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

                                   FORM 10-QSB

(Mark One)
              [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

                 For the quarterly period ended: June 30, 2006

             [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE
                                  EXCHANGE ACT

          For the transition period from ______________to ____________

                        Commission file number 000-27959

                            GFR Pharmaceuticals Corp.
            ---------------------------------------------------------
        (Exact name of small business issuer as specified in its charter)


                         Nevada                        77-0517964
            -----------------------------------------------------------
                 (State or other jurisdiction         (IRS Employer
              of incorporation or organization)     Identification No.)

        Suite 11405 - 201A Street, Maple Ridge, British Columbia V2X 0Y3
                    (Address of principal executive offices)

                                 (604) 460-8440
                            Issuer's telephone number


(Former  name,  former  address and former  fiscal year,  if changed  since last
report.)

                      APPLICABLE ONLY TO CORPORATE ISSUERS

         State the number of shares  outstanding of each of the issuer's classes
of common  equity,  as of the latest  practical  date:  June 30, 2006  1,079,940


         Transitional Small Business Disclosure Format (check one).
Yes      ;  No   X
    ----       ----


<PAGE>



PART I - FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

                    GFR PHARMACEUTICALS INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS


<TABLE>
<CAPTION>
                                                                                (Unaudited)
                                                                                  June 30,          December 31,
                                                                                    2006                2005
ASSETS
Current Assets:
<S>                                                                                    <C>                 <C>
Cash and Cash Equivalents                                                              $      -            $      -
Accounts Receivable, Net                                                              1,835,598           1,525,435
Inventory                                                                             1,856,978           1,789,407
Prepaid expense                                                                          82,960              86,765
                                                                             ------------------- -------------------

     Total Current Assets                                                             3,775,536           3,401,607
                                                                             ------------------- -------------------

Fixed Assets:
Manufacturing Equipment                                                                 917,037             495,953
Office Equipment                                                                        283,164             240,533
Furniture & Fixtures                                                                      5,332               4,061
Leasehold improvements                                                                   73,061              56,759
Property Held Under Capital Lease                                                       291,648             353,269
                                                                             ------------------- -------------------
                                                                                      1,570,242           1,150,575
Less Accumulated Depreciation                                                         (642,973)           (491,948)
                                                                             ------------------- -------------------
     Total Fixed Assets                                                                 927,269             658,627
                                                                             ------------------- -------------------



     TOTAL ASSETS                                                                    $4,702,805          $4,060,234
                                                                             =================== ===================
</TABLE>


                                       2

<PAGE>



                    GFR PHARMACEUTICALS INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                                   (Continued)


<TABLE>
<CAPTION>
                                                                                (Unaudited)
                                                                                  June 30,          December 31,
                                                                                    2006                2005
                                                                             ------------------- -------------------
LIABILITIES
Current Liabilities:
<S>                                                                                  <C>                 <C>
Accounts Payable and Accrued Liabilities                                             $1,205,550          $1,298,032
Bank Line                                                                               919,972             844,609
Related Party Loans                                                                     178,603             166,742
Shareholder Payables                                                                    242,827                   -
Current Portion of Obligations Under Capital Leases                                      56,123              46,184
Current Portion Long-Term Debt                                                            8,933               8,543
                                                                             ------------------- -------------------

     Total Current Liabilities                                                        2,612,008           2,364,110
                                                                             ------------------- -------------------

Non-Current Liabilities:
Long-Term Debt                                                                           18,610              22,069
Lease Obligations                                                                        73,630              72,160
Deferred Tax Liability                                                                  236,320             225,114
                                                                             ------------------- -------------------

     Total Non-Current Liabilities                                                      328,560             319,343
                                                                             ------------------- -------------------

     Total Liabilities                                                                2,940,568           2,683,453
                                                                             ------------------- -------------------

