEPTION)
                            THROUGH DECEMBER 31, 2005

<TABLE>
<CAPTION>
                                                                                                           Statutory
                                                          Number          Common         Additional          Common
                                                        of Shares          Stock       Paid-in Capital    Reserve Fund
                                                       -----------      -----------    ---------------    ------------
<S>                                                     <C>             <C>              <C>               <C>
BALANCE AT MAY 18, 2005 (DATE OF INCEPTION)                     --      $        --      $        --       $        --

Initial capitalization                                  26,500,000           26,500          419,900                --

Transfer to reserve funds                                       --               --               --           331,223

Cumulative translation adjustment                               --               --               --                --

Net income for the period ended December 31, 2005               --               --               --                --
                                                       -----------      -----------      -----------       -----------

BALANCE AT DECEMBER 31, 2005                            26,500,000           26,500          419,900           331,223

Issuance of common stock at merger                         517,322              517             (517)               --

Capital contribution                                            --               --          936,030                --

Transfer to reserve funds                                       --               --               --           116,227

Cumulative translation adjustment                               --               --               --                --

Dividend distribution                                           --               --               --                --

Net income for the year ended December 31, 2006                 --               --               --                --
                                                       -----------      -----------      -----------       -----------

                                                        27,017,322      $    27,017      $ 1,355,413       $   447,450
                                                       ===========      ===========      ===========       ===========

<CAPTION>
                                                        Statutory         Retained         Cumulative
                                                          Public          Earnings         Translation
                                                       Welfare Fund       (Deficit)         Adjustment          Total
                                                       ------------      -----------       -----------      -----------
<S>                                                     <C>              <C>               <C>              <C>
BALANCE AT MAY 18, 2005 (DATE OF INCEPTION)             $        --      $        --       $        --      $        --

Initial capitalization                                           --               --                --          446,400

Transfer to reserve funds                                   165,611         (496,834)               --               --

Cumulative translation adjustment                                --                             40,556           40,556

Net income for the period ended December 31, 2005                --        3,312,230                --        3,312,230
                                                        -----------      -----------       -----------      -----------

BALANCE AT DECEMBER 31, 2005                                165,611        2,815,396            40,556        3,799,186

Issuance of common stock at merger                               --               --                --               --

Capital contribution                                             --               --                --          936,030

Transfer to reserve funds                                    58,114         (174,341)               --               --

Cumulative translation adjustment                                --               --            97,230           97,230

Dividend distribution                                            --       (2,450,680)               --       (2,450,680)

Net income for the year ended December 31, 2006                  --        1,162,273                --        1,162,273
                                                        -----------      -----------       -----------      -----------

                                                        $   223,725      $ 1,352,648       $   137,786      $ 3,544,039
                                                        ===========      ===========       ===========      ===========
</TABLE>

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


                                      F-6
<PAGE>

                GULF RESOURCES, INC. (formerly DIVERSIFAX, INC.)
                                AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                        YEAR ENDED DECEMBER 31, 2006 AND
                   THE PERIOD MAY 18, 2005 (DATE OF INCEPTION)
                            THROUGH DECEMBER 31, 2005

<TABLE>
<CAPTION>
                                                             2006            2005
                                                         -----------     -----------
<S>                                                      <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES
  Net income                                             $ 1,162,273     $ 3,312,230
  Adjustments to reconcile net income
    to net cash provided by operating activities
      Depreciation and amortization                          213,092         108,605
      (Increase) decrease in assets
        Accounts receivable                                 (834,051)       (321,259)
        Inventories                                           38,346         (88,302)
        Prepaid land lease                                  (558,787)        (24,500)
        Income tax receivable                             (1,088,359)             --
      Increase (decrease) in liabilities
        Accounts payable and accrued expenses              5,703,241         326,474
        Taxes payable                                     (1,169,196)      1,309,824
                                                         -----------     -----------

  Net cash provided by operating activities                3,466,559       4,623,072
                                                         -----------     -----------

CASH FLOWS FROM INVESTING ACTIVITIES
  Purchase of property, plant and equipment                 (581,665)     (2,301,576)
                                                         -----------     -----------

CASH FLOWS FROM FINANCING ACTIVITIES
  Increase (decrease) in due to/from director                (71,822)         70,066
  Capital contribution                                       936,524         441,000
  Advances from related party                                (65,744)       (451,931)
  Dividends paid                                          (2,473,729)             --
                                                         -----------     -----------

  Net cash provided by (used in) financing activities     (1,674,771)         59,135
                                                         -----------     -----------

EFFECTS OF EXCHANGE RATE CHANGE ON CASH                      105,920          29,150
                                                         -----------     -----------

NET INCREASE  IN CASH                                      1,316,043       2,409,781

CASH - BEGINNING OF PERIOD                                 2,409,781              --
                                                         -----------     -----------

CASH - END OF PERIOD                                     $ 3,725,824     $ 2,409,781
                                                         ===========     ===========

SUPPLEMENTAL DISCLOSURE OF CASH FLOW
  INFORMATION
    Cash paid during the period for:

      Income taxes                                       $ 2,580,363     $   735,701
                                                         ===========     ===========
</TABLE>

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


                                      F-7
<PAGE>

                GULF RESOURCES, INC. (formerly DIVERSIFAX, INC.)
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2006 AND 2005

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

Basis of Presentation

Upper Class Group Limited was incorporated with limited liability in the British
Virgin Islands on July 28, 2006 and was inactive until October 9, 2006 when
Upper Class Group Limited acquired all the issued and outstanding stock of
Shouguang City Haoyuan Chemical Company Limited ("SCHC"). SCHC is an operating
company incorporated in Shouguang City, Shangdong Province, the People's
Republic of China (the "PRC") on May 18, 2005. Since the ownership of Upper
Class Group Limited and SCHC were the same, the merger was accounted for as a
transaction between entities under common control, whereby Upper Class Group
Limited recognized the assets and liabilities transferred at their carrying
amounts.

On December 12, 2006, Gulf Resources, Inc. (formerly Diversifax, Inc.), a public
"shell" company, acquired Upper Class Group Limited and its wholly-owned
subsidiary, SCHC (together "Upper Class"). Under the terms of the agreement, all
stockholders of Upper Class Group Limited received a total amount of 26,500,000
shares of voting common stock of Gulf Resources, Inc. in exchange for all shares
of Upper Class Group Limited common stock held by all stockholders. 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 for the net monetary assets of Gulf
Resources, Inc., 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 acquirer,
Gulf Resources, Inc., are those of the legal acquiree, Upper Class Group Limited
and Subsidiary, which are considered to be the accounting acquirer. Share and
per share amounts stated have been adjusted to reflect the merger.

Nature of the Business

Gulf Resources, Inc. and Subsidiary (the "Company"), manufactures and trades
bromine and crude salt.

Reporting Currency

The Company's functional currency is Renminibi ("RMB"); however, the reporting
currency is the United States dollar ("USD").

Estimates

The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires the use of estimates based on
management's knowledge and experience. The more significant areas requiring the
use of management estimates and assumptions relate to mineral reserves that are
the basis for future cash flow estimates and units-of-production depreciation
and amortization calculations. Accordingly, actual results could differ from
those estimates.

Foreign Currency Translation

Assets and liabilities of the Company have been translated using the exchange
rate at the balance sheet date. The average exchange rate for the period has
been used to translate revenues and expenses. Translation adjustments are
reported separately and accumulated in a separate component of equity
(cumulative translation adjustment).

Comprehensive Income

The Company follows the Statement of Financial Accounting Standard ("SFAS") No.
130, Reporting Comprehensive Income. Comprehensive income is a more inclusive
financial reporting methodology that includes disclosure of certain financial
information that historically has not been recognized in the calculation of net
income.


                                      F-8
<PAGE>

                GULF RESOURCES, INC. (formerly DIVERSIFAX, INC.)
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2006 AND 2005

NOTE 1 - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)

Fair Value of Financial Instruments

The fair value of financial instruments classified as current assets or
liabilities, including cash, receivables, payables and due to director,
approximates carrying value due to the short-term maturity of the instruments.

Concentration of Credit Risk

Certain financial instruments potentially subject the Company to concentrations
of credit risk. These financial instruments consist primarily of cash and
accounts receivable. The Company places its temporary cash investments with high
credit quality financial institutions to limit its credit exposure.
Concentrations of credit risk with respect to accounts receivable are limited
since the Company performs ongoing credit evaluations of its customers'
financial condition and due to the generally short payment terms.

Accounts Receivable

The Company considers accounts receivable to be fully collectible; accordingly,
the Company has not provided for an allowance for doubtful accounts. As amounts
become uncollectible, they will be charged to an allowance or operations in the
period when a determination of uncollectibility is made.

