United
States


Securities
and Exchange Commission


Washington,
D.C.  20549


FORM
10-Q





x QUARTERLY REPORT
PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934





For
the quarterly period ended March 31, 2009





OR





 ̈ TRANSITION REPORT
PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934





Commission
File No: 09081





GFR PHARMACEUTICALS,
INC.


(Exact
name of registrant as specified in its charter)





NEVADA
                
                77-0517964(State or other jurisdiction of
                
                (I.R.S.
      Employer ID No)incorporation
      or organization)





99 Yan Xiang Road, Biosep
Building, Xi An, Shaan Xi Province, P.R. China 710054


(Address
of principal executive office)  (Zip Code)





Registrant's
telephone number: (011)
86-29-8239-9676





N/A





Former
name, former address and former fiscal year,


(if
changed since last report)





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


Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Website, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding
12 months (or for such shorter period that the registrant was required to submit
and post such files). Yes  ̈   No o


Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
definitions of "large accelerated filer", "accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act. (Check
one):


Large accelerated filer  ̈
                        Accelerated
      filer  ̈
                        Non-accelerated
      filer  ̈
                          (Do not check if a smaller reporting
                          company)
                        Smaller reporting company x


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





The
number of shares of common stock, no par value per share, outstanding as of May
11, 2009 was 42,079,940.





GFR
PHARMACEUTICALS INC.





INDEX
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





(UNAUDITED)




PageCondensed
      Consolidated Balance Sheets as of march 31, 2009 and December 31,
      2009
                      
                      F-1
      - F-2Condensed
      Consolidated Statements of Operations And Comprehensive Income for the
      three months ended March 31, 2009 and 2008
                      
                      F-3Condensed
      Consolidated Statements of Cash Flows for the three months ended March 31,
      2009 and 2008
                      
                      F-4
      – F-5Condensed
      Consolidated Statement of Stockholders’ Equity for the three months ended
      March 31, 2009
                      
                      F-6Notes
      to Condensed Consolidated Financial Statements
                      
                      F-7
      to
F-20










GFR
PHARMACEUTICALS INC. AND SUBSIDIARIES


CONDENSED
CONSOLIDATED BALANCE SHEETS


AS
OF MARCH 31, 2009 AND DECEMBER 31, 2008


(Currency
expressed in United States Dollars (“US$”), except for number of
shares)





March
      31,
                    December
      31,2009
                    
                    
                    2008ASSETS
                    
                    (unaudited)
                    
                    
                    (audited)Current
      assets:Cash
      and cash equivalents
                    
                    $
                    30,336
                    
                    
                    $
                    552,398Trade
      accounts receivable, net
                    
                    
                    421,391
                    
                    
                    
                    659,329Note
      receivable, net
                    
                    
                    -
                    
                    
                    
                    -Inventories,
      net
                    
                    
                    295,474
                    
                    
                    
                    282,307Prepayments
      and other receivables
                    
                    
                    194,922
                    
                    
                    
                    243,242Other
      receivable, net
                    
                    
                    -
                    
                    
                    
                    -Amount
      due from unconsolidated affiliate, net
                    
                    
                    -
                    
                    
                    
                    -Operating
      lease prepaid - current portion
                    
                    
                    7,254
                    
                    
                    
                    7,255Total
      current assets
                    
                    
                    949,377
                    
                    
                    
                    1,744,531Non-current
      assets:Property,
      plant and equipment, net
                    
                    
                    6,689,894
                    
                    
                    
                    6,862,609Intangible
      asset, net
                    
                    
                    -
                    
                    
                    
                    -Operating
      lease prepaid – non-current portion
                    
                    
                    149,001
                    
                    
                    
                    150,844Long
      term prepayment
                    
                    
                    582,707
                    
                    
                    
                    589,822TOTAL
      ASSETS
                    
                    $
                    8,370,979
                    
                    
                    $
                    9,347,806LIABILITIES
      AND STOCKHOLDERS’ EQUITYCurrent
      liabilities:Amount
      due to related party
                    
                    $
                    1,949,508
                    
                    
                    $
                    1,951,203Note
      payable, related parties
                    
                    
                    1,784,684
                    
                    
                    
                    2,493,318Trade
      accounts payable
                    
                    
                    37,241
                    
                    
                    
                    124,700Note
      payable
                    
                    
                    -
                    
                    
                    
                    219,472Tax
      payable
                    
                    
                    62,334
                    
                    
                    
                    171,847Other
      payables and accrued liabilities
                    
                    
                    497,310
                    
                    
                    
                    456,641Total
      current liabilities
                    
                    
                    4,331,077
                    
                    
                    
                    5,417,181Loss
      in excess of investment in unconsolidated affiliate
                    
                    
                    784,950
                    
                    
                    
                    785,100Total
      liabilities
                    
                    
                    5,116,027
                    
                    
                    
                    6,202,281COMMITMENTS
      AND CONTINGENCIES (Note 23)





See
accompanying notes to condensed consolidated financial
statements.


F-1





GFRP
      Company stockholders’ equity:Common
      stock, $0.001 par value; 100,000,000 shares authorized; 42,079,940 shares
      issued and outstanding as of March 31, 2009 and December 31,
      2008
                  
                  
                  42,080
                  
                  
                  
                  42,080Additional
      paid-in capital
                  
                  
                  3,712,120
                  
                  
                  
                  3,712,120Accumulated
      other comprehensive income
                  
                  
                  210,780
                  
                  
                  
                  210,695Statutory
      reserve
                  
                  
                  423,760
                  
                  
                  
                  423,760Accumulated
      deficits
                  
                  
                  (1,573,686
                  )
                  
                  
                  (1,675,728
                  )Total
      GFRP shareholders’ equity
                  
                  
                  2,815,054
                  
                  
                  
                  2,712,927Non-controlling
      interest
                  
                  
                  439,898
                  
                  
                  
                  432,598Total
      equity
                  
                  
                  3,254,952
                  
                  
                  
                  3,145,525TOTAL
      LIABILITIES AND EQUITY
                  
                  $
                  8,370,979
                  
                  
                  $
                  9,347,806




See
accompanying notes to condensed consolidated financial
statements.