STOCKHOLDERS EQUITY
Common Stock - $0.001 par value, 100,000,000
   shares authorized, 1,079,940 issued and outstanding
   at June 30, 2006 and December 31, 2005                                                 1,080               1,080
Additional Paid-in Capital                                                              698,961             698,961
Currency Translation Adjustment                                                         469,556             173,819
Retained Earnings (Deficit)                                                             592,640             502,921
                                                                             ------------------- -------------------

     Total Stockholders' Equity                                                       1,762,237           1,376,781
                                                                             ------------------- -------------------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                           $4,702,805          $4,060,234
                                                                             =================== ===================
</TABLE>



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


                                       3


<PAGE>



                    GFR PHARMACEUTICALS INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                      For the three months ended        For the six months ended
                                                                 June 30,                                 June 30,
                                          --------------------------------------   --------------------------------------
                                                2006                2005                 2006                 2005
                                          -----------------   ------------------   -----------------    -----------------
REVENUES
<S>                                             <C>                  <C>                 <C>                 <C>
Sales                                           $2,003,670           $1,561,874          $3,902,990          $ 2,936,675
Cost of Sales                                    1,412,560              812,209           2,723,900            1,729,372
                                          -----------------   ------------------   -----------------    -----------------
Gross margin                                       591,110              749,665           1,179,090            1,207,303
                                          -----------------   ------------------   -----------------    -----------------

EXPENSES
  Selling & Marketing                              108,157               66,171             198,291              115,163
  General & Administrative                         191,869              445,154             354,085              540,701
  Consulting                                        19,274               20,111              21,439               38,256
  Depreciation Expense                              29,460               31,353              62,217               60,666
  Salaries & Wages                                 184,167              167,529             346,096              358,790
                                          -----------------   ------------------   -----------------    -----------------
  Total Operating Expenses                         532,927              730,318             982,128            1,113,576
                                          -----------------   ------------------   -----------------    -----------------

Net Income from Operations                          58,183               19,347             196,962               93,727

Other Income (Expense)
  Interest, Net                                    (27,585)             (23,192)            (49,302)             (46,429)
  Currency Exchange, Net                            (5,430)                  (6)             (2,952)                 361
                                          -----------------   ------------------   -----------------    -----------------

Net Income (Loss)
  Before Income Taxes                               25,168               (3,851)            144,708               47,659
Income Tax Expense                                 (11,068)               6,674             (54,989)             (15,279)
                                          -----------------   ------------------   -----------------    -----------------

NET INCOME (LOSS)                                 $ 14,100              $ 2,823            $ 89,719             $ 32,380
                                          =================   ==================   =================    =================

Weighted Average
      Shares Outstanding                         1,079,949            1,079,949           1,079,949            1,079,949
                                          =================   ==================   =================    =================

Earnings (Loss) Per Share                           $ 0.01               $ 0.00              $ 0.08               $ 0.03
                                          =================   ==================   =================    =================
</TABLE>



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



                                       4

<PAGE>


                    GFR PHARMACEUTICALS INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                                    For the six months       For the six
                                                                                           ended            months ended
                                                                                       June 30,               June 30,
                                                                                         2006                   2005
                                                                                   ------------------     ------------------
Cash Flows From Operating Activities
<S>                                                                                       <C>                    <C>
  Net Income (loss) for the period                                                        $   89,719             $   32,380
Adjustments to reconcile net loss to net cash
  Provided by operating activities
     Depreciation and Amortization                                                            62,216                 54,266
     Decrease (Increase) in Receivables                                                    (102,984)                334,569
     Decrease (Increase) in Inventory                                                         13,830              (137,384)
     Decrease (Increase) in Prepaid Expense                                                    7,608               (18,991)
     Increase (Decrease) in Accounts Payable & Accrued Liabilities                         (147,730)               (68,692)
     Increase (Decrease) in Bank Overdraft                                                  (99,536)                 82,597
                                                                                   ------------------     ------------------
Net Cash Provided by (Used in) Operating Activities                                        (176,877)                278,745
                                                                                   ------------------     ------------------