Revenue Recognition

In accordance with Securities and Exchange Commission ("SEC") Staff Accounting
Bulletin ("SAB") No. 104, Revenue Recognition, the Company recognizes revenue
when persuasive evidence of a customer or distributor arrangement exists or
acceptance occurs, receipt of goods by customer occurs, the price is fixed or
determinable, and the sales revenues are considered collectible. Subject to
these criteria, the Company generally recognizes revenue at the time of shipment
or delivery to the customer, and when the customer takes ownership and assumes
risk of loss based on shipping terms.

Asset Retirement Obligation

The Company follows SFAS No. 143, Accounting for Asset Retirement Obligations,
which established a uniform methodology for accounting for estimated reclamation
and abandonment costs. SFAS No. 143 requires the fair value of a liability for
an asset retirement obligation to be recognized in the period in which the legal
obligation associated with the retirement of the long-lived asset is incurred.
When the liability is initially recorded, the offset is capitalized by
increasing the carrying amount of the related long-lived asset. Over time, the
liability is accreted to its present value each period, and the capitalized cost
is depreciated over the useful life of the related asset. To settle the
liability, the obligation is paid, and to the extent there is a difference
between the liability and the amount of cash paid, a gain or loss upon
settlement is recorded. Currently, there are no reclamation or abandonment
obligations associated with the land being utilized for exploitation.

Recoverability of Long Lived Assets

The Company follows SFAS No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets. The Statement requires that long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of the asset may not be
recoverable. The Company is not aware of any events or circumstances which
indicate the existence of an impairment which would be material to the Company's
annual financial statements.


                                      F-9
<PAGE>

                GULF RESOURCES, INC. (formerly DIVERSIFAX, INC.)
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2006 AND 2005

NOTE 1 - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)

Mineral Rights

The Company follows FASB Staff Position amending SFAS No. 141 and 142 which
provides that certain mineral rights are considered tangible assets and that
mineral rights should be accounted for based on their substance. Mineral rights
are included in property, plant and equipment.

Property, Plant and Equipment

Property, plant and equipment are stated at cost less accumulated depreciation.
Depreciation is provided to write off the cost of property, plant and equipment
over their estimated useful lives using the straight-line method at the
following rates per annum:

            Buildings                                          20 years
            Plant and machinery                                 8 years
            Mineral rights                                     50 years
            Office furniture and equipment                      8 years

The gain or loss arising on the disposal or retirement of an asset is determined
as the difference between the sales proceeds and the carrying amount of the
asset and is recognized in the income statement.

Mineral rights, granted on two pieces of land located in the PRC, are recorded
at cost. Mineral rights are amortized ratably over the 50 year term of the
leases. This method is equivalent to the units of production method since the
proven and probable reserves of 780,000 tons exceed the expected production over
50 years (8,000 - 12,000 tons of annual practical capacity).

Construction in progress represents manufacturing plants under construction.
Construction in progress is stated at cost which includes the cost of
construction and purchase cost of plant and machinery. Construction in progress
for manufacturing plants is transferred to property, plant and equipment on the
commissioning date. Manufacturing plants are considered to be commissioned when
they are capable of producing saleable quality output in commercial quantities
on an ongoing basis.

Prepaid Land Lease

Prepaid land lease is stated at cost and amortized over the period of the lease
on the straight-line basis.

Inventories

Inventories are stated at the lower of cost and net realizable value. Cost which
comprises direct materials and, where applicable, direct labor costs and those
overhead costs that have been incurred in bringing the inventories and work in
progress to their present locations and condition, is calculated using the
first-in, first-out method. Net realizable value is based on estimated selling
prices less estimated selling expenses.

Income Taxes

The Company accounts for income taxes under SFAS No. 109, Accounting for Income
Taxes, which requires an asset and liability approach to financial accounting
and reporting for income taxes. Under the liability method, deferred income tax
assets and liabilities are computed annually for temporary differences between
the financial statements and tax bases of assets and liabilities that will
result in taxable or deductible amounts in the future based on enacted tax laws
and rates applicable to the periods in which the differences are expected to
affect taxable income. Valuation allowances are established when necessary to
reduce deferred tax assets to the amount expected to be realized. Income tax
expense is the tax payable or refundable for the period plus or minus the change
during the period in deferred tax assets and liabilities.


                                      F-10
<PAGE>

                GULF RESOURCES, INC. (formerly DIVERSIFAX, INC.)
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2006 AND 2005

NOTE 1 - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)

Employee Benefits

The Company participates in employee social security plans, including pension,
medical, housing and other welfare benefits, organized by the government
authorities in accordance with relevant regulations. Except for the above social
security benefits, the Company has no additional commitment to other employee
welfare benefits.

According to the relevant regulations, premium and welfare benefit contributions
are remitted to the social welfare authorities and are calculated based on
percentages of the total salary of employees, subject to a certain ceiling.
Contributions to the plans are charged to the income statement as incurred.

Shipping and Handling Fees and Costs

The Company follows Emerging Issues Task Force ("EITF") No. 00-10, Accounting
for Shipping and Handling Fees and Costs. The Company does not charge its
customers for shipping and handling. The Company classifies shipping and
handling costs as part of the cost of net sales. For the year ended December 31,
2006 and for the period ended December 31, 2005, shipping and handling costs
were $237,662 and $362,465, respectively.

Start-up Costs

Start-up costs are expensed when incurred.

Advertising Costs

Advertising costs are expensed as incurred.

Recently Issued Accounting Pronouncements

In June 2006, the Financial Accounting Standards Board ("FASB") issued
interpretation No. 48 ("FIN 48"), Accounting for Uncertainty in Income Taxes.
FIN 48 prescribes detailed guidance for the financial statement recognition,
measurement and disclosure of uncertain tax positions recognized in an
enterprise's financial statements in accordance with FASB Statement No. 109,
Accounting for Income Taxes. Tax positions must meet a more-likely-than-not
recognition threshold at the effective date to be recognized upon the adoption
of FIN 48 and in subsequent periods. FIN 48 will be effective for fiscal years
beginning after December 15, 2006 (our fiscal year 2008) and the provisions of
FIN 48 will be applied to all tax positions under Statement No. 109 upon initial
adoption. The cumulative effect of applying the provisions of this
interpretation will be reported as an adjustment to the opening balance of
retained earnings for that fiscal year. The Company is currently evaluating the
potential impact of FIN 48 on its consolidated financial statements.

In September 2006, the SEC issued Staff Accounting Bulletin No. 108 ("SAB No.
108"). SAB No. 108 addresses the process and diversity in practice of
quantifying financial statement misstatements resulting in the potential build
up of improper amounts on the balance sheet. The Company is required to adopt
the provisions of SAB No. 108 in fiscal 2006. The adoption of SAB No. 108 did
not have a material impact on their consolidated financial statements.

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements ("SFAS
No. 157"). SFAS No. 157 establishes a framework for measuring fair value and
expands disclosures about fair value measurements. The changes to current
practice resulting from the application of this Statement relate to the
definition of fair value, the methods used to measure fair value, and the
expanded disclosures about fair value measurements. The Statement is effective
for fiscal years beginning after November 15, 2007 and interim periods within
those fiscal years. The Company does not believe that the adoption of the
provisions of SFAS No. 157 will materially impact their financial position and
results of operations.


                                      F-11
<PAGE>

                GULF RESOURCES, INC. (formerly DIVERSIFAX, INC.)
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2006 AND 2005

NOTE 2 - INVENTORIES

Inventories consist entirely of raw materials used in the production of bromine.

NOTE 3 - PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consist of the following:

                                                   2006            2005
                                                ----------      ----------

      Buildings                                 $  413,697      $   71,982
      Plant and machinery                        2,068,064       1,622,595
      Mineral rights                               501,326         484,784
      Office furniture and equipment                19,432          18,795
                                                ----------      ----------
                                                 3,002,519       2,198,156
      Less: Accumulated depreciation               329,238         108,605
                                                ----------      ----------
                                                 2,673,281       2,089,551
      Construction in progress                          --         130,768
                                                ----------      ----------

                                                $2,673,281      $2,220,319
                                                ==========      ==========

Depreciation and amortization expense for the year ended December 31, 2006 and
for the period ended December 31, 2005 was $213,092 and $108,605.

NOTE 4 - PREPAID LAND LEASE

The prepaid land lease represents land use rights granted for the usage of three
pieces of land located in the PRC for a term of 50 years. The prepaid lease is
amortized on a straight-line basis over the term of the lease.

NOTE 5 - DUE FROM RELATED COMPANY

Amount represents receivable due from a company whose stockholder and director
is also a stockholder and director of the Company. The amount was repaid in full
to the Company on February 27, 2007.

NOTE 6 - DUE TO DIRECTOR

The amount due is unsecured, interest-free and with no stated repayment terms.

NOTE 7 - DUE TO RELATED PARTY

Amount represents payable due to a company whose stockholder and director is
also a stockholder and director of the Company.


