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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 June 30,                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 | 17     |
|                                                                                                           |   |
| ITEM                3  CONTROLS AND                PROCEDURES                                        | 21     |
|                                                                                                           |   |
| **PART                II. OTHER INFORMATION**                                                                  |   |
|                                                                                                           |   |
| ITEM                1. LEGAL                PROCEEDINGS                                                        | 22     |
|                                                                                                           |   |
| ITEM                2. CHANGES IN                SECURITIES AND USE OF                PROCEEDS                 | 22     |
|                                                                                                           |   |
| ITEM                5. OTHER INFORMATION                                                                       | 22     |
|                                                                                                           |   |
| ITEM                6. EXHIBITS AND                REPORTS ON FORM                8-K                          | 22     |
|                                                                                                           |   |
| SIGNATURES                                                                                                     | 23     |
|                                                                                                           |   |
| INDEX                TO                EXHIBITS                                                                | 24     |

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*Table          of Contents*

**ITEM      1.**
**FINANCIAL STA**
**TEMENTS**

**GFR        PHARMACEUTICALS INC.**

**INDEX        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**(UNAUDITED)**

|                                                                                                                                                                                                   |   | **Page** |   |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------|--------|--------|
|                                                                                                                                                                                                   |   |     |   |   |
| Condensed                  Consolidated Balance Sheets as of June 30, 2007 and December 31,                  2006                  (audited)                                                           |   | 5        |   |   |
|                                                                                                                                                                                                   |   |     |   |   |
| Condensed                  Consolidated Statements of Operations And Comprehensive Income                  for the                  Three                  and Six Months Ended June 30, 2007 and 2006 |   | 6        |   |   |
|                                                                                                                                                                                                   |   |     |   |   |
| Condensed                  Consolidated Statements of Cash Flows for the Six Months Ended                  June 30,                  2007 and 2006                                                     |   | 7        |   |   |
|                                                                                                                                                                                                   |   |     |   |   |
| Condensed                  Consolidated Statement of Stockholders’ Equity for the Six Months Ended                  June 30, 2007                                                                |   | 8        |   |   |
|                                                                                                                                                                                                   |   |     |   |   |
| Notes                  to Condensed Consolidated Financial Statements                                                                                                                                  |   | 9-16     |   |   |

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*Table            of Contents*