F-2


GFR
PHARMACEUTICALS INC. AND SUBSIDIARIES


CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME


FOR
THE THREE MONTHS ENDED MARCH 31, 2009 AND 2008


(Currency
expressed in United States Dollars (“US$”), except for number of
shares)





Three months ended March 31,
                  20072009
                
                
                2008REVENUE,
      NET
                
                (unaudited)
                
                
                (unaudited)Service
      revenue
                
                $
                554,256
                
                
                $
                475,695Product
      sales
                
                
                9,786
                
                
                
                206,712Total
      revenue, net
                
                
                564,042
                
                
                
                682,407COST OF REVENUE
      (exclusive of depreciation)Cost
      of products
                
                
                3,357
                
                
                
                108,118GROSS
      PROFIT
                
                
                560,685
                
                
                
                574,289OPERATING
      EXPENSES:Depreciation
      and amortization
                
                
                173,213
                
                
                
                174,159General
      and administrative
                
                
                215,199
                
                
                
                200,362Total
      operating expenses
                
                
                388,412
                
                
                
                374,521INCOME
      FROM OPERATIONS
                
                
                172,273
                
                
                
                199,768OTHER
      INCOME (EXPENSE):Interest
      income
                
                
                7,138
                
                
                
                62Interest
      expense
                
                
                (4,828
                )
                
                
                -Others
                
                
                (44
                )
                
                
                -Equity
      in net income of an unconsolidated affiliate
                
                
                -
                
                
                
                3,275Total
      other income (expense)
                
                
                2,266
                
                
                
                3,337INCOME
      BEFORE INCOME TAXES
                
                
                174,539
                
                
                
                203,105Income
      tax expenses
                
                
                (65,115
                )
                
                
                (46,424
                )NET
      INCOME
                
                $
                109,424
                
                
                $
                156,681Net
      income attributable to non-controlling interest
                
                
                (7,382
                )
                
                
                (7,703
                )NET
      INCOME ATTRIBUTABLE TO GFRP STOCKHOLDERS
                
                $
                102,042
                
                
                $
                148,978Other
      comprehensive income:-
      Foreign currency translation gain
                
                
                85
                
                
                
                299,653COMPREHENSIVE
      INCOME
                
                $
                102,127
                
                
                $
                448,631Net
      income per share attributable to GFRP stockholders - Basic and
      diluted
                
                $
                0.0024
                
                
                $
                0.0035Weighted
      average number of GFRP shares outstanding - Basic and
    diluted
                
                
                42,079,940
                
                
                
                42,079,940





See
accompanying notes to condensed consolidated financial
statements.


F-3


GFR
PHARMACEUTICALS INC. AND SUBSIDIARIES


CONDENSED CONSOLIDATION
STATEMENTS OF CASH FLOWS


FOR
THE THREE MONTHS ENDED MARCH 31, 2009 AND 2008


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




Three months ended March 31,2009
                              
                              
                              2008Cash
      flows from operating activities:
                              
                              (unaudited)
                              
                              
                              (unaudited)Net
      income
                              
                              $
                              102,042
                              
                              
                              $
                              148,978Adjustments
      to reconcile net income to net cash provided by (used in) operating
      activities:Depreciation
      and amortization
                              
                              
                              173,213
                              
                              
                              
                              174,159Equity
      in net income of an unconsolidated affiliate
                              
                              
                              -
                              
                              
                              
                              (3,275
                              )Non-controlling
      interest
                              
                              
                              7,382
                              
                              
                              
                              7,703Change
      in operating assets and liabilities:Trade
      accounts receivable, net
                              
                              
                              237,799
                              
                              
                              
                              (63,191
                              )Other
      receivable
                              
                              
                              (1,822
                              )
                              
                              
                              -Inventories
                              
                              
                              (13,219
                              )
                              
                              
                              9,256Prepayments
      and deposits
                              
                              
                              55,282
                              
                              
                              
                              146,423Trade
      accounts payable
                              
                              
                              (87,430
                              )
                              
                              
                              2,598Income
      tax payable
                              
                              
                              (109,474
                              )
                              
                              
                              (172,939
                              )Other
      payables and accrued liabilities
                              
                              
                              40,754
                              
                              
                              
                              (90,912
                              )Net
      cash provided by operating activities
                              
                              
                              406,340
                              
                              
                              
                              158,800Cash
      flows from investing activities:Cash
      received from acquisition
                              
                              
                              -
                              
                              
                              
                              550,193Repayment
      from an unconsolidated affiliate
                              
                              
                              -
                              
                              
                              
                              19,044Repayment
      of notes payable – related to acquisition of Baosai – related
      parties
                              
                              
                              (708,119
                              )
                              
                              
                              -Purchase
      of property, plant and equipment
                              
                              
                              -
                              
                              
                              
                              (181,818
                              )Net
      cash (used in) provided by investing activities
                              
                              
                              (708,119
                              )
                              
                              
                              387,419Cash
      flows from financing activities:Advances
      to related companies
                              
                              
                              -
                              
                              
                              
                              (395,200
                              )Contribution
      from stockholders
                              
                              
                              -
                              
                              
                              
                              263,136Repayment
      of notes payable
                              
                              
                              (219,417
                              )
                              
                              
                              -Repayment
      from stockholders
                              
                              
                              (717
                              )
                              
                              
                              -Net
      cash used in financing activities
                              
                              
                              (220,134
                              )
                              
                              
                              (132,064
                              )





See
accompanying notes to condensed consolidated financial
statements.


F-4





Foreign
      currency translation adjustment
                
                
                (149
                )
                
                
                9,182NET
      CHANGE IN CASH AND CASH EQUIVALENTS
                
                
                (522,062
                )
                
                
                423,337CASH
      AND BANK BALANCE, BEGINNING OF PERIOD
                
                
                552,398
                
                
                
                9,951CASH
      AND BANK BALANCE, END OF PERIOD
                
                $
                30,336
                
                
                $
                433,288SUPPLEMENTAL
      DISCLOSURE OF CASH FLOW INFORMATION:Cash
      paid for income taxes
                
                $
                174,588
                
                
                $
                218,706Cash
      paid for interest expenses
                
                $
                4,828
                
                
                $
                -




See
accompanying notes to condensed consolidated financial
statements.


