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**U.S.      Securities and Exchange Commission**

**Washington,      D.C. 20549**

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**FORM      10-QSB**

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| **[X]** | **Quarterly                Report Under Section 13 or 15(d) of The Securities Exchange Act of                1934                for the Quarterly Period Ended March 31,                2007** |
|---------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| **[                 ]** | **Transition                Report Under Section 13 or 15(d) of The Securities Exchange Act of                1934                for the Transition Period from _______ to                _______** |
|------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**Commission      File Number: **
**000-27959**

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**GFR      PHARMACEUTICALS INC.**

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| **Nevada**                                                                                          | **77-0517964**                                                            |
|-----------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------|
| **(State                or Other Jurisdiction of****incorporation                or organization)** | **(I.R.S.                Employer****Identification                No.)** |

**99      Yan Xiang Road, Biosep Building, Xi An**

**Shaan      Xi Province, P.R. China 710054**

**(Address      of Principal Executive Offices) **

**(8629)      8339-9676**

**(Issuer’s      Telephone Number) **

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|   | Yes                [x] |   |   | No                [  ] |
|--------|------------------------|--------|--------|-----------------------------|

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*Table          of Contents*

**CAUTIONARY      STATEMENT REGARDING FORWARD LOOKING INFORMATION**

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|   **TABLE                OF CONTENTS**                                                |   |
|-------------------------------------------------------------------------------------------------|--------|
|                                                                                            |   |
| **PART                I. FINANCIAL INFORMATION**                                                |   |
|                                                                                            |   |
|                                                                                            |   |
|                                                                                            |   |
| ITEM                1. FINANCIAL                STATEMENTS                                      | 4      |
|                                                                                            |   |
| ITEM                2. MANAGEMENT'S                DISCUSSION AND ANALYSIS OR PLAN OF OPERATION | 16     |
|                                                                                            |   |
| ITEM                3 CONTROLS                AND PROCEDURES                                    | 20     |
|                                                                                            |   |
| **PART                II. OTHER INFORMATION**                                                   |   |
|                                                                                            |   |
| ITEM                1. LEGAL                PROCEEDINGS                                         | 21     |
|                                                                                            |   |
| ITEM                2. CHANGES                IN SECURITIES AND USE OF PROCEEDS                 | 21     |
|                                                                                            |   |
| ITEM                3. DEFAULTS                UPON SENIOR SECURITIES                           | 21     |
|                                                                                            |   |
| ITEM                4. SUBMISSION                OF MATTERS TO A VOTE OF SECURITY HOLDERS       | 21     |
|                                                                                            |   |
| ITEM                5. OTHER                INFORMATION                                         | 21     |
|                                                                                            |   |
| ITEM                6. EXHIBITS                AND REPORTS ON FORM 8-K                          | 21     |
|                                                                                            |   |
| SIGNATURES                                                                                      | 22     |
|                                                                                            |   |
| INDEX                TO EXHIBITS                                                                | 23     |

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*Table          of Contents*

**ITEM      1**
** CONSOLIDATED      **
**FINANCIAL      STA**
**TEMENTS**

**GFR        PHARMACEUTICALS INC.**

**INDEX        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**(UNAUDITED)**

|                                                                                                                                                                                          |   | **Page** |   |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------|--------|--------|
|                                                                                                                                                                                          |   |     |   |   |
| Condensed                  Consolidated Balance                  Sheet as of March 31, 2007 and December 31, 2006 (audited)                                                                   |   | 5        |   |   |
|                                                                                                                                                                                          |   |     |   |   |
| Condensed                  Consolidated Statements                  of Operations And Comprehensive Loss for the Three Months Ended                  March 31,                  2007 and 2006 |   | 6        |   |   |
|                                                                                                                                                                                          |   |     |   |   |
| Condensed                  Consolidated Statements                  of Cash Flows                  for the Three Months Ended March 31, 2007 and 2006                                         |   | 7        |   |   |
|                                                                                                                                                                                          |   |     |   |   |
| Notes                  to Condensed Consolidated Financial Statement                                                                                                                          |   | 8-15     |   |   |