Cash Flows From Investing Activities
     Purchase of Property and Equipment                                                     (75,476)                 24,830
                                                                                   ------------------     ------------------
Net Cash Used by Investing Activities                                                       (75,476)                 24,830
                                                                                   ------------------     ------------------

Cash Flows From Financing Activities
     Proceeds/(Payments) on Bank Line                                                              -              (313,452)
     Proceeds/(Payments) on Shareholder Payables                                             237,875                 21,811
     Proceeds/(Payments) Long Term Debt/Lease Obligation                                      11,525               (62,063)
                                                                                   ------------------     ------------------
Net Cash Provided by (Used in) Financing Activities                                          249,400              (353,704)
                                                                                   ------------------     ------------------

Net Effect of Foreign Currency Translation                                                     2,953                 50,129
Increase (Decrease) in Cash                                                                        -                      -
Cash at beginning of period                                                                        -                      -
                                                                                   ------------------     ------------------
Cash at End of Period                                                                      $       -               $      -
                                                                                   ==================     ==================

Supplemental Disclosure of Interest and Income Taxes Paid
  Interest paid during the period                                                            $49,302                $38,683
                                                                                   ==================     ==================
  Income taxes paid during the period                                                              -                      -
                                                                                   ==================     ==================
Supplemental Disclosure of Non-cash Investing and Financing Activities
  Manufacturing Equipment on Capital Lease
  Shares issued in satisfaction of notes payable                                           $       -               $      -
                                                                                   ==================     ==================
</TABLE>



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


                                       5

<PAGE>



                    GFR PHARMACEUTICALS INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         This summary of accounting policies for GFR  Pharmaceuticals,  Inc. and
Subsidiaries  (Formerly  Laredo  Investment  Corp.)  is  presented  to assist in
understanding  the  Company's  financial  statements.  The  accounting  policies
conform to generally accepted  accounting  principles and have been consistently
applied in the preparation of the financial statements.

Interim Reporting

         The unaudited financial  statements as of June 30, 2006, in the opinion
of management, all adjustments (which include only normal recurring adjustments)
necessary to fairly state the financial  position and results of operations  for
the six  months.  Operating  results for  interim  periods  are not  necessarily
indicative of the results which can be expected for full years.

Organization and Basis of Presentation

         The Company was  incorporated  under the laws of the State of Nevada on
December 18, 1996. The Company ceased all operating activities during the period
from December 18, 1996 to July 9, 1999 and was  considered  dormant.  On July 9,
1999,  the Company  obtained a Certificate  of renewal from the State of Nevada.
From July 9, 1999 to January 21, 2000, the Company was in the development stage.

         On January 21, 2000, Laredo entered into an Acquisition  Agreement with
GFR  Pharma,  Ltd.  (Formerly  GFR  Nutritionals,   Ltd.),  a  British  Columbia
corporation,  (GFR),  Richard Pierce and Lucretia  Schanfarber (the GFR Majority
Shareholders)  to acquire  their  shares  representing  100% of the  outstanding
common stock of GFR in exchange for  19,000,000  newly issued shares of Laredo's
restricted common stock. The transaction was recorded as a reverse  acquisition.
GFR was incorporated in March 1997 as Helm  Developments  Ltd. In June 1998, the
Company formally changed its name to GFR Nutritionals Ltd. GFR was 100% owned by
the President and CEO,  Richard  Pierce from  inception  until January 17, 2000,
when a 10% interest was acquired by Lucretia  Schanfarber.  Business  operations
began in October 1998 after acquiring  manufacturing  equipment and arranging to
manufacture nutritional supplements under a private label contract.

         On June 21, 2000,  the Company  entered into an  Acquisition  Agreement
with Nutritionals (USA) Direct.Com, a Washington corporation,  (NDC), to acquire
100%  of the  outstanding  common  stock  of NDC in  exchange  for  $1,000.  The
transaction  has been recorded as a purchase.  NDC operations were wound down in
October 2002 and the company became dormant.