F-5




GFR
PHARMACEUTICALS INC. AND SUBSIDIARIES


CONDENSED
CONSOLDIATED STATEMENT OF STOCKHOLDERS’ EQUITY


FOR
THE THREE MONTHS ENDED MARCH 31, 2009


(Currency
expressed in United States Dollars (“US$”), except for number of
shares)


(Unaudited)





GFRP Company ShareholderCommon stockNo. of
                                      shares
                                    
                                    
                                    Amount
                                    
                                    
                                    Additional
                                      paid-in
                                      capital
                                    
                                    
                                    Accumulated
                                      other
                                      comprehensive
                                      income
                                    
                                    
                                    Statutory
                                      reserve
                                    
                                    
                                    Retained
                                      earnings
                                      (accumulated
                                      deficit)
                                    
                                    
                                    Non-controlling
                                      interest
                                    
                                    
                                    TotalBalance
      as ofDecember
      31,2008
                                    
                                    
                                    42,079,940
                                    
                                    
                                    $
                                    42,080
                                    
                                    
                                    $
                                    3,712,120
                                    
                                    
                                    $
                                    210,695
                                    
                                    
                                    $
                                    423,760
                                    
                                    
                                    $
                                    (1,675,728
                                    )
                                    
                                    $
                                    432,598
                                    
                                    
                                    $
                                    3,145,525Foreign
      currency translation adjustment
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    85
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    85Net
      income for the period
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    102,042
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    102,042Total
      comprehensive income
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    102,127Non-controlling
      interest
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    7,382
                                    
                                    
                                    
                                    7,382Share
      of foreign currency translation adjustment by non-controlling
      interest
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    (82
                                    )
                                    
                                    
                                    (82
                                    )7,300Balance
      as of March 31, 2009
                                    
                                    
                                    42,079,940
                                    
                                    
                                    $
                                    42,080
                                    
                                    
                                    $
                                    3,712,120
                                    
                                    
                                    $
                                    210,780
                                    
                                    
                                    $
                                    423,760
                                    
                                    
                                    $
                                    (1,573,686
                                    )
                                    
                                    $
                                    439,898
                                    
                                    
                                    $
                                    3,254,952




See
accompanying notes to condensed consolidated financial
statements.


F-6





GFR
PHARMACEUTICALS INC. AND SUBSIDIARIES


NOTES
TO CONDENSED CONSOLDIATED FINANCIAL STATEMENTS


FOR
THE THREE MONTHS ENDED MARCH 31, 2009





NOTE 1
ORGANIZATION AND BUSINESS BACKGROUND





GFR
Pharmaceuticals, Inc. (the “Company” or “GFRP”) was incorporated in the State of
Nevada on December 18, 1996 as Laredo Investment Corp. On August 9, 2004, Laredo
Investment Corp. changed its name to GFR Pharmaceuticals, Inc.





The
Company, through its subsidiaries, mainly engages in a joint operation of a
Positive Emission Tomography (“PET”) Scanner and Rotary Gamma Ray Stereotactic
Neurosurgery System imaging center in Xian City, Shaanxi Province, the People’s
Republic of China (the “PRC”).





Xi'an Hua
Long Yu Tian Scientific and Technological Industry Co., Ltd. (“Hua Long”) is a
wholly-owned subsidiary of the Company, which was incorporated as a limited
liability company in the PRC on December 23, 1999. Its principal activity is an
investment holding of 95% equity interest in New Century Scientific Investment
Ltd. (“New Century”).





New
Century was incorporated as a limited liability company in the PRC on November
23, 2001 with a registered capital of RMB30,000,000 (equivalent to
US$3,636,000). It jointly operates a PET Scanner and Rotary Gamma Ray
Stereotactic Neurosurgery System imaging center with Tong Du Hospital ("the
Hospital") in Xian City, Shaanxi Province, the PRC. The duration of the
operation was 11 years and it will expire in 2017.





On May
14, 2008, the Company completed the acquisition of Xi’an Jiaoda Bao Sai
Bio-Technology Co., Ltd ("Bao Sai") pursuant to the terms of a Stock Purchase
Agreement (“the Agreement”) dated January 1, 2008, between GFRP and Bao Sai
for a consideration of $4,500,211 (approximately RMB33,000,000) for 96.77%
of its equity interest in Bao Sai, based on the aggregate net book value of
total assets and liabilities of Bao Sai as of December 31, 2007. The closing
date was January 1, 2008. Upon the completion of the transaction, Bao Sai became
a subsidiary of the Company.





GFRP, Hua
Long, New Century and Baosai are hereinafter referred to as (the
“Company”).





NOTE 2 GOING
CONCERN AND MANAGEMENT PLAN





The
accompanying financial statements have been prepared on a going concern basis,
which contemplates the realization of assets and the satisfaction of liabilities
in the normal course of business. As of March 31, 2009, the Company had a net
working capital deficiency of $3,381,700 that indicates the Company may need
additional financing to meet cash requirements for its operations in order to
continue as a going concern.





The
accompanying financial statements do not include any adjustments relating to the
recoverability and classification of recorded amounts of assets or the amounts
and classification of liabilities that might be necessary should the Company be
unable to continue as a going concern. Management believes the Company’s
ability to continue as a going concern is depending upon its ability to
maintain profitable operations and to obtain additional financing or refinancing
as may be required. The Company has generated net income and positive cash
inflows from operating activities during the periods ended March 31, 2009 and
2008 respectively. The Company will devote more resources on marketing in order
to increase the market share and improve the operating
performance. Management believes the Company will generate sufficient cash
flow to meet its obligations on a timely basis in the foreseeable
future.





NOTE3 SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES





Basis of
preparation




These
interim condensed consolidated financial statements are unaudited. In the
opinion of management, all adjustments and disclosures necessary for a fair
presentation of these interim statements have been included. The results
reported in the condensed consolidated financial statements for any interim
periods are not necessarily indicative of the results that may be reported for
the entire year. The accompanying condensed consolidated financial statements
have been prepared in accordance with the rules and regulations of the
Securities and Exchange Commission and do not include all information and
footnotes necessary for a complete presentation of financial statements in
conformity with accounting principles generally accepted in the United States.
These unaudited condensed consolidated financial statements should be read in
conjunction with the consolidated financial statements and accompanying
footnotes included in the Company’s Annual Report on Form 10-K for the year
ended December 31, 2008.





Use of
estimates





In
preparing these condensed consolidated financial statements, management makes
estimates and assumptions that affect the reported amounts of assets and
liabilities in the balance sheets and revenues and expenses during the period
reported. Actual results may differ from these estimates.


F-7





GFR
PHARMACEUTICALS INC. AND SUBSIDIARIES


NOTES
TO CONDENSED CONSOLDIATED FINANCIAL STATEMENTS


FOR
THE THREE MONTHS ENDED MARCH 31, 2009




Equity
Method of Accounting





Under
Accounting Research Bulletin No. 51 “Consolidation of Financial Statements
(as Amended)” (“ARB 51”), consolidation of a majority-owned subsidiary is
precluded where control does not rest with the majority owner. From May 1, 2007,
GFRP’s subsidiary Medicine ceased business and leased out its business license.
Accordingly, GFRP deconsolidated Medicine and accounted Medicine for under the
equity method of accounting.