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*Table            of Contents*

| **GFR                      PHARMACEUTICALS INC.****CONDENSED                      CONSOLIDATED BALANCE SHEETS****AS                      OF MARCH 31, 2007 AND DECEMBER 31, 2006****(Currency                      expressed in United States Dollars (“US$”), except for number of                      shares)** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                                                                           |   |   |   |   |   |
|                                                                                                                                                                                                                                                                                                                           |   |  March                      31, 2007 |   |  December                      31, 2006 |   |
| **ASSETS**                                                                                                                                                                                                                                                                                                                     |   |  (unaudited) |   |  (audited) |   |
| Current                      assets:                                                                                                                                                                                                                                                                                           |   |    |   |    |   |
| Cash                      and cash equivalents                                                                                                                                                                                                                                                                                 |   | $ | 157,560 |   | $ | 64,543 |   |
| Accounts                      receivable, trade                                                                                                                                                                                                                                                                                |   |   | 473,533 |   |   | 472,601 |   |
| Receivable                      from a third party                                                                                                                                                                                                                                                                             |   |   | 319,120 |   |   | - |   |
| Prepayments                      and deposits                                                                                                                                                                                                                                                                                  |   |   | 88,824 |   |   | 187,761 |   |
|                                                                                                                                                                                                                                                                                                                           |   |   |   |   |   |   |   |
| Total                      current assets                                                                                                                                                                                                                                                                                      |   |   | 1,039,037 |   |   | 724,905 |   |
|                                                                                                                                                                                                                                                                                                                           |   |   |   |   |   |   |   |
| Property,                      plant and equipment, net                                                                                                                                                                                                                                                                        |   |   | 5,163,957 |   |   | 5,272,074 |   |
|                                                                                                                                                                                                                                                                                                                           |   |   |   |   |   |   |   |
| **TOTAL                      ASSETS**                                                                                                                                                                                                                                                                                          |   | $ | 6,202,994 |   | $ | 5,996,979 |   |
|                                                                                                                                                                                                                                                                                                                           |   |   |   |   |   |   |   |
| **LIABILITIES                      AND STOCKHOLDERS’ EQUITY**                                                                                                                                                                                                                                                            |   |   |   |   |   |   |   |
| Current                      liabilities:                                                                                                                                                                                                                                                                                      |   |   |   |   |   |   |   |
| Short-term                      bank loan                                                                                                                                                                                                                                                                                      |   | $ | 1,280,000 |   | $ | 1,280,000 |   |
| Other                      payables and accrued liabilities                                                                                                                                                                                                                                                                    |   |   | 116,803 |   |   | 151,298 |   |
| Income                      tax payable                                                                                                                                                                                                                                                                                        |   |   | 83,424 |   |   | 11,474 |   |
|                                                                                                                                                                                                                                                                                                                           |   |   |   |   |   |   |   |
| Total                      current liabilities                                                                                                                                                                                                                                                                                 |   |   | 1,480,227 |   |   | 1,442,772 |   |
|                                                                                                                                                                                                                                                                                                                           |   |   |   |   |   |   |   |
|                                                                                                                                                                                                                                                                                                                           |   |   |   |   |   |   |   |
| Non-current                      liabilities:                                                                                                                                                                                                                                                                                  |   |   |   |   |   |   |   |
| Amount                      due to stockholders                                                                                                                                                                                                                                                                                |   |   | 195,083 |   |   | 169,961 |   |
|                                                                                                                                                                                                                                                                                                                           |   |   |   |   |   |   |   |
| **TOTAL                      LIABILITIES**                                                                                                                                                                                                                                                                                     |   |   | 1,675,310 |   |   | 1,612,733 |   |
|                                                                                                                                                                                                                                                                                                                           |   |   |   |   |   |   |   |
| **MINORITY                      INTEREST**                                                                                                                                                                                                                                                                                     |   |   | 232,064 |   |   | 221,163 |   |
|                                                                                                                                                                                                                                                                                                                           |   |   |   |   |   |   |   |
| Stockholders’                      equity:                                                                                                                                                                                                                                                                               |   |   |   |   |   |   |   |
| Common                      stock, $0.001 par value; 100,000,000 shares authorized; 42,079,940                      and                      41,079,940 shares issued and outstanding                                                                                                                                          |   |   | 42,080 |   |   | 41,080 |   |
| Additional                      paid-in capital                                                                                                                                                                                                                                                                                |   |   | 3,712,120 |   |   | 3,413,120 |   |
| Deferred                      compensation                                                                                                                                                                                                                                                                                     |   |   | (108,000 | ) |   | - |   |
| Accumulated                      other comprehensive income                                                                                                                                                                                                                                                                    |   |   | 100,624 |   |   | 89,578 |   |
| Statutory                      reserve                                                                                                                                                                                                                                                                                         |   |   | 77,579 |   |   | 77,579 |   |
| Retained                      earnings                                                                                                                                                                                                                                                                                         |   |   | 471,217 |   |   | 541,726 |   |
|                                                                                                                                                                                                                                                                                                                           |   |   |   |   |   |   |   |
| Total                      stockholders’ equity                                                                                                                                                                                                                                                                          |   |   | 4,295,620 |   |   | 4,163,083 |   |
|                                                                                                                                                                                                                                                                                                                           |   |   |   |   |   |   |   |
| **TOTAL                      LIABILITIES AND STOCKHOLDERS’ EQUITY**                                                                                                                                                                                                                                                      |   | $ | 6,202,994 |   | $ | 5,996,979 |   |
|                                                                                                                                                                                                                                                                                                                           |   |   |   |   |   |   |   |
|                                                                                                                                                                                                                                                                                                                           |   |   |   |   |   |   |   |
| See                      accompanying notes to condensed consolidated financial                      statements.                                                                                                                                                                                                               |