                                       6

<PAGE>

                    GFR PHARMACEUTICALS INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Continued)

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

On November 1, 2000, the Company entered into an Acquisition  Agreement with GFR
Health, Inc. (Formerly R & L Health, Inc.), a British Columbia  corporation,  to
acquire 100% of the outstanding common stock of GFR Health, Inc. in exchange for
$0.01. The transaction was recorded as a purchase.

         On April 5, 2004,  GFR  Nutritionals  Ltd.  and R&L Health Inc  changed
their names to GFR Pharma Ltd. and GFR Health Inc. respectively.

         On August 9, 2004,  Laredo  Investment  Corp.  changed  its name to GFR
Pharmaceuticals, Inc.

Principles of Consolidation

         The  consolidated  financial  statements  include  the  accounts of GFR
Pharmaceuticals,  Inc.  (Formerly  Laredo  Investment  Corp.) and the  following
wholly owned subsidiaries:

*        GFR Pharma Ltd.  (Formerly GFR Nutritionals,  Ltd.), a British Columbia
         corporation
*        Nutritionals(USA) Direct.com, a Washington corporation
*        GFR Health,  Inc.  (Formerly R & L Health,  Inc.),  a British  Columbia
         corporation

         All  significant  inter-company  accounts  and  transactions  have been
eliminated.

Nature of Business

         The Company  specializes in formulating,  blending,  encapsulating  and
packing nutritional products.  The Company also distributes products through its
GFR Health Inc. subsidiary. The Company's operations are located in the province
of British Columbia, Canada.

Cash and Cash Equivalents

         For purposes of the statement of cash flows, the Company  considers all
highly liquid debt instruments purchased with a maturity of three months or less
to be cash equivalents to the extent the funds are not being held for investment
purposes.

                                       7

<PAGE>


                    GFR PHARMACEUTICALS INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Continued)

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

Inventories

         Raw materials  inventory is stated at a lower of weighted  average cost
and replacement value. Inventories of work in progress is stated at the lower of
weighted average cost and net realizable value.

Revenue Recognition

         Revenue is recognized  from sales of product at the time of shipment to
customers.

Advertising Costs

         Advertising is expensed as incurred.

Depreciation

         Fixed  assets  are stated at cost.  Depreciation  and  amortization  is
calculated  on a  straight-line  basis over the  estimated  useful  lives of the
assets as follows:
             Asset                                                   Rate

        Manufacturing equipment                                 10-20 years
        Furniture and fixtures                                    5-7 years
        Office equipment                                          3-5 years
        Computer Software                                           4 years
        Leasehold improvements                                Term of lease

         Maintenance  and  repairs are charged to  operations;  betterments  are
capitalized.  The  cost  of  property  sold  or  otherwise  disposed  of and the
accumulated  depreciation  thereon are eliminated  from the property and related
accumulated depreciation accounts, and any resulting gain or loss is credited or
charged to income.

The Company has adopted the Financial  Accounting Standards Board SFAS No., 121,
"Accounting for the Impairment of Long-lived Assets." SFAS No. 121 addresses the
accounting  for  (i)  impairment  of  long-lived   assets,   certain  identified
intangibles  and  goodwill  related  to  assets  to be held and  used,  and (ii)
long-live lived assets and certain identifiable intangibles to be

                                       8


<PAGE>


                    GFR PHARMACEUTICALS INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Continued)

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

disposed  of.  SFAS  No.  121  requires  that  long-lived   assets  and  certain
identifiable  intangibles  be  held  and  used  by an  entity  be  reviewed  for
impairment  whenever  events  or  changes  in  circumstances  indicate  that the
carrying amount of an asset may not be  recoverable.  If the sum of the expected
future  cash  flows  from  the use of the  asset  and its  eventual  disposition
(un-discounted and without interest charges) is less than the carrying amount of
the asset, an impairment loss is recognized.