                                      F-12
<PAGE>

                GULF RESOURCES, INC. (formerly DIVERSIFAX, INC.)
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2006 AND 2005

NOTE 8 - RETAINED EARNINGS - APPROPRIATED

In accordance with the relevant PRC regulations and the Company's Articles of
Association, the Company is required to allocate its profit after tax to the
following reserves:

Statutory Common Reserve Funds

The Company is required each year to transfer 10% of the profit after tax as
reported under the PRC statutory financial statements to the statutory common
reserve funds until the balance reaches 50% of the registered share capital.
This reserve can be used to make up any loss incurred or to increase share
capital. Except for the reduction of losses incurred, any other application
should not result in this reserve balance falling below 25% of the registered
capital.

Statutory Public Welfare Funds

The Company is required each year to transfer 5% of the profit after tax as
reported under the PRC statutory financial statements to the statutory public
welfare funds. This reserve is restricted to capital expenditure for employees'
collective welfare facilities that are owned by the Company. The statutory
public welfare funds are not available for distribution to the stockholders
(except on liquidation). Once capital expenditure for staff welfare facilities
has been made, an equivalent amount must be transferred from the statutory
public welfare funds to the discretionary common reserve funds.

NOTE 9 - OPERATING LEASE COMMITMENTS

The Company was obligated under a noncancellable operating lease for rental of
motor vehicles expiring December 31, 2006 for annual minimum lease payments of
approximately $15,000. The lease expired December 31, 2006, with an option to
renew the lease. The lease was not renewed as of December 31, 2006.

The rent expense for the year ended December 31, 2006 and for the period ended
December 31, 2005 was approximately $15,000.

NOTE 10 - INCOME TAXES

As discussed in Note 1, the Company utilizes the asset and liability method of
accounting for income taxes in accordance with SFAS No. 109. The statutory PRC
tax rate of 33% is equivalent to the Company's effective tax rate.

No provision for deferred taxes has been made as there were no material
temporary differences at December 31, 2006 and 2005.

NOTE 11 - MAJOR SUPPLIER

During 2006, the Company purchased 77% of its products from three suppliers. At
December 31, 2006, amounts due to those suppliers included in accounts payable
were $641,232. This concentration makes the Company vulnerable to a near-term
severe impact, should the relationships be terminated.

During 2005, the Company purchased 89% of it products from four suppliers. At
December 31, 2005, amounts due to those suppliers included in accounts payable
were $39,600.


                                      F-13
<PAGE>

                GULF RESOURCES, INC. (formerly DIVERSIFAX, INC.)
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2006 AND 2005

NOTE 12 - CUSTOMER CONCENTRATION

The Company sells a substantial portion of its product to a limited number of
customers. During the year ended December 31, 2006, sales to the Company's four
largest customers, based on net sales made to such customers, aggregated
$16,670,873, or approximately 94% of total net sales, and sales to the Company's
largest customer represented approximately 49% of total net sales. At December
31, 2006, amounts due from these customers were $1,187,727. This concentration
makes the Company vulnerable to a near-term severe impact, should the
relationships be terminated.

For the period ended December 31, 2005, sales to these customers aggregated
$12,660,000, or approximately 89% of total net sales, and sales to the Company's
largest customer represented approximately 37% of total net sales. At December
31, 2005, amounts due from these customers were $325,193.

NOTE 13 - SUBSEQUENT EVENTS

On February 5, 2007, the Company acquired all of the issued and outstanding
stock of Shouguang SYCI Chemical Industry Co., Limited ("SYCI"). Under the terms
of the merger agreement, all of the stockholders of SYCI will receive a total
amount of 16,188,118 shares of voting common stock of Gulf Resources, Inc. in
exchange for all shares of SYCI's common stock held by all stockholders. Also,
upon completion of the merger, Gulf Resources, Inc. will be obligated to pay a
$2,550,000 dividend to the original stockholders of SYCI. Since the ownership of
Gulf Resources, Inc. and SYCI are substantially the same, the merger will be
accounted for as a transaction between entities under common control, whereby
Gulf Resources, Inc. will recognize the assets and liabilities of SYCI
transferred at their carrying amounts.

As of December 31, 2006, the Company accrued $5,344,395 of consulting expense.
In March 2007, the Company granted 4,413,450 shares of its common stock as
payment for this accrued consulting liability.


                                      F-14
<PAGE>

                              GULF RESOURCES, INC.
                                AND SUBSIDIARIES

                   UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

                                 MARCH 31, 2007

                                 C O N T E N T S

                                                                            PAGE
                                                                            ----

CONSOLIDATED BALANCE SHEETS (UNAUDITED)                                     F-16

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)                           F-17

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME                             F-18

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED)                 F-19

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)                           F-20

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)                      F-22

                                      F-15
<PAGE>

                              GULF RESOURCES, INC.
                                AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                      MARCH 31, 2007 AND DECEMBER 31, 2006

<TABLE>
<CAPTION>
                                                                  March 31,     December 31,
                                                                     2007           2006
                                                                 -----------    ------------
                                                                 (Unaudited)     (Audited)
<S>                                                              <C>            <C>
        ASSETS

CURRENT ASSETS
  Cash                                                           $ 3,309,606    $ 5,692,608
  Accounts receivable                                              1,613,708      1,403,564
  Inventories                                                        526,544        470,615
  Deposits                                                         1,813,000             --
  Prepaid expenses                                                   862,888             --
  Due from related party                                                  --        555,464
  Prepaid land lease                                                  12,562         12,436
  Income tax receivable                                            1,076,204      1,111,154
                                                                 -----------    -----------
                                                                   9,214,512      9,245,841

PROPERTY, PLANT AND EQUIPMENT, Net                                 4,390,930      4,462,407

DUE FROM RELATED PARTY                                                    --        641,000

PREPAID LAND LEASE, Net of current portion                           608,822        605,820
                                                                 -----------    -----------

TOTAL ASSETS                                                     $14,214,264    $14,955,068
                                                                 ===========    ===========

        LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
  Accounts payable and accrued expenses                          $   937,450    $ 6,225,818
  Due to related party                                                32,230         15,384
  Taxes payable                                                      890,769        481,405
                                                                 -----------    -----------

TOTAL LIABILITIES                                                  1,860,449      6,722,607
                                                                 -----------    -----------

        STOCKHOLDERS' EQUITY

COMMON STOCK; $0.001 par value; 70,000,000 shares
  authorized; 48,645,340 and and 43,205,440 shares issued and
  outstanding                                                         48,645         43,205

ADDITIONAL PAID-IN CAPITAL                                         8,900,272      2,668,817

RETAINED EARNINGS - UNAPPROPRIATED                                 1,096,784      3,535,252

RETAINED EARNINGS - APPROPRIATED
  Statutory Common Reserve Fund                                    1,872,477      1,077,864
  Statutory Public Welfare Fund                                           --        538,932

CUMULATIVE TRANSLATION ADJUSTMENT                                    435,637        368,391
                                                                 -----------    -----------

TOTAL STOCKHOLDERS' EQUITY                                        12,353,815      8,232,461
                                                                 -----------    -----------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                       $14,214,264    $14,955,068
                                                                 ===========    ===========
</TABLE>

          See accompanying notes to consolidated financial statements.


                                      F-16
<PAGE>

                              GULF RESOURCES, INC.
                                AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                   THREE MONTHS ENDED MARCH 31, 2007 AND 2006
                                   (UNAUDITED)

                                                        2007             2006
                                                    -----------      -----------

REVENUE
  Net sales                                         $ 9,934,201      $ 7,458,453
  Maintenance service income                            129,126               --
                                                    -----------      -----------
                                                     10,063,327        7,458,453
                                                    -----------      -----------

OPERATING EXPENSES
  Cost of net revenue                                 6,024,702        4,781,647
  General and administrative expenses                   186,050          106,460
                                                    -----------      -----------
                                                      6,210,752        4,888,107
                                                    -----------      -----------

INCOME FROM OPERATIONS                                3,852,575        2,570,346

OTHER INCOME
  Interest income                                         6,842              420
                                                    -----------      -----------
                                                         10,712            4,148
                                                    -----------      -----------

INCOME BEFORE INCOME TAXES                            3,863,287        2,574,494

INCOME TAXES - current                                1,306,474          874,921
                                                    -----------      -----------

NET INCOME                                          $ 2,556,813      $ 1,699,573
                                                    ===========      ===========

BASIC AND DILUTED EARNINGS PER SHARE                $      0.06      $      0.04
                                                    ===========      ===========

BASIC AND DILUTED WEIGHTED AVERAGE
  NUMBER OF SHARES                                   44,091,290       43,205,440
                                                    ===========      ===========

          See accompanying notes to consolidated financial statements.