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*Table            of Contents*

| **GFR                    PHARMACEUTICALS INC.****CONDENSED                    CONSOLIDATED STATEMENTS OF OPERATIONS****AND                    COMPREHENSIVE LOSS****FOR                    THE THREE MONTHS ENDED MARCH 31, 2007 AND 2006****(Currency                    expressed in United States Dollars (“US$”), except for number of                    shares)****(Unaudited)** |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                                                                                                                                               |   |   |   |
|                                                                                                                                                                                                                                                                                                                                                                                               |   | Three                    Months Ended March 31, |   |
|                                                                                                                                                                                                                                                                                                                                                                                               |   | 2007 |   | 2006 |   |
|                                                                                                                                                                                                                                                                                                                                                                                               |   |    |   |    |   |
| **REVENUE,                    NET**                                                                                                                                                                                                                                                                                                                                                                |   | $ | 399,879 |   | $ | 144,672 |   |
|                                                                                                                                                                                                                                                                                                                                                                                               |   |   |   |   |   |   |   |
| **OPERATING                    EXPENSES:**                                                                                                                                                                                                                                                                                                                                                         |   |   |   |   |   |   |   |
| Consulting                    and professional fee                                                                                                                                                                                                                                                                                                                                                 |   |   | 7,015 |   |   | - |   |
| Stock-based                    compensation                                                                                                                                                                                                                                                                                                                                                        |   |   | 192,000 |   |   | - |   |
| Depreciation                                                                                                                                                                                                                                                                                                                                                                                       |   |   | 111,638 |   |   | 34,910 |   |
| General                    and administrative                                                                                                                                                                                                                                                                                                                                                      |   |   | 52,528 |   |   | 123 |   |
|  Total                    operating expenses                                                                                                                                                                                                                                                                                                                                                  |   |   | 363,181 |   |   | 35,033 |   |
|                                                                                                                                                                                                                                                                                                                                                                                               |   |   |   |   |   |   |   |
|                                                                                                                                                                                                                                                                                                                                                                                               |   |   |   |   |   |   |   |
| **INCOME                    FROM OPERATIONS**                                                                                                                                                                                                                                                                                                                                                      |   |   | 36,698 |   |   | 109,639 |   |
|                                                                                                                                                                                                                                                                                                                                                                                               |   |   |   |   |   |   |   |
| **OTHER                    INCOME (EXPENSE):**                                                                                                                                                                                                                                                                                                                                                     |   |   |   |   |   |   |   |
| Interest                    income                                                                                                                                                                                                                                                                                                                                                                 |   |   | 90 |   |   | 15 |   |
| Interest                    expense                                                                                                                                                                                                                                                                                                                                                                |   |   | (24,446 | ) |   | - |   |
|  Total                    other (expense) income                                                                                                                                                                                                                                                                                                                                              |   |   | (24,356 | ) |   | 15 |   |
|                                                                                                                                                                                                                                                                                                                                                                                               |   |   |   |   |   |   |   |
|                                                                                                                                                                                                                                                                                                                                                                                               |   |   |   |   |   |   |   |
| **INCOME                    BEFORE INCOME TAXES AND MINORITY INTEREST**                                                                                                                                                                                                                                                                                                                            |   |   | 12,342 |   |   | 109,654 |   |
|                                                                                                                                                                                                                                                                                                                                                                                               |   |   |   |   |   |   |   |
| Income                    tax expenses                                                                                                                                                                                                                                                                                                                                                             |   |   | (71,950 | ) |   | (11,179 | ) |
| Minority                    interest                                                                                                                                                                                                                                                                                                                                                               |   |   | (10,901 | ) |   | - |   |
|                                                                                                                                                                                                                                                                                                                                                                                               |   |   |   |   |   |   |   |
| **NET                    (LOSS) INCOME**                                                                                                                                                                                                                                                                                                                                                           |   | $ | (70,509 | ) | $ | 98,475 |   |
|                                                                                                                                                                                                                                                                                                                                                                                               |   |   |   |   |   |   |   |
| Other                    comprehensive income:                                                                                                                                                                                                                                                                                                                                                     |   |   |   |   |   |   |   |
| -                    Foreign currency translation gain                                                                                                                                                                                                                                                                                                                                             |   |   | 11,046 |   |   | 22,416 |   |
|                                                                                                                                                                                                                                                                                                                                                                                               |   |   |   |   |   |   |   |
| **COMPREHENSIVE                    (LOSS) INCOME**                                                                                                                                                                                                                                                                                                                                                 |   | $ | (59,463 | ) | $ | 120,891 |   |
|                                                                                                                                                                                                                                                                                                                                                                                               |   |   |   |   |   |   |   |
| Net                    (loss) income per share - Basic and diluted                                                                                                                                                                                                                                                                                                                                 |   | $ | (0.00 | ) | $ | 0.00 |   |
|                                                                                                                                                                                                                                                                                                                                                                                               |   |   |   |   |   |   |   |
| Weighted                    average number of shares outstanding during the period - Basic                    and                    diluted                                                                                                                                                                                                                                                       |   |   | 41,791,051 |   |   | 40,000,000 |   |
|                                                                                                                                                                                                                                                                                                                                                                                               |   |   |   |   |   |   |   |
|                                                                                                                                                                                                                                                                                                                                                                                               |   |   |   |   |   |   |   |
| See                    accompanying notes to condensed consolidated financial                    statements.                                                                                                                                                                                                                                                                                       |