| **GFR                  PHARMACEUTICALS INC.****CONDENSED                  CONSOLIDATED BALANCE SHEETS****AS                  OF JUNE 30, 2007 AND DECEMBER 31, 2006****(Currency                  expressed in United States Dollars (“US$”), except for number of                  shares)**    |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|                                                                                                                                                                                                                                                                                                                        |   |   |   |   |   |   |
|                                                                                                                                                                                                                                                                                                                        |   | June                  30, 2007 |   |   | December                  31, 2006 |   |
| **ASSETS**                                                                                                                                                                                                                                                                                                                  |   | (unaudited) |   |   |                     (audited) |   |
| Current                  assets:                                                                                                                                                                                                                                                                                            |   |   |   |   |   |   |
| Cash                  and cash equivalents                                                                                                                                                                                                                                                                                  |   | $ | 553,608 |   |   | $ | 64,543 |   |
| Accounts                  receivable, trade                                                                                                                                                                                                                                                                                 |   |   | 389,296 |   |   |   | 472,601 |   |
| Prepayments                  and deposits                                                                                                                                                                                                                                                                                   |   |   | 64,846 |   |   |   | 187,761 |   |
|                                                                                                                                                                                                                                                                                                                        |   |   |   |   |   |   |   |   |
| Total                  current assets                                                                                                                                                                                                                                                                                       |   |   | 1,007,750 |   |   |   | 724,905 |   |
|                                                                                                                                                                                                                                                                                                                        |   |   |   |   |   |   |   |   |
|                                                                                                                                                                                                                                                                                                                        |   |   |   |   |   |   |   |   |
| Property,                  plant and equipment, net                                                                                                                                                                                                                                                                         |   |   | 5,338,066 |   |   |   | 5,272,074 |   |
|                                                                                                                                                                                                                                                                                                                        |   |   |   |   |   |   |   |   |
| **TOTAL                  ASSETS**                                                                                                                                                                                                                                                                                           |   | $ | 6,345,816 |   |   | $ | 5,996,979 |   |
|                                                                                                                                                                                                                                                                                                                        |   |   |   |   |   |   |   |   |
| **LIABILITIES                  AND STOCKHOLDERS’ EQUITY**                                                                                                                                                                                                                                                             |   |   |   |   |   |   |   |   |
| Current                  liabilities:                                                                                                                                                                                                                                                                                       |   |   |   |   |   |   |   |   |
| Short-term                  bank loan                                                                                                                                                                                                                                                                                       |   | $ | 639,831 |   |   | $ | 1,280,000 |   |
| Other                  payables and accrued liabilities                                                                                                                                                                                                                                                                     |   |   | 173,150 |   |   |   | 151,298 |   |
| Income                  tax payable                                                                                                                                                                                                                                                                                         |   |   | 353,056 |   |   |   | 11,474 |   |
|                                                                                                                                                                                                                                                                                                                        |   |   |   |   |   |   |   |   |
| Total                  current liabilities                                                                                                                                                                                                                                                                                  |   |   | 1,166,037 |   |   |   | 1,442,772 |   |
|                                                                                                                                                                                                                                                                                                                        |   |   |   |   |   |   |   |   |
|                                                                                                                                                                                                                                                                                                                        |   |   |   |   |   |   |   |   |
| Non-current                  liabilities:                                                                                                                                                                                                                                                                                   |   |   |   |   |   |   |   |   |
| Amount                  due to stockholders                                                                                                                                                                                                                                                                                 |   |   | 93,300 |   |   |   | 169,961 |   |
|                                                                                                                                                                                                                                                                                                                        |   |   |   |   |   |   |   |   |
| Total                  liabilities                                                                                                                                                                                                                                                                                          |   |   | 1,259,337 |   |   |   | 1,612,733 |   |
|                                                                                                                                                                                                                                                                                                                        |   |   |   |   |   |   |   |   |
|                                                                                                                                                                                                                                                                                                                        |   |   |   |   |   |   |   |   |
| Minority                  interest                                                                                                                                                                                                                                                                                          |   |   | 273,084 |   |   |   | 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 as of June 30, 2007 and                  December                  31, 2006                                                                       |   |   | 42,080 |   |   |   | 41,080 |   |
| Additional                  paid-in capital                                                                                                                                                                                                                                                                                 |   |   | 3,712,120 |   |   |   | 3,413,120 |   |
| Deferred                  compensation                                                                                                                                                                                                                                                                                      |   |   | (72,000 | ) |   |   | - |   |
| Accumulated                  other comprehensive income                                                                                                                                                                                                                                                                     |   |   | 114,575 |   |   |   | 89,578 |   |
| Statutory                  reserve                                                                                                                                                                                                                                                                                          |   |   | 77,579 |   |   |   | 77,579 |   |
| Retained                  earnings                                                                                                                                                                                                                                                                                          |   |   | 939,041 |   |   |   | 541,726 |   |
|                                                                                                                                                                                                                                                                                                                        |   |   |   |   |   |   |   |   |
| Total                  stockholders’ equity                                                                                                                                                                                                                                                                           |   |   | 4,813,395 |   |   |   | 4,163,083 |   |
|                                                                                                                                                                                                                                                                                                                        |   |   |   |   |   |   |   |   |
|                                                                                                                                                                                                                                                                                                                        |   |   |   |   |   |   |   |   |
| **TOTAL                  LIABILITIES AND STOCKHOLDERS’ EQUITY**                                                                                                                                                                                                                                                       |   | $ | 6,345,816 |   |   | $ | 5,996,979 |   |