Generally
accepted accounting principles require that the investment in the investee be
reported using the equity method under Accounting Principles Board (“APB”)
Opinion No. 18, “The Equity Method of Accounting for Investments in Common
Stock” when an investor corporation can exercise significant influence over the
operations and financial policies of an investee corporation. When the equity
method of accounting is used, the investor initially records the investment in
the stock of an investee at cost. The investment account is then adjusted to
recognize the investor’s share of the income or losses of the investee when it
is earned by the investee. Such amounts are included when determining the net
income of the investor in the period they are reported by the
investee.





As a
result of deconsolidation and the application of the equity method under ARB 51,
GFRP had a negative basis in its investment in Medicine, the Equity Investee,
because the subsidiary generated significant losses and intercompany liabilities
in excess of its asset balances. This negative investment, “Loss in excess of
investment in Equity Investee,” is reflected as a single amount on the Company’s
consolidated balance sheet as an approximate $784,950 liability as of March 31,
2009. (See Note 14)





Since
Medicine’s results are no longer consolidated and GFRP believes that it is not
obligated to fund future operating losses at Medicine, any adjustments reflected
in Medicine’s financial statements subsequent to May 1, 2007 are not expected to
affect the results of operations of GFRP. The reversal of the Company’s
liability into income will occur when Medicine commences business and generates
operating profit. GFRP will continue to evaluate the equity method investment in
Medicine quarterly to review the reasonableness of the liability
balance.





Shipping
and handling costs





Shipping
and handling costs were included in operating expenses. During the three months
ended March 31, 2009 and 2008, shipping and handling costs were
insignificant.





Advertising
costs





Advertising
costs are accounted for in accordance with SOP 93-7,“Reporting for Advertising
Costs”. No advertising expenses was incurred for the three months ended
March 31, 2009 and 2008.





Research
and development expenses





Research
and development costs are charged to expense when incurred and are included in
operating expenses. During the three months ended March 31, 2009 and 2008,
research and development costs expensed to operating expenses were approximately
$4,287 and $Nil respectively.





Comprehensive
income





SFAS No.
130,“Reporting Comprehensive
Income”, establishes standards for reporting and display of comprehensive
income, its components and accumulated balances. Comprehensive income as defined
includes all changes in equity during the period from non-owner sources.
Accumulated comprehensive income consists of changes in unrealized gains and
losses on foreign currency translation. This comprehensive income is
not included in the computation of income tax expense or
benefit.





Transactions
denominated in currencies other than the functional currency are translated into
the functional currency at the exchange rates prevailing at the dates of the
transaction. Monetary assets and liabilities denominated in currencies other
than the functional currency are translated into the functional currency using
the applicable exchange rates at the balance sheet dates. The resulting exchange
differences are recorded in the consolidated statement of
operations.





The
reporting currency of the Company is United States dollar ("US$"). The Company's
subsidiaries in the PRC, Hua Long, New Century and Bao Sai maintain their books
and records in its local currency, Renminbi Yuan ("RMB"), which is functional
currency as being the primary currency of the economic environment in which
these entities operate.


F-8


GFR
PHARMACEUTICALS INC. AND SUBSIDIARIES


NOTES
TO CONDENSED CONSOLDIATED FINANCIAL STATEMENTS


FOR
THE THREE MONTHS ENDED MARCH 31, 2009




Comprehensive
income (Continued)





In
general, for consolidation purposes, assets and liabilities of its subsidiaries
whose functional currency is not US$ are translated into US$, in accordance with
SFAS No 52. “Foreign Currency
Translation”, using the exchange rate on the balance sheet date. Revenues
and expenses are translated at average rates prevailing during the period. The
gains and losses resulting from translation of financial statements of foreign
subsidiaries are recorded as a separate component of accumulated other
comprehensive income within the statement of stockholders’ equity.





Translation
of amounts from RMB into US$ has been made at the following exchange rates for
the respective periods:




March 31,2009
                  
                  December 31,
                    2008
                  
                  March 31,2008Periods/years
      end RMB:US$ exchange rate
                  
                  6.8359
                  
                  
                  6.8346
                  
                  
                  7.0222Average
      daily RMB:US$ exchange rate
                  
                  6.8363
                  
                  
                  7.0671
                  
                  
                  7.1757





Recently
issued accounting standards





Effective
January 1, 2009, the first day of fiscal 2009, the Company adopted Financial
Accounting Standards Board (“FASB”) Staff Position Financial Accounting Standard
142-3 (“FSP FAS 142-3”), “Determination of the Useful Life of Intangible
Assets.” FSP FAS 142-3 amends the factors that should be considered in
developing renewal or extension assumptions used to determine the useful life of
a recognized intangible asset under SFAS No. 142 ("SFAS 142"), “Goodwill and
Other Intangible Assets.” the Company will apply FSP FAS 142-3 prospectively to
intangible assets acquired subsequent to the adoption date.  The
adoption of FSP FAS 142-3 had no impact on the Company’s Condensed Consolidated
Financial Statements.





Effective
January 1, 2009, the Company adopted, Statement of Financial Accounting
Standards No. 161 (“SFAS 161”), “Disclosures about Derivative Instruments and
Hedging Activities,” which amends and expands Statement of Financial Accounting
Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities." SFAS 161 requires tabular disclosure of the fair value of
derivative instruments and their gains and losses.  This Statement
also requires disclosure regarding the credit-risk related contingent features
in derivative agreements, counterparty credit risk, and strategies and
objectives for using derivative instruments. The adoption of SFAS 161 did not
have a material impact on the Company’s Condensed Consolidated Financial
Statements.





In
September 2006, the FASB issued SFAS No. 157, “Fair Value
Measurements” (“SFAS 157”), which defines fair value, establishes a framework
for measuring fair value in GAAP, and expands disclosures about fair value
measurements. SFAS 157 does not require any new fair value measurements, but
provides guidance on how to measure fair value by providing a fair value
hierarchy used to classify the source of the information. In February 2008,
the FASB deferred the effective date of SFAS 157 by one year for certain
non-financial assets and non-financial liabilities, except those that are
recognized or disclosed at fair value in the financial statements on a recurring
basis (at least annually). On January 1, 2008, the Company adopted the
provisions of SFAS 157, except as it applies to those nonfinancial assets and
nonfinancial liabilities for which the effective date has been delayed by one
year, which the Company adopted on January 1, 2009.