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*Table            of Contents*

| **GFR                      PHARMACEUTICALS INC.****CONDENSED                      CONSOLIDATED STATEMENTS OF CASH FLOWS****FOR                      THE THREE MONTHS ENDED MARCH 31, 2007 AND 2006****(Currency                      expressed in United States Dollars (“US$”))****(Unaudited)** |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                                                          |   |   |   |   |   |
|                                                                                                                                                                                                                                                                                                          |   |   |   | Three                      Months Ended March 31, |   |
|                                                                                                                                                                                                                                                                                                          |   |   |   | 2007 |   | 2006 |   |
|                                                                                                                                                                                                                                                                                                          |   |   |   |   |   |    |   |
| **Cash                      flows from operating activities:**                                                                                                                                                                                                                                                |   |   |   |   |   |    |   |
| Net                      (loss) income                                                                                                                                                                                                                                                                        |   |   |   |   | $ | (70,509 | ) | $ | 98,475 |   |
| Adjustments                      to reconcile net (loss) income to net cash provided by (used                      in) operating                      activities:                                                                                                                                             |   |   |   |   |   |   |   |   |   |   |
| Depreciation                                                                                                                                                                                                                                                                                                  |   |   |   |   |   | 111,638 |   |   | 34,910 |   |
| Stock-based                      compensation                                                                                                                                                                                                                                                                 |   |   |   |   |   | 192,000 |   |   | - |   |
| Minority                      interest                                                                                                                                                                                                                                                                        |   |   |   |   |   | 10,901 |   |   | - |   |
| Change                      in operating assets and liabilities:                                                                                                                                                                                                                                              |   |   |   |   |   |   |   |   |   |   |
| Accounts                      receivable, trade                                                                                                                                                                                                                                                               |   |   |   |   |   | (932 | ) |   | (153,545 | ) |
| Receivable                      from a third party                                                                                                                                                                                                                                                            |   |   |   |   |   | (319,120 | ) |   | - |   |
| Prepayments                      and deposits                                                                                                                                                                                                                                                                 |   |   |   |   |   | 98,937 |   |   | (62,387 | ) |
| Other                      payables and accrued liabilities                                                                                                                                                                                                                                                   |   |   |   |   |   | (34,495 | ) |   | 26,837 |   |
| Income                      tax payable                                                                                                                                                                                                                                                                       |   |   |   |   |   | 71,950 |   |   | - |   |
|                                                                                                                                                                                                                                                                                                          |   |   |   |   |   |   |   |   |   |   |
| Net                      cash provided by (used in) operating activities                                                                                                                                                                                                                                      |   |   |   |   |   | 60,370 |   |   | (55,710 | ) |
|                                                                                                                                                                                                                                                                                                          |   |   |   |   |   |   |   |   |   |   |
| **Cash                      flows from investing activities:**                                                                                                                                                                                                                                                |   |   |   |   |   |   |   |   |   |   |
| Purchase                      of property, plant and equipment                                                                                                                                                                                                                                                |   |   |   |   |   | (3,521 | ) |   | - |   |