                                      F-17
<PAGE>

                              GULF RESOURCES, INC.
                                AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
                   THREE MONTHS ENDED MARCH 31, 2007 AND 2006
                                   (UNAUDITED)

                                                          2007            2006
                                                      ----------      ----------

NET INCOME                                            $2,556,813      $1,699,573

OTHER COMPREHENSIVE INCOME
  Foreign currency translation adjustment                 67,246          53,145
                                                      ----------      ----------

COMPREHENSIVE INCOME                                  $2,624,059      $1,752,718
                                                      ==========      ==========

          See accompanying notes to consolidated financial statements.


                                      F-18
<PAGE>

                              GULF RESOURCES, INC.
                                AND SUBSIDIARIES
                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
                        THREE MONTHS ENDED MARCH 31, 2007

<TABLE>
<CAPTION>
                                                                                                             Statutory
                                                            Number           Common        Additional          Common
                                                           of Shares          Stock      Paid-in Capital    Reserve Fund
                                                         ------------     ------------     ------------     ------------
<S>                                                        <C>            <C>              <C>              <C>
BALANCE AT DECEMBER 31, 2006 (AUDITED)                     43,205,440     $     43,205     $  2,668,817     $  1,077,864

Common stock issues as payment for accrued expenses         4,989,900            4,990        5,339,405               --

Common stock issuance for prepaid expenses                    450,000              450          892,050               --

Transfer to reserve funds                                          --               --               --          255,681

Transfer from Statutory Welfare Fund                               --               --               --          538,932

Cumulative translation adjustment                                  --               --               --               --

Dividend distribution                                              --               --               --               --

Net income for the three months ended March 31, 2007               --               --               --               --
                                                         ------------     ------------     ------------     ------------

BALANCE AT MARCH 31, 2007 (UNAUDITED)                      48,645,340     $     48,645     $  8,900,272     $  1,872,477
                                                         ============     ============     ============     ============

<CAPTION>
                                                           Statutory        Retained         Cumulative
                                                            Public          Earnings         Translation
                                                         Welfare Fund       (Deficit)         Adjustment          Total
                                                         ------------      ------------      ------------     ------------
<S>                                                      <C>               <C>               <C>              <C>
BALANCE AT DECEMBER 31, 2006 (AUDITED)                   $    538,932      $  3,535,252      $    368,391     $  8,232,461

Common stock issues as payment for accrued expenses                --                --                --        5,344,395

Common stock issuance for prepaid expenses                         --                --                --          892,500

Transfer to reserve funds                                          --          (255,681)               --               --

Transfer from Statutory Welfare Fund                         (538,932)               --                --               --

Cumulative translation adjustment                                  --                --            67,246           67,246

Dividend distribution                                              --        (4,739,600)               --       (4,739,600)

Net income for the three months ended March 31, 2007               --         2,556,813                --        2,556,813
                                                         ------------      ------------      ------------     ------------

BALANCE AT MARCH 31, 2007 (UNAUDITED)                    $         --      $  1,096,784      $    435,637     $ 12,353,815
                                                         ============      ============      ============     ============
</TABLE>

          See accompanying notes to consolidated financial statements.


                                      F-19
<PAGE>

                              GULF RESOURCES, INC.
                                AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                   THREE MONTHS ENDED MARCH 31, 2007 AND 2006
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                         2007             2006
                                                     -----------      -----------
<S>                                                  <C>              <C>
CASH FLOWS FROM OPERATING ACTIVITIES
  Net income                                         $ 2,556,813      $ 1,699,574
  Adjustments to reconcile net income
    to net cash provided by operating activities
      Depreciation and amortization                      116,414           49,899
      (Increase) decrease in assets
        Accounts receivable                             (195,170)         262,924
        Inventories                                      (50,963)          84,483
        Deposit                                       (1,806,140)              --
        Prepaid expense                                   29,612           (3,431)
        Prepaid land lease                                 2,999              339
        Income tax receivable                             46,042               --
      Increase (decrease) in liabilities
        Accounts payable and accrued expenses             (6,986)        (273,859)
        Taxes payable                                    402,952         (600,857)
                                                     -----------      -----------

  Net cash provided by operating activities            1,095,573        1,219,072
                                                     -----------      -----------

CASH FLOWS FROM INVESTING ACTIVITIES
  Purchase of property, plant and equipment                   --          (10,844)
                                                     -----------      -----------

CASH FLOWS FROM FINANCING ACTIVITIES
  Increase (decrease) in due to/from director                 --          (61,622)
  Capital contribution                                    50,000               --
  Advances from related party                            902,119          177,453
  Increase (decrease) in due to/from parent              318,655               --
  Dividends paid                                      (4,739,600)      (4,665,000)
                                                     -----------      -----------

  Net cash used in financing activities               (3,468,826)      (4,549,169)
                                                     -----------      -----------

EFFECTS OF EXCHANGE RATE CHANGE ON CASH                   (9,749)          53,146
                                                     -----------      -----------

NET DECREASE  IN CASH                                 (2,383,002)      (3,287,795)

CASH - BEGINNING OF PERIOD                             5,692,608        5,542,388
                                                     -----------      -----------

CASH - END OF PERIOD                                 $ 3,309,606      $ 2,254,593
                                                     ===========      ===========
</TABLE>

          See accompanying notes to consolidated financial statements.


                                      F-20
<PAGE>

                              GULF RESOURCES, INC.
                                AND SUBSIDIARIES
                CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
                   THREE MONTHS ENDED MARCH 31, 2007 AND 2006
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                     2007           2006
                                                                 ----------     ----------
<S>                                                              <C>            <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
  INFORMATION
    Cash paid during the period for:

    Income taxes                                                 $  921,201     $1,235,708
                                                                 ==========     ==========

SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING
  ACTIVITIES

    Issuance of common stock as payment for accrued expenses     $5,344,395     $       --
                                                                 ==========     ==========

    Issuance of common stock for prepaid expenses                $  892,500     $       --
                                                                 ==========     ==========
</TABLE>

          See accompanying notes to consolidated financial statements.


                                      F-21
<PAGE>

                              GULF RESOURCES, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 2007
                                   (UNAUDITED)

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

The accompanying unaudited consolidated financial statements have been prepared
by Gulf Resources, Inc. and Subsidiaries (collectively, the "Company"). These
statements include all adjustments (consisting only of their normal recurring
adjustments) which management believes necessary for a fair presentation of the
statements and have been prepared on a consistent basis using the accounting
policies described in the Form 10-KSB for the year ended December 31, 2006
("2006 Form 10-KSB"). Certain financial information and footnote disclosures
normally included in financial statements prepared in accordance with accounting
principles generally accepted in the United States have been condensed or
omitted pursuant to the rules and regulations of the Securities and Exchange
Commission, although the Company firmly believes that the accompanying
disclosures are adequate to make the information presented not misleading. The
Notes to Financial Statements included in the 2006 Form 10-KSB should be read in
conjunction with the accompanying interim financial statements. The interim
operating results for the three months ended March 31, 2007 may not be
indicative of operating results expected for the full year.

Basis of Presentation

Upper Class Group Limited was incorporated with limited liability in the British
Virgin Islands on July 28, 2006 and was inactive until October 9, 2006 when
Upper Class Group Limited acquired all the issued and outstanding stock of
Shouguang City Haoyuan Chemical Company Limited ("SCHC"). SCHC is an operating
company incorporated in Shouguang City, Shangdong Province, the People's
Republic of China (the "PRC") on May 18, 2005. Since the ownership of Upper
Class Group Limited and SCHC were the same, the merger was accounted for as a
transaction between entities under common control, whereby Upper Class Group
Limited recognized the assets and liabilities transferred at their carrying
amounts.

On December 12, 2006, Gulf Resources, Inc. (formerly Diversifax, Inc.), a public
"shell" company, acquired Upper Class Group Limited and its wholly-owned
subsidiary, SCHC (together "Upper Class"). Under the terms of the agreement, all
stockholders of Upper Class Group Limited received a total amount of 26,500,000
shares of voting common stock of Gulf Resources, Inc. in exchange for all shares
of Upper Class Group Limited common stock held by all stockholders. 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 for the net monetary assets of Gulf
Resources, Inc., 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 acquirer,
Gulf Resources, Inc., are those of the legal acquiree, Upper Class Group Limited
and Subsidiary, which are considered to be the accounting acquirer. Share and
per share amounts stated have been retroactively adjusted to reflect the merger.

On February 5, 2007, Upper Class Group Limited acquired Shouguang Yuxin Chemical
Industry Co., Limited ("SYCI") incorporated in PRC on October 30, 2000. Under
the terms of the merger agreement, all stockholders of SYCI received a total
amount of 16,188,118 shares of voting common stock of Gulf Resources, Inc. in
exchange for all shares of SYCI's common stock held by all stockholders. Also,
upon the completion of the merger, Gulf Resources, Inc. paid a $2,550,000
dividend to the original stockholders of SYCI. Since the ownership of Gulf
Resources, Inc. and SYCI are substantially the same, the merger was accounted
for as a transaction between entities under common control, whereby Gulf
Resources, Inc. recognized the assets and liabilities of the Company transferred
at their carrying amounts. Share and per share amounts stated have been
retroactively adjusted to reflect the merger.