The fair
value hierarchy distinguishes between assumptions based on market data
(observable inputs) and an entity’s own assumptions (unobservable inputs). The
hierarchy consists of three levels:





•
            Level
      one — Quoted market prices in active markets for identical assets or
      liabilities;





•
            Level
      two — Inputs other than level one inputs that are either directly or
      indirectly observable; and





•
            Level
      three — Unobservable inputs developed using estimates and assumptions,
      which are developed by the reporting entity and reflect those assumptions
      that a market participant would
use.





The
adoption of SFAS 157 did not have a material effect on the Company’s financial
position or results of operations. The book values of cash, accounts receivable,
accounts and note payable approximate their respective fair values due to the
short-term nature of these instruments.





The
Company has no assets or liabilities that are measured at fair value on a
recurring basis. There were no assets or liabilities measured at fair value on a
non-recurring basis during the three months ended March 31,
2009.


F-9





GFR
PHARMACEUTICALS INC. AND SUBSIDIARIES


NOTES
TO CONDENSED CONSOLDIATED FINANCIAL STATEMENTS


FOR
THE THREE MONTHS ENDED MARCH 31, 2009




Recently
issued accounting standards (continued)





Effective
January 1, 2009, the Company adopted Statement of Financial Accounting Standards
No. 160 ("SFAS 160"), "Noncontrolling Interests in Consolidated Financial
Statements — an amendment of ARB No. 51." SFAS 160 amends Accounting Research
Bulletin No. 51, "Consolidated Financial Statements" to establish accounting and
reporting standards for the noncontrolling interest in a subsidiary and for the
deconsolidation of a subsidiary. It clarifies that a noncontrolling interest in
a subsidiary, which is sometimes referred to as minority interest, is an
ownership interest in the consolidated entity that should be reported as equity
in our Consolidated Financial Statements. Among other requirements, this
Statement requires that the consolidated net income attributable to the parent
and the noncontrolling interest be clearly identified and presented on the face
of the consolidated income statement. SFAS 160 was effective beginning in our
fiscal 2009. The provisions of SFAS 160 were applied prospectively, except for
the presentation and disclosure requirements, which were applied retrospectively
to all periods presented. As a result, upon the adoption of SFAS 160, we
reclassified the “minority interest” balance previously included in other
liabilities of our Consolidated Balance Sheet to a new component of equity. The
adoption also impacted certain captions previously used on the consolidated
statement of income, largely identifying net income including noncontrolling
interest and net income attributable to GFRP. The adoption of SFAS 160 did not
have a material impact on the Company’s consolidated financial position or
results of operations.





Effective
January 1, 2009, the Company adopted Statement of Financial Accounting Standards
No. 141 (revised 2007) ("SFAS 141R"), "Business Combinations." SFAS 141R
establishes principles and requirements for how an acquirer recognizes and
measures in its financial statements the identifiable assets acquired, the
liabilities assumed, any noncontrolling interest in an acquiree and the goodwill
acquired. the Company will apply SFAS 141R to any business combinations
subsequent to adoption. In addition, this Statement requires that any
additional reversal of deferred tax asset valuation allowance established in
connection with the Company’s fresh start reporting on January 7, 1998 be
recorded as a component of income tax expense rather than as a reduction to
the goodwill established in connection with the fresh start
reporting.





In April
2009, the FASB issued FASB Staff Position Financial Accounting Standard
141R-1 ("FSP FAS 141R-1"), "Accounting for Assets Acquired and Liabilities
Assumed in a Business Combination That Arise from Contingencies." FSP FAS 141R-1
amends SFAS 141R to require that an acquirer recognize at fair value, at the
acquisition date, an asset acquired or a liability assumed in a business
combination that arises from a contingency if the acquisition-date fair value of
that asset or liability can be determined during the measurement period. If the
acquisition-date fair value of such an asset acquired or liability assumed
cannot be determined, the acquirer should apply the provisions of SFAS 5, "
Accounting for Contingencies", to determine whether the contingency should be recognized at the
acquisition date or after such date. FSP FAS 141R-1 is effective for business
combinations whose acquisition date is on or after the first reporting period
beginning after December 15, 2008. Accordingly, the Company adopted this FSP
during the first quarter of 2009. The adoption of FSP FAS 141R-1 did
not have a material impact on the Company’s Condensed Consolidated Financial
Statements.





Recent
accounting standards to be adopted





In
December 2008, the FASB issued FASB Staff Position FAS 132(R)-1 (“FSP FAS
132(R)-1”), “ Employers’ Disclosures about Postretirement Benefit Plan Assets.”
The FSP expands the disclosure requirements about plan assets for defined
benefit pension plans and postretirement plans. The Company is required to adopt
FSP FAS 132(R)-1 in the fourth quarter of 2009. The Company is currently in the
process of assessing the impact that this FSP may have on the disclosures in the
Company’s Consolidated Financial Statements.




In April
2009, the FASB issued FASB Staff Position No. FAS 107-1 and APB 28-1 ("FSP FAS
107-1 and APB 28-1"), "Interim Disclosures about Fair Value of Financial
Instruments." The FSP amends SFAS 107, "Disclosure about Fair Value of Financial
Instruments," and Accounting Principles Board Opinion No. 28, "Interim Financial
Reporting," to require disclosures about fair value of financial
instruments for interim reporting periods of publicly traded companies as well
as in annual financial statements. The Company is required to adopt FSP FAS
107-1 and APB 28-1 in the second quarter of 2009. The Company does not currently
believe that adopting this FSP will have a material impact on the Company’s
Consolidated Financial Statements.




In April
2009, the FASB issued FASB Staff Position No. FSP FAS 115-2 and FAS 124-2 ("FSP
FAS 115-2 and FAS 124-2"), "Recognition and Presentation of Other-Than-Temporary
Impairments." The FSP amends the other-than-temporary impairment guidance in
U.S. GAAP for debt securities to make the guidance more operational and to
improve the presentation and disclosure of other-than-temporary impairments on
debt and equity securities in the financial statements. This FSP does not amend
existing recognition and measurement guidance related to other-than-temporary
impairments of equity securities. The Company is required to adopt FSP FAS 115-2
and FAS 124-2 in the second quarter of 2009.  The Company does not
currently believe that adopting this FSP will have a material impact on the
Company’s Consolidated Financial Statements.