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*Table            of Contents*

| **GFR                  PHARMACEUTICALS INC.****CONDENSED                  CONSOLIDATED STATEMENTS OF OPERATIONS****AND                  COMPREHENSIVE INCOME****FOR                  THE THREE AND SIX MONTHS ENDED JUNE 30, 2007 AND                  2006**** (Currency                  expressed in United States Dollars (“US$”), except for number of                  shares)****(Unaudited)**    |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |   |   |   |   |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                     |   | Three                  Months Ended June 30, |   |   | Six                  Months Ended June 30, |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                     |   | 2007 |   |   | 2006 |   |   | 2007 |   |   | 2006 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |   |   |   |   |   |   |   |   |   |   |   |
| **REVENUE,                  NET**                                                                                                                                                                                                                                                                                                                                                                                                        |   | $ | 1,045,957 |   |   | $ | 420,503 |   |   | $ | 1,445,836 |   |   | $ | 565,175 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **OPERATING                  EXPENSES:**                                                                                                                                                                                                                                                                                                                                                                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Consulting                  and professional fee                                                                                                                                                                                                                                                                                                                                                                                         |   |   | 1,050 |   |   |   | - |   |   |   | 8,065 |   |   |   | - |   |
| Stock-based                  compensation                                                                                                                                                                                                                                                                                                                                                                                                |   |   | 36,000 |   |   |   | - |   |   |   | 228,000 |   |   |   | - |   |
| Depreciation                                                                                                                                                                                                                                                                                                                                                                                                                             |   |   | 113,504 |   |   |   | 175,034 |   |   |   | 225,142 |   |   |   | 209,944 |   |
| General                  and administrative                                                                                                                                                                                                                                                                                                                                                                                              |   |   | 84,370 |   |   |   | 38,620 |   |   |   | 136,898 |   |   |   | 38,743 |   |
|  Total                  operating expenses                                                                                                                                                                                                                                                                                                                                                                                          |   |   | 234,924 |   |   |   | 213,654 |   |   |   | 598,105 |   |   |   | 248,687 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **INCOME                  FROM OPERATIONS**                                                                                                                                                                                                                                                                                                                                                                                              |   |   | 811,033 |   |   |   | 206,849 |   |   |   | 847,731 |   |   |   | 316,488 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **OTHER                  INCOME (EXPENSE):**                                                                                                                                                                                                                                                                                                                                                                                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest                  income                                                                                                                                                                                                                                                                                                                                                                                                         |   |   | 105 |   |   |   | 22 |   |   |   | 195 |   |   |   | 37 |   |
| Interest                  expense                                                                                                                                                                                                                                                                                                                                                                                                        |   |   | (32,662 | ) |   |   | (53,038 | ) |   |   | (57,108 | ) |   |   | (64,217 | ) |
|  Total                  other expense                                                                                                                                                                                                                                                                                                                                                                                               |   |   | (32,557 | ) |   |   | (53,016 | ) |   |   | (56,913 | ) |   |   | (64,180 | ) |
|                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **INCOME                  BEFORE INCOME TAXES AND MINORITY INTEREST**                                                                                                                                                                                                                                                                                                                                                                    |   |   | 778,476 |   |   |   | 153,833 |   |   |   | 790,818 |   |   |   | 252,308 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Income                  tax expenses                                                                                                                                                                                                                                                                                                                                                                                                     |   |   | (269,632 | ) |   |   | (50,764 | ) |   |   | (341,582 | ) |   |   | (83,261 | ) |
| Minority                  interest                                                                                                                                                                                                                                                                                                                                                                                                       |   |   | (41,020 | ) |   |   | - |   |   |   | (51,921 | ) |   |   | - |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **NET                  INCOME**                                                                                                                                                                                                                                                                                                                                                                                                          |   | $ | 467,824 |   |   | $ | 103,069 |   |   | $ | 397,315 |   |   | $ | 169,047 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Other                  comprehensive income:                                                                                                                                                                                                                                                                                                                                                                                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| -                  Foreign currency translation gain                                                                                                                                                                                                                                                                                                                                                                                     |   |   | 13,951 |   |   |   | 1,723 |   |   |   | 24,997 |   |   |   | 24,139 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **COMPREHENSIVE                  INCOME**                                                                                                                                                                                                                                                                                                                                                                                                |   | $ | 481,775 |   |   | $ | 104,792 |   |   | $ | 422,312 |   |   | $ | 193,186 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net                  income per share – Basic and diluted                                                                                                                                                                                                                                                                                                                                                                          |   | $ | 0.01 |   |   | $ | 0.00 |   |   | $ | 0.01 |   |   | $ | 0.00 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Weighted                  average number of shares outstanding during the period – Basic and                  diluted                                                                                                                                                                                                                                                                                                              |   |   | 42,079,940 |   |   |   | 40,047,997 |   |   |   | 41,935,496 |   |   |   | 40,047,997 |   |