|  Net                      cash used in investing activities                                                                                                                                                                                                                                              |   |   |   |   |   | (3,521 | ) |   | - |   |
|                                                                                                                                                                                                                                                                                                          |   |   |   |   |   |   |   |   |   |   |
| **Cash                      flows from financing activities:**                                                                                                                                                                                                                                                |   |   |   |   |   |   |   |   |   |   |
| Contribution                      from stockholders                                                                                                                                                                                                                                                           |   |   |   |   |   | 25,122 |   |   | 29,557 |   |
|  Net                      cash provided by financing activities                                                                                                                                                                                                                                          |   |   |   |   |   | 25,122 |   |   | 29,557 |   |
|                                                                                                                                                                                                                                                                                                          |   |   |   |   |   |   |   |   |   |   |
| **Foreign                      currency translation adjustment**                                                                                                                                                                                                                                              |   |   |   |   |   | 11,046 |   |   | 22,416 |   |
|                                                                                                                                                                                                                                                                                                          |   |   |   |   |   |   |   |   |   |   |
| **NET                      CHANGE IN CASH AND CASH EQUIVALENTS**                                                                                                                                                                                                                                              |   |   |   |   |   | 93,017 |   |   | (3,737 | ) |
|                                                                                                                                                                                                                                                                                                          |   |   |   |   |   |   |   |   |   |   |
| **CASH                      AND CASH EQUIVALENTS, BEGINNING OF PERIOD**                                                                                                                                                                                                                                       |   |   |   |   |   | 64,543 |   |   | 6,225 |   |
|                                                                                                                                                                                                                                                                                                          |   |   |   |   |   |   |   |   |   |   |
| **CASH                      AND CASH EQUIVALENTS, END OF PERIOD**                                                                                                                                                                                                                                             |   |   |   |   | $ | 157,560 |   | $ | 2,488 |   |
|                                                                                                                                                                                                                                                                                                          |   |   |   |   |   |   |   |   |   |   |
| **SUPPLEMENTAL                      DISCLOSURE OF CASH FLOW INFORMATION:**                                                                                                                                                                                                                                    |   |   |   |
| Cash                      paid for income taxes                                                                                                                                                                                                                                                               |   |   |   |   | $ | - |   | $ | - |   |
| Cash                      paid for interest expenses                                                                                                                                                                                                                                                          |   |   |   |   | $ | 24,446 |   | $ | - |   |
|                                                                                                                                                                                                                                                                                                          |   |   |   |   |   |   |   |   |   |   |
| **SUPPLEMENTAL                      DISCLOSURE OF NON-CASH TRANSACTIONS:**                                                                                                                                                                                                                                    |
| Equipment                      financed by minority interest in a subsidiary                                                                                                                                                                                                                                  |   |   |   |   |   | - |   | $ | 181,130 |   |
| Equipment                      financed by stockholders                                                                                                                                                                                                                                                       |   |   |   |   |   | - |   | $ | 3,441,463 |   |

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*Table            of Contents*

**GFR        PHARMACEUTICALS INC**
**.**

**NOTES        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**FOR        THE THREE MONTHS ENDED MARCH 31, 2007**

**(Currency        expressed in United States Dollars (“US$”))**

**(Unaudited)**

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**NOTE        **
**1**
**BASIS        OF PRESENTATION**