F-10


GFR
PHARMACEUTICALS INC. AND SUBSIDIARIES


NOTES
TO CONDENSED CONSOLDIATED FINANCIAL STATEMENTS


FOR
THE THREE MONTHS ENDED MARCH 31, 2009




Recent
accounting standards to be adopted (Continued)


In April
2009, the FASB issued FASB Staff Position No. FAS 157-4 ("FSP FAS 157-4"),
"Determining Fair Value When the Volume and Level of Activity for the Asset or
Liability Have Significantly Decreased and Identifying Transactions That Are Not
Orderly." The FSP provides additional guidance for estimating fair value in
accordance with FASB Statement No. 157, "Fair Value Measurements" , when the
volume and level of activity for the asset or liability have significantly
decreased. This FSP also includes guidance on identifying circumstances that
indicate a transaction is not orderly. The Company is required to adopt FSP FAS
157-4 in the second quarter of 2009.  The Company does not currently
believe that adopting this FSP will have a material impact on the Company’s
Consolidated Financial Statements.




Other
accounting standards that have been issued or proposed by the FASB or other
standards-setting bodies that do not require adoption until a future date are
not expected to have a material impact on the Company’s Consolidated Financial
Statements upon adoption.





NOTE4 ACQUISITIONOF INTEREST IN BAO
SAI





On
January 1, 2008, the Company acquired 96.77% equity interest in Bao Sai in
exchange for notes payable aggregating $4,500,211 as described below. Bao Sai is
engaged in research, development, manufacture and sale of biological separation
medium products, which is technological know-how and devices engineered to
separate and purify biological products and medicines. Separation medium
products are used in the production of antibiotics, genetic recombinant
medicine, bacteria production, the gene chip, diagnostic reagents and other
biochemical products.





Upon the
completion of the transaction, Bao Sai became a subsidiary of the Company. As
the Company and Boa Sai were under common control before the acquisition, the
acquisition was accounted for under the purchase method of accounting with
initial measurement of assets and liabilities recognized at book value. The
following table summarizes the historical value of the assets acquired and
liabilities assumed at the date of acquisition.





January 1, 2008Acquired
      assets:Cash
      and cash equivalents
                
                $
                539,790Accounts
      receivable, net of reserve for bad debts of $15,222
                
                
                518,786Inventories,
      net
                
                
                258,365Amount
      due from related parties
                
                
                743,887Notes
      receivables, net
                
                
                2,368,745Prepayment
      and other receivables, net
                
                
                399,712Plant
      and equipment, net
                
                
                1,978,200Intangible
      assets, net
                
                
                154,515Investment
      in an unconsolidated affiliate
                
                
                478,795Total
      assets acquired
                
                $
                7,440,795Less:
      Liabilities assumedAccounts
      payable, trade
                
                
                (884,939
                )Note
      payable
                
                
                (410,172
                )Amount
      due to related parties
                
                
                (1,039,606
                )Other
      payables and accrued liabilities
                
                
                (455,658
                )Total
      liabilities assumed
                
                
                (2,790,375
                )Less:
      Non-controlling interest
                
                
                (150,209
                )Purchase
      price
                
                $
                4,500,211Satisfied
      by:Net
      cash to be paid to acquire Bao Sai
                
                $
                4,500,211





F-11





GFR
PHARMACEUTICALS INC. AND SUBSIDIARIES


NOTES
TO CONDENSED CONSOLDIATED FINANCIAL STATEMENTS


FOR
THE THREE MONTHS ENDED MARCH 31, 2009





NOTE4 ACQUISITION OF INTEREST IN BAO SAI
(Continued)





The
sellers of Bao Sai and consideration are as follows:





A
      non-related party
                
                $
                616,182Related
      partiesX’ian
      Bio-sep Biological Filler Engineering Technology Co., Ltd.
    (a)
                
                $
                2,170,350Wang
      Zhidong (b)
                
                
                1,143,073Guo
      Lizheng (c)
                
                
                570,606$
                3,884,029





(a)
            This
      is a company owned mostly by the major shareholder of the
      Company.


(b)
            This
      is former director of the Company and a director of Bao
    Sai.


(c)
            This
      is the brother of the major shareholder of the
  Company.





The
purchase price is scheduled to be paid by the Company in two installments for a
term of over 2 years due December 31, 2009. The first installment has been paid
to Xi’an Bio-sep Biological Filling Engineering Technology Company, Ltd., the
former owner of 28 million shares, or 46.67% of Bao Sai. The second installment
will be paid to the other three former owners, in amounts equal to their
respective percentage of equity ownership in Bao Sai, during the year ending
December 31, 2009.





As of
March 31, 2009, the purchase price consideration is payable are as
follows:





Repayable
      on or before
                  Year
      ending December 31,
                
                Approximately2009
                
                $
                1,784,684





Consideration
of the acquisition was in RMB and as payment made during the period was
accounted for at exchange rate as on the date of payment and amount outstanding
as of March 31, 2009 was accounted for at exchange rate at period end, there is
a reconciliation difference of $315,028 represented by exchange difference as
follows:





Amount
      paid
                
                $
                3,030,555Amounts
      still outstanding
                
                
                1,784,684Exchange
      difference
                
                
                (315,028
                )Total
      consideration
                
                $
                4,500,211





For the
three months ended March 31, 2009, the Company made a payment of purchase price
consideration totaling $708,119 (equivalent to RMB4,840,910).


F-12


GFR
PHARMACEUTICALS INC. AND SUBSIDIARIES


NOTES
TO CONDENSED CONSOLDIATED FINANCIAL STATEMENTS


FOR
THE THREE MONTHS ENDED MARCH 31, 2009





NOTE5 TRADEACCOUNTS RECEIVABLE, NET





The
majority of the Company’s sales are on open credit terms and in accordance with
terms specified in the contracts governing the relevant transactions. The
Company evaluates the need of an allowance for doubtful accounts based on
specifically identified amounts that management believes to be uncollectible. If
actual collections experience changes, revisions to the allowance may be
required. Based upon the aforementioned criteria, management has determined that
no allowance for doubtful accounts was required.





March 31, 2009
                      
                      
                      December 31,2008(unaudited)
                      
                      
                      (unaudited)Accounts
      receivable, cost
                      
                      $
                      936,319
                      
                      
                      $
                      1,174,355Less:
      allowance for doubtful accounts
                      
                      
                      (514,928
                      )
                      
                      
                      (515,026
                      )Accounts
      receivable, net
                      
                      $
                      421,391
                      
                      
                      $
                      659,329





NOTE6 NOTE RECEIVABLE, NET


March 31, 2009
                  
                  
                  December 31,2008(unaudited)
                  
                  
                  (unaudited)Note
      receivable, cost
                  
                  $
                  1,097,358
                  
                  
                  $
                  1,097,358Less:
      allowance for doubtful accounts
                  
                  
                  (1,097,358
                  )
                  
                  
                  (1,097,358
                  )Note
      receivable, net
                  
                  $
                  -
                  
                  
                  $
                  -





On
September 3, 2007, the Company’s newly acquired subsidiary, Bao Sai, disposed of
its investment in 75% of HuaYang for a cash consideration of $1,097,358
(equivalent to RMB7,500,000). The balance was unsecured and interest-free and
repayable in 4 installments due in full, by December 31, 2008. However, the
balance was overdue as of December 31, 2008, and additional
agreement was entered into by both parties to extend the payment term up to
December 31, 2009. As collectibility has been considered doubtful, an allowance
of doubtful debt was made fully on the notes receivable.





