SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549

                                   Form 10-QSB

|X|   Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
      Exchange Act of 1934

                  For the quarterly period ended March 31, 2007

|_|   Transition Report Pursuant to Section 13 or 15(d) of the Securities
      Exchange Act of 1934

       For the transition period from _______________ to ________________

                        Commission file number 000-20936

                              GULF RESOURCES, INC.
           (Exact name of small business as specified in its charter)

             Delaware                                    13-3637458
(State or other jurisdiction of             (IRS Employer Identification Number)
incorporation or organization)

       CHENMING INDUSTRIAL PARK, UNIT - HAOYUAN CHEMICAL COMPANY LIMITED,
                     SHOUGUANG CITY, SHANDONG, CHINA 262714
                    (Address of principal executive offices)

                                  (310)470-2886
                (Issuer's telephone number, including area code)

Indicate by check mark whether the issuer (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes |X| No |_|

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

Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 49,424,626 shares of Common
Stock, $.001 per share, as of May 10, 2007.

Transitional Small Business Disclosure Format (check one): Yes |_| No |X|

<PAGE>

                          PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

                              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.


                                      -1-
<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                   182,180          102,732
                                                    -----------      -----------
                                                      6,206,882        4,884,379
                                                    -----------      -----------

INCOME FROM OPERATIONS                                3,856,445        2,574,074
                                                    -----------      -----------

OTHER INCOME
Interest income                                           6,842              420
                                                    -----------      -----------

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.


                                      -2-
<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.


                                      -3-
<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.


                                      -4-
<PAGE>

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

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

CASH FLOWS FROM OPERATING ACTIVITIES
  Net income                                        $ 2,556,813     $ 1,699,573
  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)       (273,858)
        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
                                                    ===========     ===========

          See accompanying notes to consolidated financial statements.


                                      -5-
<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.


                                      -6-
<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 received a total of 26,500,000 shares of voting
common stock of Gulf Resources, Inc. in exchange for all shares of Upper Class
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 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, which are considered to be the accounting acquirer. Share
and per share amounts stated have been retroactively adjusted to reflect the
merger.


                                      -7-
<PAGE>

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 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.

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.


                                      -8-
<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)

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.

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.


                                      -9-
<PAGE>

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

NOTE 2 - RETAINED EARNINGS - APPROPRIATED (Continued)

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.


                                      -10-
<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
                                   -----------      -----------      -----------      -----------      ------------
<S>                                <C>              <C>              <C>              <C>               <C>
        Three Months Ended
          March 31, 2007
-------------------------------

Net revenue                        $ 5,301,727      $ 4,761,600      $10,063,327      $        --       $10,063,327
Income (loss) from operations        2,241,508        1,701,276        3,942,784          (86,339)        3,856,445
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               1,582,340          991,734        2,574,074               --         2,574,074
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                  $ 3,942,784         $ 2,574,074
Corporate overhead expenses                         (86,339)                 --
Other income (expense)                                6,842                 420
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.


                                      -11-
<PAGE>

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

NOTE 6 - SUBSEQUENT EVENTS (continued)

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.

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 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. 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.

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.

Item 2. Management's Discussion and Analysis or Plan of Operation

The following discussion should be read in conjunction with the Consolidated
Financial Statements and Notes thereto appearing elsewhere in this Form 10-QSB.
The following discussion contains forward-looking statements. Our actual results
may differ significantly from those projected in the forward-looking statements.
Factors that may cause future results to differ materially from those projected
in the forward-looking statements include, but are not limited to, those
discussed in "Risk Factors" and elsewhere in this Form 10-QSB.General

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS

GENERAL

As previously reported, on December 12, 2006, as a result of a transaction
accounted for as a "reverse acquisition," we acquired Shougang City Haoyuan
Chemical Company Limited ("SCHC"), a company organized under the laws of China
engaged in manufacturing and trading bromine and crude salt. Subsequently, on
February 5, 2007, pursuant to a share exchange agreement we acquired Shougnag
Yuxin Chemical Industry Company Limited ("SYCI"), a company engaged in the
production and sale of chemical products used in oil and gas filed exploration,
oil and gas distribution, oil field drilling, wastewater processing; papermaking


                                      -12-
<PAGE>

chemical agents and inorganic chemicals. 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. Consequently, our historical financial
statements, the numbers in the table below and the Management's Discussion and
Analysis which follows reflect the accounts of SCHC and SYCI. See Note 1 to our
Consolidated Financial Statements.

RESULTS OF OPERATIONS

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, and consolidated statements of statements
of cash flows and shareholders equity for the three months then ended.

<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>

Net Revenue Net revenue were $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.


                                      -13-
<PAGE>

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 59.8% of net revenue in the First Quarter
2007, compared to 64.1% in the First Quarter 2006, and improvement of 4.3%. 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 40.2% of net revenue in the First Quarter 2007,
compared to 35.9% the First Quarter 2006, an improvement of 4.3%. 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 Quarter2006. 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 Quarter2006.

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.


                                      -14-
<PAGE>

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 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 realated 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 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. 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.

On April 7, 2007, the Company acquired substantially all of the assets located
in the Shouguang City Qinshuibo Area and owned by 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. The Company anticipates
that it will be able to satisfy the balance due Wenbo Yu out of cash generated
from operations.