**NOTE        **
**2**
**ORGANIZATION        AND BUSINESS BACKGROUND**

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*Table            of Contents*

**GFR          PHARMACEUTICALS INC**
**.**

**NOTES          TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**FOR          THE THREE MONTHS ENDED MARCH 31, 2007**

**(Currency          expressed in United States Dollars (“US$”))**

**(Unaudited)**

----

----

**NOTE        **
**3**
**SUMMARY        OF SIGNIFICANT ACCOUNTING POLICIES**

| l   | Basis                of presentation |
|---------------|--------------------------------------|
| l   | Use                of estimates |
|---------------|---------------------------------|
| l   | Basis                of consolidation |
|---------------|---------------------------------------|
| l   | Cash                and cash equivalents |
|---------------|------------------------------------------|
| l   | Accounts                receivable |
|---------------|------------------------------------|
| l   | Property,                plant and equipment, net |
|---------------|---------------------------------------------------|

|                                              | Depreciable                  life |   | Residual                  value |
|---------------------------------------------------|-----------------------------------|--------|---------------------------------|
| Buildings                                         | 20                  years         |   | 5%                              |
| Medical                  equipment                | 13                  to 16 years   |   | 5%                              |
| Furniture,                  fixture and equipment | 5                  years          |   | 5%                              |

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*Table            of Contents*

**GFR          PHARMACEUTICALS INC**
**.**

**NOTES          TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**FOR          THE THREE MONTHS ENDED MARCH 31, 2007**

**(Currency          expressed in United States Dollars (“US$”))**

**(Unaudited)**

----

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| l   | Construction                in progress |
|---------------|-----------------------------------------|
| l   | Impairment                of long-lived assets |
|---------------|------------------------------------------------|

*“Accounting        for the impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed        of”*

| l   | Revenue                recognition |
|---------------|------------------------------------|
| a)   | Service                revenue |
|----------------|--------------------------------|

*“Reporting        Revenues Gross as a Principle versus Net as an Agent.”*

| b)   | Interest                income |
|----------------|--------------------------------|
|  |   |
|--|--------|
| l   | Income                taxes |
|---------------|-----------------------------|

*“Interim        Financial Reporting”*
*“Accounting        for Income Taxes in Interim Periods.”*

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*Table            of Contents*

**GFR          PHARMACEUTICALS INC**
**.**

**NOTES          TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**FOR          THE THREE MONTHS ENDED MARCH 31, 2007**

**(Currency          expressed in United States Dollars (“US$”))**

**(Unaudited)**

----

----

| l   | Net                (loss) income per share |
|---------------|--------------------------------------------|

*“Earnings        per Share.”*

| l   | Comprehensive                (loss) income |
|---------------|-------------------------------------------------|

*“Reporting        Comprehensive Income”*

| l   | Foreign                currencies translation |
|---------------|-----------------------------------------------|
| l   | Stock-based                compensation |
|---------------|-----------------------------------------|

*“Accounting        for Stock-Based Compensation”*

| l   | Related                parties |
|---------------|--------------------------------|

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*Table            of Contents*

**GFR          PHARMACEUTICALS INC**
**.**

**NOTES          TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**FOR          THE THREE MONTHS ENDED MARCH 31, 2007**

**(Currency          expressed in United States Dollars (“US$”))**

**(Unaudited)**

----

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| l   | Segment                reporting |
|---------------|----------------------------------|

*“Disclosures        about Segments of an Enterprise and Related Information”*

| l   | Fair                value of financial instruments |
|---------------|----------------------------------------------------|

*Disclosures        about Fair Value of Financial Instruments*

| l   | Recently                issued accounting standards |
|---------------|-----------------------------------------------------|

*“The        Fair Value Option for Financial Assets and Financial Liabilities — Including an        Amendment of FASB Statement No. 115”*
*“Accounting        for Certain Investments in Debt and Equity Securities,*

**NOTE        **
**4**
**ACCOUNTS        RECEIVABLE, TRADE**

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*Table            of Contents*

**GFR          PHARMACEUTICALS INC**
**.**

**NOTES          TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**FOR          THE THREE MONTHS ENDED MARCH 31, 2007**