NOTE7 INVENTORIES,
NET





Inventories
consisted of the followings:




March 31, 2009
                  
                  
                  December 31,2008(unaudited)
                  
                  
                  (unaudited)Raw
      materials
                  
                  $
                  26,589
                  
                  
                  $
                  74,270Work
      in process
                  
                  
                  22,054
                  
                  
                  
                  7,109Finished
      goods
                  
                  
                  613,771
                  
                  
                  
                  568,318662,414
                  
                  
                  
                  649,697Less:
      inventory allowances
                  
                  
                  (366,940
                  )
                  
                  
                  (367,390
                  )Inventories,
      net
                  
                  $
                  295,474
                  
                  
                  $
                  282,307


F-13


GFR
PHARMACEUTICALS INC. AND SUBSIDIARIES


NOTES
TO CONDENSED CONSOLDIATED FINANCIAL STATEMENTS


FOR
THE THREE MONTHS ENDED MARCH 31, 2009





NOTE8 OTHER RECEIVABLE
  March 31, 2009
                    
                    
                    December 31,2008(unaudited)
                    
                    
                    (audited)Other
      receivable
                    
                    $
                    1,122,650
                    
                    
                    $
                    1,122,650Less:
      allowance for doubtful accounts
                    
                    
                    (1,122,650
                    )
                    
                    
                    (1,122,650
                    )Other
      receivable , net
                    
                    $
                    -
                    
                    
                    $
                    -




As of
March 31, 2009, the balance of $1,122,436 due from a former subsidiary of the
Company, represented temporary advance from the Company which was unsecured,
interest-free, with a with a fixed repayment term of 5 installments and is due
in full, no later than 2013. As of March 31, 2009, the future installments to be
received are as follows:





Years
      ending December 31,2009
                
                $
                73,1572010
                
                
                131,6832011
                
                
                219,4722012
                
                
                424,3122013
                
                
                274,026Total:
                
                $
                1,122,650


NOTE9 AMOUNT DUE FROM (TO) RELATED
PARTIES





(a) Amount
due to a stockholder





March 31, 2009
                
                
                December 31, 2008(unaudited)
                
                
                (audited)Due
      to:Mr.
      Lian Guo
                
                $
                1,949,508
                
                
                $
                1,951,203





The
amount represented temporary advance to the Company which was unsecured,
interest-free and repayable on demand.





(b) Note
payable





As of
March 31, 2009, note payable to related parties represented payable to
ex-shareholder of Xi'an Jiaoda Bao Sai Bio-Technology Co., Ltd for the transfer
of their shares to New Century. The amount will be paid to these ex-shareholders
preceding December 30, 2009. (Note 4)


F-14





GFR
PHARMACEUTICALS INC. AND SUBSIDIARIES


NOTES
TO CONDENSED CONSOLDIATED FINANCIAL STATEMENTS


FOR
THE THREE MONTHS ENDED MARCH 31, 2009





NOTE10 PREPAYMENTS AND OTHER
RECEIVABLES





Prepayments
and other receivables consisted of the following:





March 31, 2009
                
                December 31,2008(unaudited)
                
                (audited)Deposits
                
                $
                76,394
                
                
                $
                77,617Advances
      to employees
                
                
                28,360
                
                
                
                25,334Prepaid
      expenses for operating purpose
                
                
                90,168
                
                
                
                140,291$
                194,922
                
                
                $
                243,242





NOTE11 PROPERTY, PLANTAND EQUIPMENT,
NET





Property,
plant and equipment, net, consisted of the following:




March 31, 2009
                  
                  
                  December 31,2008(unaudited)
                  
                  
                  (audited)Buildings
                  
                  $
                  2,293,130
                  
                  
                  $
                  2,293,130Plant
      and equipment
                  
                  
                  6,322,678
                  
                  
                  
                  6,322,678Motor
      vehicles
                  
                  
                  246,806
                  
                  
                  
                  246,806Furniture,
      fixture and office equipment
                  
                  
                  151,356
                  
                  
                  
                  151,356Foreign
      translation difference
                  
                  
                  31,543
                  
                  
                  
                  33,2649,045,513
                  
                  
                  
                  9,047,234Less:
      accumulated depreciation
                  
                  
                  (2,239,013
                  )
                  
                  
                  (2,067,613
                  )Less:
      foreign translation difference
                  
                  
                  (116,606
                  )
                  
                  
                  (117,012
                  )Property,
      plant and equipment, net
                  
                  $
                  6,689,894
                  
                  
                  $
                  6,862,609





The buildings
were pledged as security for banking facilities related to the note payable as
of December 31, 2008. See also Note 15.





Depreciation
expense for the three months ended March 31, 2009 and 2008 were $171,400 and
$172,431, respectively.


F-15




GFR
PHARMACEUTICALS INC. AND SUBSIDIARIES


NOTES
TO CONDENSED CONSOLDIATED FINANCIAL STATEMENTS


FOR
THE THREE MONTHS ENDED MARCH 31, 2009





NOTE12 INTANGIBLEASSETS,
NET





March31,2009
                            
                            December31,2008(unaudited)
                            
                            (audited)Technical
      know-how
                            
                            $
                            1,131,064
                            
                            
                            $
                            1,131,064Less:
      accumulated impairment charge
                            
                            
                            (1,131,064
                            )
                            
                            
                            (1,131,064
                            )Net
      book value
                            
                            $
                            -
                            
                            
                            $
                            -




As of
March 31, 2009, the carrying value of the technical know-how was stated as zero.
The Company recognized a full impairment charge before the acquisition of Bao
Sai for recoverability test.





NOTE13 OPERATING LEASE
PREPAID





The
Company has recorded as operating lease prepaid for the costs paid to acquire a
long-term interest to utilize the land underlying the building and production
facility for its business.  This type of arrangement is common for the
use of land in the PRC.  The operating lease prepaid is amortized
on the straight-line method over the term of the operating lease prepaid of 50
years.





The lease
expenses on operating lease prepaid for the three months ended March 31, 2009
and 2008 was $1,813 and $1,728, respectively.  The estimated
amount to be expensed on operating lease prepaid over each of the next five
years and thereafter is $7,254 per annum.