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*Table            of Contents*

| **GFR                  PHARMACEUTICALS INC.****CONDENSED                  CONSOLIDATED STATEMENTS OF CASH FLOWS****FOR                  THE SIX MONTHS ENDED MARCH 31, 2007 AND 2006****(Currency                  expressed in United States Dollars (“US$”))****(Unaudited)** |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                                        |   |   |
|                                                                                                                                                                                                                                                                                        |   | Six                  Months Ended June 30, |
|                                                                                                                                                                                                                                                                                        |   | 2007 |   |   | 2006 |
|                                                                                                                                                                                                                                                                                        |   |   |   |   |   |
| **Cash                  flows from operating activities:**                                                                                                                                                                                                                                  |   |   |   |   |   |
| Net                  income                                                                                                                                                                                                                                                                 |   | $ | 397,315 |   |   | $ | 169,047 |   |
| Adjustments                  to reconcile net income to net cash provided by (used in) operating                  activities:                                                                                                                                                               |   |   |   |   |   |   |
| Depreciation                                                                                                                                                                                                                                                                                |   |   | 225,142 |   |   |   | 209,944 |   |
| Stock-based                  compensation                                                                                                                                                                                                                                                   |   |   | 228,000 |   |   |   | - |   |
| Minority                  interest                                                                                                                                                                                                                                                          |   |   | 51,921 |   |   |   | - |   |
| Change                  in operating assets and liabilities:                                                                                                                                                                                                                                |   |   |   |   |   |   |
| Accounts                  receivable, trade                                                                                                                                                                                                                                                 |   |   | 83,305 |   |   |   | (168,915 | ) |
| Prepayments                  and deposits                                                                                                                                                                                                                                                   |   |   | 122,915 |   |   |   | (405,860 | ) |
| Other                  payables and accrued liabilities                                                                                                                                                                                                                                     |   |   | 21,852 |   |   |   | 66,543 |   |
| Income                  tax payable                                                                                                                                                                                                                                                         |   |   | 341,582 |   |   |   | 83,261 |   |
|                                                                                                                                                                                                                                                                                        |   |   |   |   |   |   |
| Net                  cash provided by (used in) operating activities                                                                                                                                                                                                                        |   |   | 1,472,032 |   |   |   | (45,980 | ) |
|                                                                                                                                                                                                                                                                                        |   |   |   |   |   |   |
| **Cash                  flows from investing activities:**                                                                                                                                                                                                                                  |   |   |   |   |   |   |
| Purchase                  of property, plant and equipment                                                                                                                                                                                                                                  |   |   | (291,134 | ) |   |   | - |   |
|  Net                  cash used in investing activities                                                                                                                                                                                                                                |   |   | (291,134 | ) |   |   | - |   |
|                                                                                                                                                                                                                                                                                        |   |   |   |   |   |   |
| **Cash                  flows from financing activities:**                                                                                                                                                                                                                                  |   |   |   |   |   |   |
| Advances                  from stockholders                                                                                                                                                                                                                                                 |   |   | - |   |   |   | 379,439 |   |
| Repayment                  of stockholder advances                                                                                                                                                                                                                                          |   |   | (76,661 | ) |   |   | - |   |
| Repayment                  of short-term bank loan                                                                                                                                                                                                                                          |   |   | (640,169 | ) |   |   | (246,159 | ) |
|  Net                  cash (used in) provided by financing activities                                                                                                                                                                                                                  |   |   | (716,830 | ) |   |   | 133,280 |   |