**(Currency          expressed in United States Dollars (“US$”))**

**(Unaudited)**

----

----

**NOTE        **
**5**
**RECEIVABLE        FROM A THIRD PARTY**

**NOTE        **
**6**
**PREPAYMENTS        AND DEPOSITS**

|                                     |   | March                    31, 2007 |   | December                    31, 2006 |   |
|------------------------------------------|--------|-----------------------------------|--------|--------------------------------------|--------|
|                                     |   |                         |   | (audited)                            |   |
|                                     |   |                         |   |                            |   |
| Advances                    to employees |   | $                                 | 26,172 |                                 | $      | 17,923 |   |
| Prepaid                    expenses      |   |                              | 48,513 |                                 |   | 42,324 |   |
| Deposits                                 |   |                              | 14,139 |                                 |   | 127,514 |   |
|                                          |   | $                                 | 88,824 |                                 | $      | 187,761 |   |

**NOTE        **
**7**
**PROPERTY,        PLANT AND EQUIPMENT, NET**

|                                                  |   | March                    31, 2007 |      | December                    31, 2006 |   |
|-------------------------------------------------------|--------|-----------------------------------|-----------|--------------------------------------|--------|
|                                                  |   |                         |      | (audited)                            |   |
|                                                  |   |                         |      |                            |   |
| Buildings                                             |   | $                                 | 83,133    |                                 | $      | 83,133 |   |
| Medical                    equipment                  |   |                              | 5,379,652 |                                 |   | 5,379,652 |   |
| Furniture,                    fixture and equipment   |   |                              | 17,027    |                                 |   | 17,027 |   |
| Construction                    in progress           |   |                              | 248,933   |                                 |   | 245,412 |   |
|                                                  |   |                              | 5,728,745 |                                 |   | 5,725,224 |   |
| Less:                    accumulated depreciation     |   |                              | (564,788  | )                                    |   | (453,150 | ) |
| Property,                    plant and equipment, net |   | $                                 | 5,163,957 |                                 | $      | 5,272,074 |   |

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*Table            of Contents*

**GFR            PHARMACEUTICALS INC**
**.**

**NOTES            TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**FOR            THE THREE MONTHS ENDED MARCH 31, 2007**

**(Currency            expressed in United States Dollars (“US$”))**

**(Unaudited)**

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**NOTE        **
**8**
**OTHER        PAYABLES AND ACCRUED LIABILITIES**

|                                       |   | March                    31, 2007 |    | December                    31, 2006 |   |
|--------------------------------------------|--------|-----------------------------------|---------|--------------------------------------|--------|
|                                       |   |                         |    | (audited)                            |   |
|                                       |   |                         |    |                            |   |
| Government                    levy payable |   | $                                 | 46,437  |                                 | $      | 96,997 |   |
| Salaries                    payable        |   |                              | 8,525   |                                 |   | 11,128 |   |
| Accrued                    expenses        |   |                              | 61,841  |                                 |   | 43,173 |   |
|                                       |   | $                                 | 116,803 |                                 | $      | 151,298 |   |

**NOTE        **
**9**
**SHORT-TERM        BANK LOAN**

**NOTE        **
**10**
**AMOUNT        DUE TO STOCKHOLDERS**

**NOTE        **
**11**
**STOCK-BASED        COMPENSATION**

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*Table            of Contents*

**GFR          PHARMACEUTICALS INC**
**.**

**NOTES          TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**FOR          THE THREE MONTHS ENDED MARCH 31, 2007**

**(Currency          expressed in United States Dollars (“US$”))**

**(Unaudited)**

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**NOTE          **
**12**
**CONCENTRATION          AND RISK**

| Customer                            |   |  Revenue |    | Percentage                    of                    revenue |   |  Accountsreceivable |   |
|-------------------------------------|--------|---------------|---------|-------------------------------------------------------------|--------|--------------------------|--------|
|  Customer                    A |   | $             | 399,879 |                                                        |   | 100                      | %      | $ | 473,533 |   |

| Customer                            |   |  Revenue |    | Percentage                    of                    revenue |   |  Accountsreceivable |   |
|-------------------------------------|--------|---------------|---------|-------------------------------------------------------------|--------|--------------------------|--------|
|  Customer                    A |   | $             | 144,672 |                                                        |   | 100                      | %      | $ | 153,545 |   |

**NOTE        **
**13**
**COMMITMENT        AND CONTINGENCIES**

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*Table            of Contents*

**ITEM      2.**
**MANAGEMENT'S      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF      OPE**
**RATION**

**GENERAL      DESCRIPTION OF BUSINESS**

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*Table          of Contents*