                                      F-22
<PAGE>

                              GULF RESOURCES, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 2007
                                   (UNAUDITED)

NOTE 1 - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)

Basis of Consolidation

The unaudited consolidated financial statements include the accounts of Gulf
Resources, Inc. and its wholly-owned subsidiaries, Upper Class Group Limited,
SCHC and SYCI (collectively the "Company"). All material intercompany
transactions have been eliminated in consolidation.

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

Nature of the Business

Gulf Resources, Inc. and Subsidiaries manufactures and trades bromine and crude
salt through its SCHC subsidiary, and manufactures chemical products for use in
the oil industry and paper manufacturing industry through its SYCI subsidiary.

Reporting Currency

The Company's functional currency is Renminibi ("RMB"); however, the reporting
currency is the United States dollar ("USD").

Foreign Currency Translation

Assets and liabilities of the Company have been translated using the exchange
rate at the balance sheet date. The average exchange rate for the period has
been used to translate revenues and expenses. Translation adjustments are
reported separately and accumulated in a separate component of equity
(cumulative translation adjustment).

Revenue Recognition

In accordance with Securities and Exchange Commission ("SEC") Staff Accounting
Bulletin ("SAB") No. 104, Revenue Recognition, the Company recognizes revenue
when persuasive evidence of a customer or distributor arrangement exists or
acceptance occurs, receipt of goods by customer occurs, the price is fixed or
determinable, and the sales revenues are considered collectible. Subject to
these criteria, the Company generally recognizes revenue at the time of shipment
or delivery to the customer, and when the customer takes ownership and assumes
risk of loss based on shipping terms.

Recently Issued Accounting Pronouncements

In June 2006, the Financial Accounting Standards Board ("FASB") issued
Interpretation No. 48 ("FIN 48"), Accounting for Uncertainty in Income Taxes.
FIN 48 prescribes detailed guidance for the financial statement recognition,
measurement and disclosure of uncertain tax positions recognized in an
enterprise's financial statements in accordance with FASB Statement No. 109,
Accounting for Income Taxes. Tax positions must meet a more-likely-than-not
recognition threshold at the effective date to be recognized upon the adoption
of FIN 48 and in subsequent periods. FIN 48 will be effective for fiscal years
beginning after December 15, 2006, and the provisions of FIN 48 will be applied
to all tax positions under Statement No. 109 upon initial adoption. The
cumulative effect of applying the provisions of this interpretation will be
reported as an adjustment to the opening balance of retained earnings for that
fiscal year. The Company adopted FIN 48 effective January 1, 2007. The adoption
of FIN 48 did not require an adjustment to the opening balance of retained
earnings as of January 1, 2007.


                                      F-23
<PAGE>

                              GULF RESOURCES, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 2007
                                   (UNAUDITED)

NOTE 1 - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)

Shipping and Handling Fees and Costs

The Company follows Emerging Issues Task Force ("EITF") No. 00-10, Accounting
for Shipping and Handling Fees and Costs. The Company does not charge its
customers for shipping and handling. The Company classifies shipping and
handling costs as part of the cost of net sales. For the three months ended
March 31, 2007 and 2006, shipping and handling costs were $78,764 and $100,576.

NOTE 2 - RETAINED EARNINGS - APPROPRIATED

In accordance with the relevant PRC regulations and the Company's Articles of
Association, the Company is required to allocate its profit after tax to the
following reserves:

Statutory Common Reserve Funds

The Company is required each year to transfer 10% of the profit after tax as
reported under the PRC statutory financial statements to the statutory common
reserve funds until the balance reaches 50% of the registered share capital.
This reserve can be used to make up any loss incurred or to increase share
capital. Except for the reduction of losses incurred, any other application
should not result in this reserve balance falling below 25% of the registered
capital.

Statutory Public Welfare Funds

Prior to January 1, 2007, the Company was required each year to transfer 5% of
the profit after tax as reported under the PRC statutory financial statements to
the statutory public welfare funds. This reserve is restricted to capital
expenditure for employees' collective welfare facilities that are owned by the
Company. The statutory public welfare funds are not available for distribution
to the stockholders (except on liquidation). Once capital expenditure for staff
welfare facilities has been made, an equivalent amount must be transferred from
the statutory public welfare funds to the discretionary common reserve funds.
Due to a change in the PRC Company Law, appropriation of profit to the statutory
welfare fund is no longer required. Therefore, the Company transferred the
balance in the statutory welfare fund to the statutory common reserve fund on
January 1, 2007.

NOTE 3 - COMMON STOCK

In March 2007, the Company issued 4,989,900 shares of its common stock as
payment for $5,344,395 of accrued consulting expenses.

In March 2007, the Company issued 450,000 shares of its common stock, valued at
$892,500 (fair value), for two consulting contracts, one that expires on
December 31, 2007 and one that expires in March 2008. These issuances were
recorded in prepaid expenses on the balance sheet and expensed over the terms of
the contracts.

NOTE 4 - INCOME TAXES

The Company utilizes the asset and liability method of accounting for income
taxes in accordance with SFAS No. 109. The statutory PRC tax rate of 33% is
equivalent to the Company's effective tax rate.

No provision for deferred taxes has been made as there were no material
temporary differences at March 31, 2007 and 2006.


                                      F-24
<PAGE>

                              GULF RESOURCES, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 2007
                                   (UNAUDITED)

NOTE 5 - BUSINESS SEGMENTS

The Company follows SFAS No. 131, Disclosures about Segments of and Enterprise
and Related Information, which requires the Company to provide certain
information about their operating segments. The Company has two reportable
segments: bromine and crude salt and chemical products.

<TABLE>
<CAPTION>
                                         Bromine
                                        and Crude       Chemical          Segment                        Consolidated
                                          Salt          Products           Total          Corporate          Total
                                      --------------  --------------  ----------------  -------------  ----------------
        Three Months Ended
          March 31, 2007
- -----------------------------------
<S>                                   <C>              <C>              <C>              <C>               <C>
Net revenue                           $ 5,301,727      $ 4,761,600      $10,063,327      $        --       $10,063,327
Income (loss) from operations           2,237,638        1,701,276        3,938,914          (86,339)        3,852,575
Total assets                            8,766,446        4,534,931       13,301,377          912,887        14,214,264
Depreciation and amortization              70,085           46,329          116,414               --           116,414

        Three Months Ended
          March 31, 2006
- -----------------------------------

Net revenue                           $ 3,954,919      $ 3,503,534      $ 7,458,453      $        --       $ 7,458,453
Income from operations                  1,578,612          991,734        2,570,346               --         2,570,346
Total assets                            4,212,784        3,128,509        7,341,293               --         7,341,293
Depreciation and amortization              39,739           10,160           49,899               --            49,899
</TABLE>

                                                         Three Months Ended
                                                            March 31,
                                                -------------------------------
        Reconciliations                             2007                2006
- ------------------------------                  -----------         -----------

Total segment operating income                  $ 3,938,914         $ 2,570,346
Corporate overhead expenses                         (86,339)                 --
Other income (expense)                               10,712               4,148
Income tax expense                               (1,306,474)           (874,921)
                                                -----------         -----------

Total consolidated net income                   $ 2,556,813         $ 1,699,573
                                                ===========         ===========

NOTE 6 - SUBSEQUENT EVENTS

On April 7, 2007, the Company acquired substantially all of the assets of Wenbo
Yu in exchange for 799,286 newly issued shares of the Company's common stock and
$3,051,282. The Company paid a deposit of $1,813,000 to Wenbo Yu during the
three months ended March 31, 2007.

The assets include a 50 year mineral rights and land lease covering 1,846 acres,
or 7.5 square kilometers of real property, with proven and probable reserves of
34,400 tons of bromine being serviced by 575 wells, as well as the related
production facility, the wells, the pipelines, other production equipment, and
the buildings located on the property.


                                      F-25
<PAGE>

                              GULF RESOURCES, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 2007
                                   (UNAUDITED)

NOTE 6 - SUBSEQUENT EVENTS (Continued)

On May 7, 2007, the Company entered into a Fixed Price Standby Equity
Distribution Agreement with eight investors (the "Investors"). Pursuant to the
Fixed Price Standby Equity Distribution Agreement, the Company may, at its
discretion, periodically sell to the Investors up to 30 million shares of the
Company's common stock for a total purchase price of up to $60 million (a per
share purchase price of $2.00 per share). The Investors' obligation to purchase
shares of common stock under the Fixed Price Standby Equity Distribution
Agreement is subject to certain conditions, including the Company obtaining an
effective registration statement for the resale of the common stock sold under
the Fixed Price Standby Equity Distribution Agreement. The maximum amount of
advance under the Fixed Price Standby Equity Distribution Agreement cannot
exceed $10 million. In no event can the number of shares issued to any Investor
pursuant to an advance cause any Investor to own more than 9.9% of the shares of
common stock outstanding.