|                                                                                                                                                                                                                                                                                        |   |   |   |   |   |   |
| **Foreign                  currency translation adjustment**                                                                                                                                                                                                                                |   |   | 24,997 |   |   |   | 24,139 |   |
|                                                                                                                                                                                                                                                                                        |   |   |   |   |   |   |
| **NET                  CHANGE IN CASH AND CASH EQUIVALENTS**                                                                                                                                                                                                                                |   |   | 489,065 |   |   |   | 111,439 |   |
|                                                                                                                                                                                                                                                                                        |   |   |   |   |   |   |
| **CASH                  AND CASH EQUIVALENTS, BEGINNING OF PERIOD**                                                                                                                                                                                                                         |   |   | 64,543 |   |   |   | 4,023 |   |
|                                                                                                                                                                                                                                                                                        |   |   |   |   |   |   |
| **CASH                  AND CASH EQUIVALENTS, END OF PERIOD**                                                                                                                                                                                                                               |   | $ | 553,608 |   |   | $ | 115,462 |   |
|                                                                                                                                                                                                                                                                                        |   |   |   |   |   |   |
| **SUPPLEMENTAL                  DISCLOSURE OF CASH FLOW INFORMATION:**                                                                                                                                                                                                                      |   |   |   |
| Cash                  paid for income taxes                                                                                                                                                                                                                                                 |   | $ | - |   |   | $ | - |   |
| Cash                  paid for interest expenses                                                                                                                                                                                                                                            |   | $ | 57,108 |   |   | $ | 64,217 |   |
|                                                                                                                                                                                                                                                                                        |   |   |   |   |   |   |   |   |
| **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.****CONDENSED                  CONSOLDIATED STATEMENT OF STOCKHOLDERS’ EQUITY****FOR                  THE SIX MONTHS ENDED JUNE 30, 2007****(Currency                  expressed in United States Dollars (“US$”))****(Unaudited)**                      |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                                                                                                                                                                           |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                           |   | Common                  stock |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                           |   | No.                  of share |   |   | Amount |   |   | Additionalpaid-in                  capital |   |   | Deferred                  compensation |   |   | Accumulatedothercomprehensiveincome |   |   | Statutoryreserve |   |   | Retainedearnings |   |   | Totalequity |   |
|  Balance                  as of January 1, 2007                                                                                                                                                                                                                                                                                                                                                                           |   |   | 41,079,940 |   |   | $ | 41,080 |   |   | $ | 3,413,120 |   |   | $ | - |   |   | $ | 89,578 |   |   | $ | 77,579 |   |   | $ | 541,726 |   |   | $ | 4,163,083 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                           |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Shares                  issued for service rendered, non-cash                                                                                                                                                                                                                                                                                                                                                                  |   |   | 1,000,000 |   |   |   | 1,000 |   |   |   | 299,000 |   |   |   | (300,000 | ) |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                           |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Amortization                  of deferred compensation                                                                                                                                                                                                                                                                                                                                                                         |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 228,000 |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                           |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net                  income for the period                                                                                                                                                                                                                                                                                                                                                                                     |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 397,315 |   |   |   | 397,315 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                           |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Foreign                  currency translation adjustment                                                                                                                                                                                                                                                                                                                                                                       |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 24,997 |   |   |   | - |   |   |   | - |   |   |   | 24,997 |   |
|  Balance                  as of June 30, 2007                                                                                                                                                                                                                                                                                                                                                                             |   |   | 42,079,940 |   |   | $ | 42,080 |   |   | $ | 3,712,120 |   |   | $ | (72,000 | ) |   | $ | 114,575 |   |   | $ | 77,579 |   |   | $ | 939,041 |   |   | $ | 4,813,395 |   |