**RESULTS      OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2007**

*Revenue      recognition*

| a)   | Service                revenue |
|----------------|--------------------------------|

*“Reporting      Revenues Gross as a Principle versus Net as an Agent.”*

| b)   | Interest                income |
|----------------|--------------------------------|

*Stock-based      compensation *

*“Accounting      for Stock-Based Compensation”*

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*Table          of Contents*

*Property,      plant and equipment, net*

|                                            | Depreciable                life |   | Residual                value |
|-------------------------------------------------|---------------------------------|--------|-------------------------------|
| Buildings                                       | 20                years         |   | 5%                            |
| Medical                equipment                | 13                to 16 years   |   | 5%                            |
| Furniture,                fixture and equipment | 5                years          |   | 5%                            |

**Revenues**

**Income      / Loss**

| -   | Advise                on matters relating to our structure, management, operation and                subsidiaries;                   |
|---------------|--------------------------------------------------------------------------------------------------------------------------------------|
| -   | The                preparation and implementation of a new business plan and a future                growth                strategy; |
| -   | Assistance                with preparation of applicable filings with the SEC;                                                       |
| -   | Assistance                with preparation of consolidated financial statements;                                                     |
| -   | EDGAR                services                                                                                                        |
| -   | Advise                on procedures, regulations, and compliance of a public listed                company;                          |

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*Table          of Contents*

**Expenses**

**Impact      of Inflation**

**Liquidity      and Capital Resources**

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*Table          of Contents*

| * | Curtail                new services launches |
|---|----------------------------------------------|

| * | Limit                our future marketing efforts to areas that we believe would be the                most                profitable. |
|---|----------------------------------------------------------------------------------------------------------------------------------------|

** **

**ITEM      3. CONTROLS AND PROCEDURES.**

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*Table          of Contents*

**PART      II. OTHER INFORMATION**

**ITEM      1.      LEGAL PROCEEDINGS**

**ITEM      2.      CHANGES IN SECU**
**RITIES**

**ITEM      3.      DEFAULTS UPON SENIOR SEC**
**URITIES**

**ITEM      4.      SUBMISSION OF MATTERS TO A VOTE OF SECURITY      H**
**OLDERS**

**ITEM      5.      OTHER INFOR**
**MATION**

**ITEM      6. EXHIBITS AND REPORTS **
**ON      FORM 8-K**

| (1)   | Exhibits:                Exhibits required to be attached by Item 601 of Regulation S-B are                listed                in the Index to Exhibits Beginning on page 8 of this Form 10-QSB,                which is                incorporated herein by reference. |
|-----------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (1)   | On                January 18, 2007, we filed a current report on Form 8-K to announce                the                change of our certifying accountant.                                                        |
|-----------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|            |                                                                                                                                                                                                                |
| (2)             | On                February 2, 2007, we filed an amendment to current report on Form                8-K/A to                amend the announcement regarding the change of our certifying                accountant. |
|            |                                                                                                                                                                                                                |
| (3)             | On                March 22, 2007, we filed a current report on Form 8-K to announce                the                acquisition of Hua Long.                                                                      |

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*Table          of Contents*

**SIG**
**NATURES**

|                                          | **GFR                PHARMACEUTICALS, INC.**                 |
|-----------------------------------------------|--------------------------------------------------------------|
|                                     |                                                    |    |
| Date:                May 20, 2007   | By:                                                | /s/ Su,                Jie |
|                                          | Su,                JieChief                Executive Officer |

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*Table          of Contents*

**INDEX      TO E**
**XHIBITS**

| **Exhibit                No.** | **Description**                                                                                                                                                  |
|--------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                           |                                                                                                                                                             |
| 31.1                           | Certification                of Chief Executive                Officer                                                                                           |
|                           |                                                                                                                                                             |
| 31.2                           | Certification                of Chief Financial                Officer                                                                                           |
|                           |                                                                                                                                                             |
| 32.1                           | Statement                required by 18 U.S.C. Section 1350, as adopted                pursuant to section 906 of the Sarbanes-Oxley Act of                2002. |
|                           |                                                                                                                                                             |
| 32.2                           | Statement                required by 18 U.S.C. Section 1350, as adopted                pursuant to section 906 of the Sarbanes-Oxley Act of                2002  |

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