Foreign Currency Translation

         The  Company's  functional  currency  is the  Canadian  dollar  and the
reporting currency is the U.S. Dollar. All elements of financial  statements are
translated  using a current  exchange  rate.  For  assets and  liabilities,  the
exchange  rate at the  balance  sheet  date is  used.  Stockholders'  Equity  is
translated using the historical rate. For revenues,  expenses,  gains and losses
the weighted average exchange rate for the period is used. Translation gains and
losses are included as a separate component of stockholders'  equity.  Gains and
losses resulting from foreign currency transactions are included in net income.

Pervasiveness of Estimates

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

Concentrations of Credit Risk

         The  Company has no  significant  off-balance-sheet  concentrations  of
credit  risk such as foreign  exchange  contracts,  options  contracts  or other
foreign hedging arrangements.

Income Taxes

         The Company  accounts for income taxes under the provisions of SFAS No.
109, "Accounting for Income Taxes." SFAS No.109 requires recognition of deferred
income  tax  assets  and   liabilities   for  the  expected  future  income  tax
consequences,  based on enacted tax laws, of temporary  differences  between the
financial reporting and tax bases of assets and liabilities.


                                       9


<PAGE>


                    GFR PHARMACEUTICALS INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Continued)

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

Reclassifications

         Certain   reclassifications  have  been  made  in  the  2005  financial
statements to conform with the 2006 presentation.

Earnings (Loss) per Share

         Basic  earnings  (loss) per share has been  computed  by  dividing  the
income (loss) for the year applicable to the common stockholders by the weighted
average  number of common  shares  outstanding  during the years.  There were no
common equivalent shares outstanding at June 30, 2006 and 2005.

Stock Compensation for Non-Employees

         The  Company  accounts  for the fair  value of its  stock  compensation
grants for  non-employees  in accordance with FASB Statement 123. The fair value
of each grant is equal to the market price of the Company's stock on the date of
grant if an active  market  exists or at a value  determined  in an arms  length
negotiation between the Company and the non-employee.

NOTE 2 - ACCOUNTS RECEIVABLE

         As of  June  30,  2006  and  December  31,  2005,  accounts  receivable
consisted of the following:

                                            June 30,        December 31,
                                              2006                2005
                                        ------------------  ------------------

Accounts Receivable                            $1,909,998          $1,607,436
Less: Allowance for Doubtful Accounts            (74,400)            (82,001)
                                        ------------------  ------------------

Total Accounts Receivable                      $1,835,598          $1,525,435
                                        ==================  ==================

         The allowance for doubtful accounts is based on management  estimate of
receivables over 120 days outstanding.

                                       10


<PAGE>


                    GFR PHARMACEUTICALS INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Continued)

NOTE 3 - INVENTORY

         Inventory is valued at lower of cost or market. As of June 30, 2006 and
December 31, 2005, inventory consists of the following:

                             June 30,          December 31
                               2006                2005
                        ------------------- -------------------
Raw materials                   $1,390,499          $1,419,651
Work in process                    103,089              39,654
Finished Goods                     363,390             330,102
                        ------------------- -------------------

Total                           $1,856,978          $1,789,407
Inventory
                        =================== ===================

NOTE 4 - INCOME TAXES

         The  provision  for income  taxes  consists  of  Canadian  federal  and
provincial and  territorial  income tax. For the six months ended June 30, 2006,
income tax expense has been  estimated as $54,989.  For the same period in 2005,
it was estimated as $15,279.

         Deferred taxes result from temporary  differences in the recognition of
income and expenses for income tax reporting and financial  statement  reporting
purposes.  The Company had deferred tax liability (asset) of 236,320 and 225,114
as of June 30, 2006 and December 31, 2005. The deferred tax liability (asset) is
the result of excess  depreciation  for income tax purposes  over the amount for
financial reporting purposes.