The commitment period under the Fixed Price Standby Equity Distribution
Agreement commences on the earlier to occur of (i) the date that the
Registration Statement is declared effective by the Securities and Exchange
Commission (the "Effective Date"), or (ii) such earlier date as the Company and
the Investors may mutually agree in writing.

The commitment period under the Fixed Price Standby Equity Distribution
Agreement expires on the earliest to occur of (i) the date on which the
Investors have purchased an aggregate amount of $60 million shares of our common
stock under the Fixed Price Standby Equity Distribution Agreement, (ii) the date
occurring eighteen months after the Effective Date, or (iii) the date the
Agreement is earlier terminated as defined in the agreement.


                                      F-26
<PAGE>

                             Preliminary Prospectus

                                 ---------------

                        30,000,000 Shares of Common Stock

                              Gulf Resources, Inc.

                              ______________, 2007

We have not authorized any dealer, salesperson or other person to provide any
information or make any representations about Gulf Resources, Inc. except the
information or representations contained in this prospectus. You should not rely
on any additional information or representations if made.

                                 ---------------

This prospectus does not constitute an offer to sell, or a solicitation of an
offer to buy any securities:

            o     except the common stock offered by this prospectus;

            o     in any jurisdiction in which the offer or solicitation is not
                  authorized;

            o     in any jurisdiction where the dealer or other salesperson is
                  not qualified to make the offer or solicitation;

            o     to any person to whom it is unlawful to make the offer or
                  solicitation; or

            o     to any person who is not a United States resident or who is
                  outside the jurisdiction of the United States.

The delivery of this prospectus or any accompanying sale does not imply that:

            o     there have been no changes in the affairs of Gulf Resources,
                  Inc. after the date of this prospectus; or

            o     the information contained in this prospectus is correct after
                  the date of this prospectus.

                                 ---------------

All dealers effecting transactions in these securities, whether or not
participating in this offering, may be required to deliver a prospectus. This is
in addition to dealers' obligation to deliver a prospectus when acting as
underwriters and with respect to their unsold allotments or subscriptions.

- --------------------------------------------------------------------------------

<PAGE>

                                     PART II

                     INFORMATION NOT REQUIRED IN PROSPECTUS

Item 24. Indemnification of Directors and Officers

      Under Article 10 of our Restated Certificate of Incorporation, we have
agreed to indemnify our officers, directors, employees and agents to the fullest
extent permitted by the laws of the State of Delaware, as amended from time to
time. In addition, under Section 9 of our Restated Certificate of Incorporation,
our directors are not subject to personal liability to us or our stockholders
for monetary damages for breach of their fiduciary duties as a director to the
fullest extent provided by Delaware law. Section 102 (b) (7) of the Delaware
General Corporation Law provides for the elimination off such personal
liability, except for liability (i) for any breach of the director's duty of
loyalty to the Registrant or its stockholders, (ii) for acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, (iii) under Section 174 of the Delaware General Corporation Law or (iv) for
any transaction from which the director derived any improper personal benefit

      Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to our Directors, officers and controlling persons, we have
been informed that in the opinion of the SEC such indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by us of expenses incurred or paid by a
Director, officer or controlling person in the successful defense of any action,
suit or proceeding) is asserted by such Director, officer or controlling person
in connection with the securities being registered, we will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.

Item 25. Other Expenses of Issuance and Distribution

      The following table sets forth the various expenses to be incurred in
connection with the registration of the securities being registered hereby, all
of which will be borne by us. All amounts shown are estimates except the SEC
registration fee.

      SEC registration fee                                             $   1,842
      Legal fees and expenses                                             25,000
      Accounting fees and expenses                                         5,000
      Miscellaneous                                                       10,000
                                                                       ---------

                           Total expenses                              $  41,842
                                                                       =========


                                      II-1
<PAGE>

Item 26. Recent Sales of Unregistered Securities

      During the past 3 years, we issued the following unregistered securities
pursuant to various exemptions from registration under the Securities Act of
1933, as amended:

1. On July 20, 2006, we issued a total of 250,000 shares of our common stock to
Irwin A. Horowitz, our then chief executive officer, for an aggregate purchase
price of $425,000, or $0.017 per share, which we applied against our preexisting
liability to Horowitz.

      We believe that this transaction was exempt from registration under
Section 4(2) of the Securities Act of 1933 and Rule 506 promulgated thereunder.

2. On December 11, 2006, we issued a total of 26,500,000 shares of our common
stock to the shareholders of Upper Class Group Limited ("UCG"), a British Virgin
Islands company, in connection with the merger of our wholly-owned subsidiary,
DFAX Acquisition Vehicle, Inc. ("DFAX") with and into UCG in accordance with
that certain Agreement and Plan of Merger, dated as of December 10, 2006, by and
among us, DFAX , UCG, and the shareholders of UCG (the "Merger Agreement.")

      On February 5, 2007, we issued a total of 16,188,118 shares of our common
stock and our non-interest bearing promissory notes in the aggregate principal
amount of $2,550,000 to the shareholders of Shouguang Yuxin Chemical Industry
Co., Ltd. ("SYCI") in exchange for the all of the outstanding shares of SYCI
under a Share Exchange Agreement with UCG, SCHC, SYCI and the shareholders of
SYCI.

      These shares were issued without registration under Section 5 of the
Securities Act of 1933, as amended (the "Securities Act") in reliance on the
exemption from registration contained in Section 4(2) of the Securities Act and
Regulation S under the Securities Act.

      . We believe that all of the requirements to qualify to use the exemption
from registration contained in Section 4(2) of the Securities Act have been
satisfied in connection with the issuance of these shares. Specifically, (i) we
have determined that each investor is knowledgeable and experienced in finance
and business matters and thus is able to evaluate the risks and merits of
acquiring our securities; (ii) each investor has advised us that he, she or it
is able to bear the economic risk of purchasing our common stock; (iii) we have
provided each investor with access to the type of information normally provided
in a prospectus; and (iv) we did not use any form of public solicitation or
general advertising in connection with the issuance of the shares.

      We also believe that the issuance of our shares to these investors
constituted an offshore transaction. Each investor was a resident of China, and
at the time we offered to issue our shares to these investors, each investor was
located in China. At the time we issued our common stock to these investors, we
reasonably believed that each investor was outside of the United States. As a
result, we believe that these facts also enable us to rely on Regulation S for
an exemption from the registration requirements of Section 5 of the Securities
Act with respect to the issuance of these shares.

3. In March 2007, we issued 4,989,900 shares of our common stock as payment for
$5,344,395 of accrued consulting expenses.

      In March 2007, we issued 450,000 shares of our common stock, valued at
$892,500 (fair value), for two consulting contracts, one that expires on
December 31, 2007 and one that expires in March 2008.

      We relied upon the exemption provided in Section 4(2) of the Securities
Act and/or Rule 506 thereunder, which covers "transactions by an issuer not
involving any public offering," to issue these securities without registration
under the Securities Act. We made a determination in each case that the person
to whom the securities were issued did not need the protections that
registration would afford. The certificates representing the securities issued
displayed a restrictive legend to prevent transfer except in compliance with
applicable laws, and our transfer agent was instructed not to permit transfers
unless directed to do so by our company, after approval by our legal counsel. We
believe that the investors to whom securities were issued had such knowledge and
experience in financial and business matters as to be capable of evaluating the
merits and risks of the prospective investment. We also believe that the
investors had access to the same type of information as would be contained in a
registration statement.


                                      II-2
<PAGE>

4. On April 7, 2007, in consideration for the purchase of the assets located in
the Shouguang City Qinshuibo Area, we issued to Wenbo Yu 799,286 shares of our
common stock and a non-interest bearing promissory note in the aggregate
principal amount of $3,051,282 We believe that the issuance of the shares and
the note was exempt from the registration requirements of the Securities Act of
1933, as amended (the "Securities Act") in reliance on the exemption from
registration contained in Section 4(2) of the Securities Act and in Regulation S
under the Securities Act.

Item 27. Exhibits

Exhibit   Description
- -------   -----------

2.1       Agreement and Plan of Merger dated December 10, 2006, among the
          Registrant, DFAX Acquisition vehicle, Inc., Upper Class Group Limited
          and the shareholders of UCG, incorporated herein by reference to
          Exhibit 10 to the Registrant's Current Report on Form 8-K filed on
          December 12, 2007.