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*Table            of Contents*

**GFR          PHARMACEUTICALS INC.**

**NOTES          TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**FOR          THE SIX MONTHS ENDED JUNE 30, 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 SIX MONTHS ENDED JUNE 30, 2007**

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

**(Unaudited)**

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**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 SIX MONTHS ENDED JUNE 30, 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 or        Dis*
*posal of Long-Lived Assets,”*
* *

| l   | Revenue                  recognition |
|---------------|--------------------------------------|

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

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

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

| l   | Income                  taxes |
|---------------|-------------------------------|

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

| l   | Net                  income per share |
|---------------|---------------------------------------|

*“*
*Earnings per Share*
*.*
*”*

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*Table            of Contents*

**GFR          PHARMACEUTICALS INC.**

**NOTES          TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**FOR          THE SIX MONTHS ENDED JUNE 30, 2007**

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

**(Unaudited)**

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----

| l   | Comprehensive                  income |
|---------------|---------------------------------------|

*“*
*Reporting Comprehensive Income”*

| l   | Foreign                  currencies translation |
|---------------|-------------------------------------------------|

| l   | Stock-based                  compensation |
|---------------|-------------------------------------------|

*“Accounting for Stock-Based Compensation”*

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

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

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

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*Table            of Contents*

**GFR          PHARMACEUTICALS INC.**

**NOTES          TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**FOR          THE SIX MONTHS ENDED JUNE 30, 2007**

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

**(Unaudited)**

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

*Disclosures about Fair Value of        Financial Instruments*

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

*Accounting for Uncertainty        in Income Taxes*

*“*
*The Fair        Value Option for Financial Assets and Financial Liabilities *
*—*
*        Including an Amendment of F*
*ASB 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 SIX MONTHS ENDED JUNE 30, 2007**

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

**(Unaudited)**

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**NOTE          5 PREPAYMENTS AND DEPOSITS**

|                                   |   | June                  30, 2007 |   |   | December                  31, 2006 |   |
|----------------------------------------|--------|--------------------------------|--------|--------|------------------------------------|--------|
|                                   |   |                           |   |   | (audited)                          |   |
|                                   |   |                           |   |   |                               |   |
| Advances                  to employees |   | $                              | 21,254 |   |                               | $      | 17,923 |   |
| Prepaid                  expenses      |   |                           | 43,592 |   |                               |   | 42,324 |   |
| Deposits                               |   |                           | -      |   |                               |   | 127,514 |   |
|                                   |   | $                              | 64,846 |   |                               | $      | 187,761 |   |

**NOTE          6 PROPERTY, PLANT AND EQUIPMENT, NET**

|                                                      |   | June                  30, 2007 |      |   | December                  31, 2006 |   |
|-----------------------------------------------------------|--------|--------------------------------|-----------|--------|------------------------------------|--------|
|                                                      |   |                           |      |   | (audited)                          |   |
|                                                      |   |                           |      |   |                               |   |
| Buildings                                                 |   | $                              | 83,133    |   |                               | $      | 83,133 |   |
| Medical                  equipment                        |   |                           | 5,379,652 |   |                               |   | 5,379,652 |   |
| Furniture,                  fixture and equipment         |   |                           | 22,103    |   |                               |   | 17,027 |   |
| Construction                  in progress                 |   |                           | 531,470   |   |                               |   | 245,412 |   |
|                                                      |   |                           | 6,016,358 |   |                               |   | 5,725,224 |   |
| Less:                  accumulated depreciation           |   |                           | (678,292  | )      |                               |   | (453,150 | ) |
|  Property,                  plant and equipment, net |   | $                              | 5,338,066 |   |                               | $      | 5,272,074 |   |