NOTE 5 - RELATED PARTY TRANSACTIONS

         As of June 30, 2006, a major shareholder of the Company, Richard Pierce
CEO of GFR Pharmaceuticals  Inc. gave the Company an unsecured line of credit of
up to $269,754  ($300,000  Canadian).  As of June 30,  2006,  the  Company  owes
$242,827 (270,054 Canadian) against this line of credit.

         Richard  Pierce,  CEO of Laredo holds a contract with GFR Health,  Ltd.
(Formerly R&L Health Inc.) that licenses his names and images for use on certain
products. He is paid a quarterly bonus of 10% of GFR Health, Inc. profits before
income taxes,  depreciation,  and amortization  are deducted as expenses.  As of
June 30, 2006 and 2005, $0 and $8,184 were accrued or paid.

                                       11

<PAGE>


                    GFR PHARMACEUTICALS INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Continued)

NOTE 6 - SHORT-TERM OBLIGATIONS

<TABLE>
<CAPTION>
                                                            June 30,          December 31,
                                                             2006                2005
                                                      ------------------- -------------------
<S>                                                   <C>                 <C>
Promissory note, repayable to related parties upon
   demand, including interest at 12%                            $178,603            $166,742
</TABLE>

         The Company has a line of credit with a bank with a total  amount owing
of  $919,972   and  $844,609  as  of  June  30,  2006  and  December  31,  2005,
respectively.  This line carries an interest rate of prime plus 0.5% and a total
available credit of $920,000 ($1,000,000 Canadian) as of June 30, 2006. The line
is secured by certain manufacturing equipment of the Company.

NOTE 7 - LONG-TERM DEBT

<TABLE>
<CAPTION>
                                                                    June 30,           December 31,
                                                                      2006                 2005
                                                                 ---------------    -------------------
<S>                                                              <C>                <C>
Business Development Bank of Canada Loan, repayable in
monthly installments $747 ($830 Canadian), including interest
at prime plus 1%, maturing August 23, 2009                              $27,543                $30,612

Less current portion of long-term debt                                  (8,933)                (8,543)
                                                                 ---------------    -------------------

                                                                        $18,610                $22,069
                                                                 ===============    ===================
</TABLE>

         Principal  payments  due on  long-term  debt for each of the five years
subsequent to December 31, 2005 and thereafter are as follows:

          Year ending:               Amount

              2006                         $8,933
              2007                          8,933
              2008                          8,933
              2009                            744
              2010
                               -------------------
           Thereafter
             Total                        $27,543
                               ===================

                                       12


<PAGE>


                    GFR PHARMACEUTICALS INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Continued)

NOTE 8 - ECONOMIC DEPENDENCE

         The Company sells a substantial portion of its product to one customer.
During  the  first  two  quarters  of 2006  and  2005,  sales  to that  customer
aggregated 41% and 55%, respectively. As of June 30, 2006 and December 31, 2005,
amounts due from that customer included in accounts receivable were 34% and 49%,
respectively.  Future  operations of the Company depend on  continuation  of the
manufacturing arrangement with that customer.



NOTE 9 - COMMITMENTS


         The Company has entered into a lease  agreements for its  manufacturing
and office  facilities  and certain  manufacturing  equipment with the Company's
major  shareholder,  Richard  Pierce and other  parties.  The rental charges are
approximately  $241,200  ($268,000  Canadian)  per year for  real  property  and
$58,860 ($65,400  Canadian) per year for equipment.  There are two real property
leases.  The first  expires  December 31, 2006,  it is comprised of the original
building  that the company has been  operating  from.  The second is a five year
lease that will expire  March 31,  2011.  This lease is where the new  operating
premises will be located. The equipment leases expire June 2005 through December
2008.

         The assets and  liabilities  under  capital  leases are recorded at the
fair value of the asset.  The  assets  are  depreciated  over the lower of their
estimated  productive  lives.  Depreciation  of assets under  capital  leases is
included in depreciation expense for 2006 and 2005.