2.2       Share Exchange Agreement among the Registrant, Upper Class Limited,
          Shougnag Yuxin Chemical Industry Company Limited and shareholders of
          Shougnag Yuxin Chemical Industry Company Limited, incorporated herein
          by reference to Exhibit 10.1 to the Registrant's Current Report on
          Form 8-K filed on February 9, 2007.

3.1       Restated Certificate of Incorporation, incorporated herein by
          reference to Exhibit 3.1 to the Registrant's Registration Statement on
          Form S-1 (No. 33-46580) declared effective on November 18, 1992.

3.2       Amendment to Restated Certificate of Incorporation., increasing the
          authorized capital stock, incorporated herein by reference to Exhibit
          A to the Registrant's definitive Schedule 14A filed on ______, 1995.

3.3       Amendment to Restated Certificate of Incorporation., increasing the
          authorized capital stock, incorporated herein by reference to Exhibit
          B to the Registrant's definitive Schedule 14A filed on August 12,
          1997.

3.4       Amendment to Restated Certificate of Incorporation., increasing the
          authorized capital stock, incorporated herein by reference to Exhibit
          A to the Registrant's definitive Schedule 14A filed on October 16,
          1998.

3.5       Amendment to Restated Certificate of Incorporation, filed with the
          Secretary of the State of Delaware on October 16, 2006, effecting a
          reverse stock split.

3.6       Amendment to Restated Certificate of Incorporation, changing the name
          of the Registrant to Gulf Resources, Inc., incorporated herein by
          reference to Exhibit 3.1 of the Registrant's Current Report on Form
          8-K filed on February 20, 2007.

3.3       By-laws, incorporated herein by reference to Exhibit 3.2 to the
          Registrant's Registration Statement on Form S-1 (No. 33-46580)
          declared effective on November 18, 1992.

4.1       Certificate of Designation, Powers, Preferences and Rights of Series D
          Convertible Preferred Stock incorporated herein by reference to
          Exhibit 3 (c) to the Registrant's Registration Statement on Form SB-2
          (No. 33-30021) filed on June 25, 1997.


                                      II-3
<PAGE>

4.2       Non-interest bearing promissory note dated April 7, 2007 in the
          aggregate principal amount of $3,051,282 issued to Wenbo Yu
          incorporated herein by reference to Exhibit 99.2 to the Registrant's
          Current Report on Form 8-K filed on April 10, 2007.

5.1       Opinion of Eaton & Van Winkle LLP

10.01     Stock Purchase Agreement, dated as of August 25, 2006, by and between
          Juxiang Yu and Irwin Horowitz, incorporated herein by reference to
          Exhibit 99.1 to the Registrant's Current Report on Form 8-K filed on
          August 31, 2006.

10.02     Fixed Price Standby Equity Distribution Agreement dated May 7, 2006,
          incorporated herein by reference to Exhibit 99.1 of the Registrant's
          Current Report on Form 8-K filed on May 10, 2007.

10.3      Asset Purchase Agreement between the Registrant and Shougang City
          Haoyuan Chemical Company Limited and Wenbo Yu dated April 4, 2007,
          incorporated herein by reference to Exhibit 99.1 to the Registrant's
          Current Report on Form 8-K filed on April 10, 2007.

21.1      List of Subsidiaries

23.1      Consent of Eaton & Van Winkle LLP (included in Exhibit 5.1)

23.2      Consent of Morison Cogen LLP

Item 28. Undertakings

(a) The undersigned Registrant hereby undertakes:

(1)   To file, during any period in which offers or sales are being made, a
      post-effective amendment to this registration statement:

      (i)   To include any prospectus required by Section 10(a) (3) of the
            Securities Act of 1933, as amended (the "Securities Act");

      (ii)  To reflect in the prospectus any facts or events arising after the
            effective date of this registration statement (or the most recent
            post-effective amendment thereof) which, individually or in the
            aggregate, represent a fundamental change in the information set
            forth in this registration statement. Notwithstanding the foregoing,
            any increase or decrease in the volume of securities offered (if the
            total dollar value of securities offered would not exceed that which
            was registered) and any deviation from the low or high end of the
            estimated maximum offering range may be reflected in the form of
            prospectus filed with the SEC pursuant to Rule 424(b) if, in the
            aggregate, the changes in volume and price represent no more than 20
            percent change in the maximum aggregate offering price set forth in
            the "Calculation of Registration Fee" table in the effective
            registration statement; and

      (iii) To include any material information with respect to the plan of
            distribution not previously disclosed in this registration statement
            or any material change to such information in this registration
            statement;

      provided, however, that paragraphs (1) (i), (1) (ii) and (1) (iii) do not
      apply if the information required to be included in a post-effective
      amendment by those paragraphs is contained in periodic reports filed with
      or furnished to the SEC by the Registrant pursuant to Section 13 or
      Section 15(d) of the Securities Exchange Act of 1934, as amended (the
      "Exchange Act") that are incorporated by reference in this registration
      statement.

(2)   That, for the purposes of determining any liability under the Securities
      Act, each post-effective amendment shall be deemed to be a new
      registration statement relating to the securities offered therein, and the
      offering of such securities at the time shall be deemed to be the initial
      bona fide offering thereof.

(3)   To remove from registration by means of a post-effective amendment any of
      the securities being registered which remain unsold at the termination of
      the offering.


                                      II-4
<PAGE>

(4)   Not applicable.

(5)   That for the purpose of determining liability under the Securities Act of
      1933 to any purchaser: Each prospectus filed pursuant to Rule 424(b) as
      part of a registration statement relating to an offering, other than
      registration statements relying on Rule 430B or other than prospectuses
      filed in reliance on Rule 430A, shall be deemed to be part of and included
      in the registration statement as of the date it is first used after
      effectiveness. Provided, however, that no statement made in a registration
      statement or prospectus that is part of the registration statement or made
      in a document incorporated or deemed incorporated by reference into the
      registration statement or prospectus that is part of the registration
      statement will, as to a purchaser with a time of contract of sale prior to
      such first use, supersede or modify any statement that was made in the
      registration statement or prospectus that was part of the registration
      statement or made in any such document immediately prior to such date of
      first use.

(6)   That, for the purpose of determining liability of the registrant under the
      Securities Act of 1933 to any purchaser in the initial distribution of the
      securities: The undersigned registrant undertakes that in a primary
      offering of securities of the undersigned registrant pursuant to this
      registration statement, regardless of the underwriting method used to sell
      the securities to the purchaser, if the securities are offered or sold to
      such


                                      II-5
<PAGE>

purchaser by means of any of the following communications, the undersigned
registrant will be a seller to the purchaser and will be considered to offer or
sell such securities to such purchaser:

      (i)   Any preliminary prospectus or prospectus of the undersigned
            registrant relating to the offering required to be filed pursuant to
            Rule 424;

      (ii)  Any free writing prospectus relating to the offering prepared by or
            on behalf of the undersigned registrant or used or referred to by
            the undersigned registrant;

      (iii) The portion of any other free writing prospectus relating to the
            offering containing material information about the undersigned
            registrant or its securities provided by or on behalf of the
            undersigned registrant; and

      (iv)  Any other communication that is an offer in the offering made by the
            undersigned registrant to the purchaser.

(b)   The undersigned registrant hereby undertakes that, for purposes of
      determining any liability under the Securities Act of 1933, each filing of
      the registrant's annual report pursuant to Section 13(a) or 15(d) of the
      Securities Exchange Act of 1934 (and, where applicable, each filing of an
      employee benefit plan's annual report pursuant to Section 15(d) of the
      Securities Exchange Act of 1934) that is incorporated by reference in the
      registration statement shall be deemed to be a new registration statement
      relating to the securities offered therein, and the offering of such
      securities at that time shall be deemed to be the initial bona fide
      offering thereof.

(c)   Insofar as indemnification for liabilities arising under the Securities
      Act may be permitted to directors, officers and controlling persons of the
      Registrant pursuant to the indemnification provisions described herein, or
      otherwise, the Registrant has been advised that in the opinion of the SEC
      such indemnification is against public policy as expressed in the
      Securities Act and is, therefore, unenforceable. In the event that a claim
      for indemnification against such liabilities (other than the payment by
      the Registrant of expenses incurred or paid by a director, officer or
      controlling person of the Registrant in the successful defense of any
      action, suit or proceeding) is asserted by such director, officer or
      controlling person in connection with the securities being registered, the
      Registrant will, unless in the opinion of its counsel the matter has been
      settled by controlling precedent, submit to a court of appropriate
      jurisdiction the question whether such indemnification by it is against
      public policy as expressed in the Securities Act and will be governed by
      the final adjudication of such issue.


                                      II-6
<PAGE>

                                   SIGNATURES

      In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned on June 22, 2007.

                                        GULF RESOURCES, INC.


                                        By: /s/ Ming Yang
                                            ------------------------------------
                                            Ming Yang
                                            Chairman and Chief Executive Officer
                                            (principal executive officer)


                                        By: /s/ Min Li
                                            ------------------------------------
                                            Min Li
                                            Chief Financial Officer
                                            (principal financial officer)

      Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.