**NOTE          7 OTHER PAYABLES AND ACCRUED LIABILITIES**

|                                     |   | June                  30, 2007 |    |   |                      December 31, 2006 |   |
|------------------------------------------|--------|--------------------------------|---------|--------|-------------------------------------------------------|--------|
|                                     |   |                           |    |   | (audited)                                             |   |
|                                     |   |                           |    |   |                                                  |   |
| Business                  tax payable    |   | $                              | 80,347  |   |                                                  | $      | 83,028 |   |
| Government                  levy payable |   |                           | 20,722  |   |                                                  |   | 13,969 |   |
| Salaries                  payable        |   |                           | 9,030   |   |                                                  |   | 11,128 |   |
| Accrued                  expenses        |   |                           | 63,051  |   |                                                  |   | 43,173 |   |
|                                     |   | $                              | 173,150 |   |                                                  | $      | 151,298 |   |

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*Table            of Contents*

**GFR          PHARMACEUTICALS INC.**

**NOTES          TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**FOR          THE SIX MONTHS ENDED JUNE 30, 2007**

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

**(Unaudited)**

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**NOTE          8 SHORT-TERM BANK LOAN**

**NOTE          9 AMOUNT DUE TO STOCKHOLDERS**

**NOTE          10 INCOME TAXES**

|                                                              |   | Six                  Months ended June 30, |      |
|-------------------------------------------------------------------|--------|--------------------------------------------|-----------|
|                                                              |   | 2007                                       |      |   | 2006 |   |
|                                                              |   |                                       |      |   |   |   |
| Loss                  subject to U.S. operation                   |   | $                                          | (233,665  | ) |   | $ | - |   |
| Income                  subject to PRC operation                  |   |                                       | 1,024,483 |   |   |   | 252,308 |   |
| Income                  before income taxes and minority interest |   | $                                          | 790,818   |   |   | $ | 252,308 |   |

*United        States of America*

*The        PRC*

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*Table            of Contents*

**GFR          PHARMACEUTICALS INC.**

**NOTES          TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**FOR          THE SIX MONTHS ENDED JUNE 30, 2007**

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

**(Unaudited)**

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----

|                                                         |   | Six                  Months ended June 30, |      |
|--------------------------------------------------------------|--------|--------------------------------------------|-----------|
|                                                         |   | 2007                                       |      |   | 2006 |   |
|                                                         |   |                                       |      |   |   |   |
| Income                  before income taxes                  |   | $                                          | 1,024,483 |   |   | $ | 252,308 |   |
| Statutory                  income tax rate                   |   |                                       | 33        | % |   |   | 33 | % |
|                                                         |   |                                       | 338,079   |   |   |   | 83,261 |   |
|                                                         |   |                                       |      |   |   |   |   |   |
| Add:                  expenses not deductible for income tax |   |                                       | 3,503     |   |   |   | - |   |
|  Income                  tax expenses                   |   | $                                          | 341,582   |   |   | $ | 83,261 |   |

**NOTE          10 STOCK-BASED COMPENSATION**

**NOTE          11 CONCENTRATION AND RISK**

**NOTE          12 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 AND SIX MONTHS ENDED JUNE 30,      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**

**Expenses**

| -   | 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 financial statements;                                                                  |
| -   | EDGAR                services                                                                                                        |

| -   | Assistance                with preparation of applicable filings with the SEC; |
|---------------|--------------------------------------------------------------------------------|
| -   | Assistance                with preparation of financial statements;            |
| -   | EDGAR                services                                                  |

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*Table          of Contents*

**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 SECURITIES**

**ITEM      3.      DEFAULTS UPON SENIOR SECURITIES**

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

**ITEM      5.      OTHER INFORMATION**

**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. |
|-----------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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*Table          of Contents*

**SIGNATURES**

|                                             | **GFR                PHARMACEUTICALS, INC.**                 |
|--------------------------------------------------|--------------------------------------------------------------|
|                                        |                                                    |    |
| Date:                August 15, 2007   | By:                                                | /s/ Su,                Jie |
|                                             | Su,                JieChief                Executive Officer |

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*Table          of Contents*

**INDEX      TO EXHIBITS**

| **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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