         Following is a summary of property held under capital leases:

                                             June 30,         December 31,
                                               2006               2005
                                        ------------------- ------------------
Manufacturing Equipment                           $291,648           $353,269
Less: Accumulated Depreciation                    (79,196)           (61,430)
                                        ------------------- ------------------

Net Assets Held Under Capital Lease               $212,452           $291,839
                                        =================== ==================

                                       13


<PAGE>


                    GFR PHARMACEUTICALS INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Continued)

NOTE 9 - COMMITMENTS (Continued)

The minimum  future  lease  payments  under these leases for the next five years
are:

Ending December 31:                              Real Property     Equipment
                            2006               $     241,200         $65,985
                            2007                     356,400         $68,691
                            2008                     356,400         $30,744
                            2009                     356,400          $9,531
                            2010                     356,400          $7,943
                                               -------------  ---------------
Net Minimum Lease Payments                        1,666,800        182,894
Less: Amount Representing Interest                        -        (22,126)
                                              --------------  --------------
Present Value of Net Minimum Lease Payment      $ 1,666,800     $  160,768
                                              ==============  ===============

         The leases  generally  provides  that  insurance,  maintenance  and tax
expenses  are  obligations  of the  Company.  It is expected  that in the normal
course of business,  leases that expire will be renewed or replaced by leases on
other properties.

NOTE 10 - STOCK INCENTIVE PLAN

         The Board of Directors has authorized  and the Company has  established
the 2000  Incentive  and  Non-qualified  Stock Option  Plan.  Under the plan the
Company is  authorized  to issue up to 200,000  shares of the  Company's  common
stock with such  exercise  price and vesting  periods as the Board of  Directors
deems to be in the best interest of the Company. As of June 30, 2006, no options
have been granted.

NOTE 11 - STOCK SPLIT

         On August 9, 2004, the Company changed its name from Laredo  Investment
Corp. To GFR Pharmaceuticals, Inc. In addition, a retroactive 30:1 reverse stock
split was approved by shareholders.  All references to stock in the accompanying
financial statements reflect this stock split.


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<PAGE>



ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.

Plan of Operations

The  Company  is  currently  working  on  securing   additional   private  label
manufacturing  contracts.  The key target for private  label sales are wholesale
distributors   of  health  food  nutrition   products.   GFR  is  also  pursuing
opportunities  for direct  sales to  consumers  through  the  Internet.  GFR has
entered into the OTC (Over the  Counter)  drug market with the  introduction  of
Acetaminophen and A.S.A. products but has no signed contracts at this time.

Liquidity and Capital Resources

GFR's  working  capital  ratio  was 1.45 at June 30,  2006  compared  to 1.44 at
December  31,  2005.  Current  liabilities  include a $178,603  promissory  note
payable to a party related to the major  shareholder,  , Richard  Pierce,  which
bears interest at 12% annually. These funds are repayable on demand however, the
request for repayment occurring at this time is not expected.

GFR has a small business loan with an outstanding  balance of $27,639 as of June
30, 2006. This loan bears interest at prime plus 1 percent,  maturing August 23,
2009.

GFR  acquired  an  additional  $75,456  of  manufacturing  equipment  in the two
quarters of 2006. An additional $275,000 of manufacturing  equipment is expected
to be purchased in 2006 in order to meet demands for new private label sales.