                                      -15-
<PAGE>

Forward Looking Statements

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

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

OFF-BALANCE SHEET ARRANGEMENTS

We have never entered into any off-balance sheet financing arrangements and have
never established any special purpose entities. We have not guaranteed any debt
or commitments of other entities or entered into any options on non-financial
assets.

Risk Factors

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


                                      -16-
<PAGE>

Risk Factors of the Company

There is a limited public market for our common stock.

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

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

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

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


                                      -17-
<PAGE>

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

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

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

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

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

      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.


                                      -18-
<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.

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

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

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

The 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,
union relationships, order entry systems and other procedures, and hire
sufficient numbers of financial, accounting, administrative, and management
personnel. There can be no assurance that we will be able to identify, attract
and retain experienced accounting and financial 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.


                                      -19-
<PAGE>

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,
among other things, 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, the Company has derived a material portion of its revenue from
a limited number of customers and suppliers. We expect that in future periods we
may enter into contracts with customers and suppliers which represent a
significant concentration of our 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 such
customer could 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. Attracting and retaining
skilled workers and qualified sales representatives is also critical to us.
Experienced management and technical, marketing and support personnel in the
defense and aerospace industries 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.


                                      -20-
<PAGE>

Risks related to doing business in China

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

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

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

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

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

We face economic risks in doing business in China.

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

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

      In 1982, the National Peoples Congress amended the Constitution of China
to authorize foreign investment and guarantee the "lawful rights and interests"
of foreign investors in China. However, China's system of laws is not yet
comprehensive. The legal and judicial systems in China are still rudimentary,


                                      -21-
<PAGE>

and enforcement of existing laws is inconsistent. Many judges in China lack the
depth of legal training and experience that would be expected of a judge in a
more developed country. Because the Chinese judiciary is relatively
inexperienced in enforcing the laws that do exist, anticipation of judicial
decision-making is more uncertain than would be expected in a more developed
country. It may be impossible to obtain swift and equitable enforcement of laws
that do exist, or to obtain enforcement of the judgment of one court by a court
of another jurisdiction. China's legal system is based on written statutes; a
decision by one judge does not set a legal precedent that is required to be
followed by judges in other cases. In addition, the interpretation of Chinese
laws may be varied to reflect domestic political changes.

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

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


                                      -22-
<PAGE>

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.

Item 3. Controls and Procedures

As of the end of the period covered by this report, our management, including
our principal executive officer and our principal financial officer, conducted
an evaluation of the effectiveness of our disclosure controls and procedures (as
defined in Rule 13a-15 under the Securities Exchange Act of 1934). Based upon
that evaluation, our principal executive officer and our chief financial officer
have concluded that our disclosure controls and procedures are effective in
timely alerting them of material information relating to us that is required to
be disclosed by us in the reports we file or submit under the Exchange Act.
There have been no changes in our internal control over financial reporting that
occurred during the period covered by this report that have materially affected,
or are reasonably likely to materially affect, our internal control over
financial reporting.


                                      -23-
<PAGE>

                                     PART II

                                OTHER INFORMATION

Items 2. Unregistered Sales of Equity Securities and Use of Proceeds

On April 7, 2007, the Company consummated its purchase of the assets located in
the Shouguang City Qinshuibo Area and owned Wenbo Yu, and in connection
therewith, the Company issued to Wenbo Yu 799,286 shares of the Company's common
stock. The shares were issued in consideration of all of the assets of Wenbo Yu.
The Company believes that the issuance of the shares 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 6. Exhibits

The following exhibits are filed as part of this report:

Exhibit No.       Description of Exhibit

31.1      --      Certification of Chief Executive Officer pursuant to Rule
                  13a-14(a) under the Securities Exchange Act of 1934.

31.2      --      Certification of Chief Financial Officer pursuant to Rule
                  13a-14(a) under the Securities Exchange Act of 1934.

32.1      --      Certification of Chief Executive Officer pursuant to Section
                  906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350).

32.2      --      Certification of Chief Financial Officer pursuant to Section
                  906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350).


                                      -24-
<PAGE>

                                   SIGNATURES

In accordance with the requirements of the Securities Exchange Act of 1934, the
Registrant has caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.

Dated: May 14, 2007

                                GULF RESOURCES, INC.


                                By: /s/ Ming Yang
                                    --------------------------------------------
                                    Ming Yang
                                    Chief Executive Officer


                                By: /s/ Min Li
                                    --------------------------------------------
                                    Min Li
                                    Chief Financial Officer
                                    (Principal Financial and Accounting Officer)


                                      -25-
<PAGE>

                                  EXHIBIT INDEX

Exhibit No.       Description of Exhibit

31.1       --     Certification of Chief Executive Officer pursuant to Rule
                  13a-14(a) under the Securities Exchange Act of 1934.

31.2       --     Certification of Chief Financial Officer pursuant to Rule
                  13a-14(a) under the Securities Exchange Act of 1934.

32.1       --     Certification of Chief Executive Officer pursuant to Section
                  906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350).

32.2       --     Certification of Chief Financial Officer pursuant to Section
                  906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350).