Signature                    Title                                Date
- ---------                    -----                                ----

/s/ Ming Yang
- ------------------------     Chairman, Chief Executive Officer    June 22, 2007
Ming Yang                    and a Director


/s/ Naihui Miao
- ------------------------     Secretary and a Director             June 22, 2007
Naihui Miao


                                      II-7
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-3.5
<SEQUENCE>2
<FILENAME>e602295_ex3-5.txt
<DESCRIPTION>AMENDMENT TO RESTATED CERTIFICATE OF INCORPORATION
<TEXT>

                                                                     Exhibit 3.5

                            CERTIFICATE OF AMENDMENT
                                       OF
                          CERTIFICATE OF INCORPORATION
                                       OF
                                DIVERSIFAX, INC.

It is hereby certified that:

      1. The name of the corporation (hereinafter called the "Corporation") is
Diversifax, Inc.

      2. The certificate of incorporation of the Corporation is hereby amended
by striking out Article 4 thereof and by substituting in lieu of said Article
the following new Article:

      "4. The total number of shares of all classes of stock which the
      corporation shall have authority to issue is Seventy-One Million
      (71,000,000) which are divided into Seventy Million (70,000,000) shares of
      Common Stock, par value $.001 per share and One Million (1,000,000) shares
      of Open Stock, par value $.001 per share.

      On the effective date (the "Effective Date") of this Certificate of
      Amendment, all outstanding shares of Common Stock of the corporation shall
      be automatically combined at the rate of one-for-one-hundred (1-for-100)
      (the "Reverse Split") without the necessity of any further action on the
      part of the holders thereof or the corporation, provided, however, that
      the corporation shall, through its transfer agent, exchange certificates
      representing Common Stock outstanding immediately prior to the Reverse
      Split (the "Existing Common") into new certificates representing the
      appropriate number of shares of Common Stock resulting from the
      combination ("New Common"). No fractional shares, but only whole shares of
      New Common, shall be issued to any holder of fewer than one hundred (100)
      shares or any number of shares which, when divided by one hundred (100),
      does not result in a whole number. Immediately after the effectiveness of
      the Reverse Split, the total number of shares of Common Stock the Company
      is authorized to issue shall be increased to Seventy Million (70,000,000).

      Share of Open Stock may be issued from time to time in one or more classes
      or one or more series within any class thereof, in any manner permitted by
      law, as determined from time to time by the board of directors and state
      in the resolution or resolutions providing for the issuance of such shares
      adopted by the board of directors pursuant to authority hereby vested in
      it, each class or series to be appropriately designated, prior to the
      issuance of any shares thereof, by some distinguishing letter, number,
      designation or title. All shares of stock in such classes or series may be
      issued for such consideration and have such voting powers, full or
      limited, or no voting powers, and shall have such designations,
      preferences and relative, participating, optional or other special rights,
      and qualifications, limitations or restrictions thereof, permitted by law,
      as shall be stated and expressed in the resolution or resolutions
      providing for the issuance of such shares adopted by the board of
      directors pursuant to authority hereby vested in it. The number of shares
      of stock of any series, as set forth in such resolution or resolutions,
      may be increased (but not above the total number of authorized shares by
      resolutions adopted by the board of directors pursuant to authority hereby
      vested in it."

      3. The amendment of the Certificate of Incorporation herein certified has
been duly adopted in accordance with the provisions of Sections 228 and 242 of
the General Corporation Law of the State of Delaware.

<PAGE>

      4. The effective date of the amendment of the Certificate of Incorporation
herein certified shall be October 23, 2006.

      IN WITNESS WHEREOF, the undersigned has executed this Certificate of
Amendment of Certificate of Incorporation of the Corporation this 6th day of
October 2006.

                                                 /s/ Juxiang Yu
                                                 -------------------------------
                                                 Name: Juxiang Yu


                                       2
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-5.1
<SEQUENCE>3
<FILENAME>e602295_ex5-1.txt
<DESCRIPTION>OPINION OF EATON & VAN WINKLE LLP
<TEXT>
                                                                     Exhibit 5.1

EATON & VAN WINKLE LLP
3 Park Ave, 16th Floor
New York, New York 10016

                                               June 22, 2007

Gulf Resources, Inc.
Chenming Industrial Park
Shouguang City, Shandong, China 262714

      Re: Registration Statement on Form SB-2

Gentlemen:

      We have acted as counsel to Gulf Resources, Inc., a Delaware corporation
(the "Company"), in connection with the filing of a Registration Statement on
Form SB-2 (the "Registration Statement") with the Securities and Exchange
Commission (the "Commission"), with respect to the registration under the
Securities Act of 1933, as amended (the "Act"), of 30,000,000 shares (the
"Shares")of the Company's $.001 par value per share common stock (the "Common
Stock").

      In our capacity as counsel, we are familiar with the proceedings taken by
the Company in connection with the authorization, issuance and sale of the
Shares. In addition, in connection with the registration of the foregoing
securities, we have reviewed such documents and records as we have deemed
necessary to enable us to express an opinion on the matters covered hereby,
including, but not limited to, certain agreements relating to the authorization,
issuance, registration and sale of such securities and copies of resolutions of
the Company's Board of Directors authorizing the issuance of such securities and
their registration pursuant to the Registration Statement.

      In rendering this opinion, we have (a) assumed (i) the genuineness of all
signatures on all documents examined by us, (ii) the authenticity of all
documents submitted to us as originals, and (iii) the conformity to original
documents of all documents submitted to us as photostatic or conformed copies
and the authenticity of the originals of such copies; and (b) relied on (i)
certificates of public officials and (ii) as to matters of fact, statements and
certificates of officers and representatives of the Company.

      Based upon the foregoing, we are of the opinion that the Shares have been
validly issued and are fully paid and non-assessable except that the Underlying
Shares will be validly issued, fully paid and non-assessable when issued in
accordance with the terms of the corresponding warrants, preferred stock or
convertible notes, as the case may be.

      We hereby consent to the use of this opinion as an exhibit to the
Registration Statement. In giving the foregoing consent, we do not thereby admit
that we are in the category of persons whose consent is required under Section 7
of the Act or the rules and regulations of the Securities and Exchange
Commission thereunder.

      Nothing herein shall be deemed to relate to or constitute an opinion
concerning any matters not specifically set forth above. The foregoing opinions
relate only to matters of the internal law of the State of Florida and Delaware
without reference to conflict of laws and to matters of federal law, and we do
not purport to express any opinion on the laws of any other jurisdiction. We
assume no obligation to supplement this opinion if, after the date hereof,
applicable laws change, or we become aware of any facts that might change our
opinions, as expressed herein.

      The opinion expressed herein may be relied upon by the Company in
connection with the registration of the Shares, as contemplated by, and in
conformity with, the Registration Statement. With the exception of the
foregoing, the opinion expressed herein may not be relied upon by any other
person without our prior written consent.

<PAGE>

      We express no opinion as to compliance with the securities or "blue sky"
laws of any state or country in which the Shares are proposed to be offered and
sold.

                                        Very truly yours,


                                        Eaton & Van Winkle LLP
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-21.1
<SEQUENCE>4
<FILENAME>e602295_ex21-1.txt
<DESCRIPTION>LIST OF SUBSIDIARIES
<TEXT>

                                                                    Exhibit 21.1

                                  Subsidiaries

<TABLE>
<CAPTION>
Name                                              Jurisdiction of Incorporation                    Ownership
- ----                                              -----------------------------                    ---------
<S>                                                  <C>                                         <C>
Upper Class Group Limited                            British Virgin Islands                      100% (Direct)

Shougang City Haoyuan Chemical Company Limited               China                               100% (Indirect)

Shougnag Yuxin Chemical Industry Co., Ltd.                   China                               100% (Indirect)
</TABLE>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-23.2
<SEQUENCE>5
<FILENAME>e602295_ex23-2.txt
<DESCRIPTION>CONSENT OF MORISON COGEN LLP
<TEXT>

                                                                    Exhibit 23.2

                     CONSENT OF INDEPENDENT ACCOUNTING FIRM

To the Board of Directors
Gulf Resources, Inc.

We consent to the inclusion in the foregoing Registration Statement on Form SB-2
of (1) our report, dated March 2, 2007, relating to the financial statements of
Gulf Resources, Inc. as of December 31, 2006 and 2005 and for the year ended
December 31, 2006 and for the period May 18, 2005 (date of inception) through
December 31, 2005. We also consent to the reference to our firm under the
caption "Experts".


                                                /s/ Morison  Cogen LLP
                                                --------------------------------
                                                Morison Cogen LLP

Bala Cynwyd, Pennsylvania
June 22, 2007
</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
-----END PRIVACY-ENHANCED MESSAGE-----