Results of Operations


                                                For the Six Months Ended
                                                        June 30,
                                                2006               2005
Sales                                             3,902,990          2,936,675
Cost of Sales                                     2,723,900          1,729,372
                                          ------------------ ------------------
Gross Margin                                      1,179,090          1,207,303
Gross Profit Percentage                              30.21%             41.00%

Selling and Marketing Expenses                      198,291            115,163
Selling Expense as a % of Sales                       5.08%              3.92%

Admin. and Other Expenses                           783,836            998,413
Admin Expenses as a % of Sales                       20.08%             34.00%


For the six months ended June 30, 2006,  sales were  $966,315  higher than 2005.
The  increase  was due to GFR  Health  Ltd.  Sales to  Costco  Wholesale  Canada


                                       15
<PAGE>

reaching the same levels that were  experienced  in 2004.  Sales are expected to
slow for GFR  Pharma  Ltd.  in the third  quarter  as sales  orders for July and
August 2006 will not reach the monthly  levels  achieved in the first six months
of 2006.

During the first two  quarters of 2006 and 2005 sales to Prairie  Naturals  Inc.
were 41% and 55% respectively.  GFR has a verbal arrangement to manufacture,  on
an  as-ordered  basis,   private  label  products  that  Prairie  Naturals  Inc.
distributes  under the Prairie  Naturals  Inc.  name.  GFR also has an exclusive
written   contract  to  manufacture  one  product  that  Prairie  Naturals  Inc.
distributes for a third party private label.

Operating  margins for the six months  ending June 30, 2006 and 2005 were 30.21%
and 41.00% of sales  revenue.  Cost of Sales  includes the cost of raw materials
used in  manufacturing,  production  labor  costs  and an  applicable  share  of
overhead  expenses.  Operating  margins for the two quarters were lower than the
same period for 2005 in part because the product mix  contained  jobs with lower
margins in general.

General and  administrative  expenses for the six months ended June 30, 2006 and
2005 were 20.08% and 34.00% of sales.  GFR  anticipates  realizing  economies of
scale as production  volumes increase.  This will be reflected  favorably in the
future by decreasing further the percentage of sales for these expenses.

Effect of Inflation

GFR does not anticipate any financial impact, whether beneficial or detrimental,
as a result of inflation.

ITEM 3. CONTROLS AND PROCEDURES

The  Company's  Chief  Executive   Officer  and  Chief  Financial   Officer  are
responsible for establishing and maintaining  disclosure controls and procedures
for the Company.

                  (a) Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this report,  the Company  carried out an
evaluation,  under the supervision and with the  participation  of the Company's
management,  including  the Company's  President,  of the  effectiveness  of the
design  and  operation  of the  Company's  disclosure  controls  and  procedures
pursuant to Rule 13a-15 under the  Securities  Exchange Act of 1934,  as amended
(the  "Exchange  Act").  Based  upon the  evaluation,  the  Company's  President
concluded that, as of the end of the period, the Company's  disclosure  controls
and  procedures  were effective in timely  alerting him to material  information
relating to the Company  required to be included in the reports that the Company
files and submits pursuant to the Exchange Act.

                 (b) Changes in Internal Controls



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<PAGE>

Based on this evaluation as of June 30, 2006, there were no significant  changes
in the  Company's  internal  controls over  financial  reporting or in any other
areas that could significantly affect the Company's internal controls subsequent
to the date of his most recent evaluation, including any corrective actions with
regard to significant deficiencies

PART II- OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

         The  company is in dispute  with one of its waste  disposal  vendor for
cancellation of the service contract  between the two companies.  The dispute is
being  heard in small  claims  court  with the  vendor  asking  for  $12,578  in
compensation. The initial settlement conference is scheduled for October 2006.

ITEM 2. CHANGES IN SECURITIES

         None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

         None.

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

         None.

ITEM 5. OTHER INFORMATION

         None.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

         The Company did not file a report on Form 8-K during the past quarter.









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<PAGE>


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

                            GFR Pharmaceuticals, Inc.
                                  (Registrant)

DATE: August 23, 2006            By: /s/ Richard Pierce
      ---------------            -------------------------------------
                                          Richard Pierce
                                          President, C.E.O., Director


DATE: August 23, 2006            By: /s/  Marc Casavant
      ---------------            -------------------------------------
                                          Marc Casavant
                                          C.F.O., Director





















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