NOTE14 INVESTMENT IN AN UNCONSOLIDATED
AFFILIATE





The
Company has a 75% equity interest in Xi’an Bao Sai Medicine Co., Ltd
(“Medicine”), which is registered as a limited liability company in the PRC. The
Company ceased operations of Medicine in 2007 and leased out its business
license for a fixed return annually. Thus, the Company does not control policy
decisions in ordinary course of business of Medicine; and
accordingly, investment in Medicine is accounted for under the equity
method.





As of
March 31, 2009, the investment in an unconsolidated affiliate is presented as
follows:-





Investment
      in Medicine at the date of acquisition
                
                $
                106,804Amount
      due from Medicine
                
                
                1,111,828Less:
      allowance for doubtful accounts
                
                
                (1,111,828
                )Share
      of accumulated losses in Medicine at date of loss of
    control
                
                
                (870,823
                )Foreign
      translation difference
                
                
                (20,931
                )Loss
      in excess of investment in unconsolidated affiliate
                
                $
                (784,950
                )





The
balance of $1,111,616 due from Medicine represented a temporary advance from the
Company which was unsecured and interest-free with a fixed repayment term of 4
installments and is due in full, no later than 2012. As of March 31, 2009, the
future installments to be received are as follows:





Years
      ending December 31,2009
                    
                    $
                    243,9772010
                    
                    
                    292,5732011
                    
                    
                    292,5732012
                    
                    
                    282,493Total:
                    
                    $
                    1,111,616


F-16


GFR
PHARMACEUTICALS INC. AND SUBSIDIARIES


NOTES
TO CONDENSED CONSOLDIATED FINANCIAL STATEMENTS


FOR
THE THREE MONTHS ENDED MARCH 31, 2009





NOTE15 NOTE
PAYABLE





The notes
payable was repaid in February 2009 and the related charge on the property
secured (Note 11) was released accordingly.





NOTE16 OTHER PAYABLES AND ACCRUED
LIABILITIES





Other
payables and accrued liabilities consisted of the followings:





March31,2009
                
                
                December31,2008(unaudited)
                
                
                (audited)Business
      tax payable
                
                $
                82,538
                
                
                $
                82,554Government
      levy payable
                
                
                26,445
                
                
                
                20,321Salaries
      and welfare payable
                
                
                98,605
                
                
                
                100,405Temporary
      advances
                
                
                173,072
                
                
                
                161,491Customer
      deposits
                
                
                44,955
                
                
                
                8,457Accrued
      expenses
                
                
                71,695
                
                
                
                83,413$
                497,310
                
                
                $
                456,641





NOTE 17 INCOME
TAXES





The PRC
subsidiaries within the Group are subject to PRC income taxes on an entity basis
on income arising in or derived from the tax jurisdiction in which they operate,
i.e. the PRC. The statutory PRC Enterprise Income Tax rate (“EIT”) for the three
months ended March 31, 2009 and 2008 is generally 25%.





The
Company’s income tax consisted of:


March 31, 2009
                      
                      
                      December 31, 2008(unaudited)
                      
                      
                      (audited)Current
      – PRC
                      
                      $
                      65,115
                      
                      
                      $
                      46,424Deferred
                      
                      
                      -
                      
                      
                      
                      -$
                      65,115
                      
                      
                      $
                      46,424




A
reconciliation of the provision for income taxes determined at PRC EIT to the
Company’s effective income tax rate is as follows:





March 31, 2009
                            
                            
                            December 31, 2008(unaudited)
                            
                            
                            (audited)Pre-tax
      income
                            
                            $
                            174,539
                            
                            
                            $
                            210,105PRC
      EIT
                            
                            
                            25
                            %
                            
                            
                            25
                            %Income
      tax computed at PRC EIT
                            
                            
                            43,634
                            
                            
                            
                            52,526Reconciling
      items:Loss
      not recognized as deferred tax assets
                            
                            
                            25,649
                            
                            
                            
                            -Non-deductible
      expenses
                            
                            
                            -
                            
                            
                            
                            3,495Net
      operating loss carryforwards
                            
                            
                            -
                            
                            
                            
                            (9,597
                            )Others
                            
                            
                            (4,168
                            )
                            
                            
                            -Effective
      tax expense
                            
                            $
                            65,115
                            
                            
                            $
                            46,424





On March
16, 2007, the PRC government promulgated a new tax law, China’s Unified
Enterprise Income Tax Law (“New EIT Law”), which took effect from January 1,
2008. Under the New EIT Law, foreign-owned enterprises as well as domestic
companies are subject to a uniform tax rate of 25%.


F-17


GFR
PHARMACEUTICALS INC. AND SUBSIDIARIES


NOTES
TO CONDENSED CONSOLDIATED FINANCIAL STATEMENTS


FOR
THE THREE MONTHS ENDED MARCH 31, 2009





NOTE 17 INCOME TAXES (Continued)





Deferred
tax assets and liabilities reflect the tax impact of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
and income tax purposes. Significant components of the net deferred tax assets
and liabilities as of March 31, 2009 were as follows:


March31,2009
                
                
                December31,2008(unaudited)
                
                
                (audited)Deferred
      tax assets:-
      Net operating loss carryforwards
                
                
                240,426
                
                
                
                214,777-
      Allowance for doubtful debts
                
                
                956,519
                
                
                
                956,5191,196,945
                
                
                
                1,171,296Less:
      valuation allowance
                
                
                (1,196,945
                )
                
                
                (1,171,296
                )Net
      deferred tax assets
                
                $
                -
                
                
                $
                -





As of
March 31, 2009 and 2008, full valuation allowance was provided to the deferred
tax assets due to the uncertainty surrounding their realization.





NOTE 18 SEGMENT
REPORTING





The
Company’s business units have been aggregated into two reportable segments, as
defined by SFAS No. 131:





o
            Medical
      Business – joint operation of PET Scanner and Rotary Gamma Ray
      Stereotactic Neurosurgery System imaging center in the
  PRC.





o
            Extraction
      Business – extraction of raw materials to medicine ingredients and
      distribution of extracted ingredients for medicine manufacturing
      uses.





The
Company operates these segments in the PRC and all of the identifiable assets of
the Company are located in the PRC during the period presented.





The
accounting policies of the segments are the same as those described in the
summary of significant accounting policies (see Note 3). The Company had no
inter-segment sales for the periods ended March 31, 2009 and 2008. The Company’s
reportable segments are strategic business units that offer different products
and services. They are managed separately based on the different technology and
marketing strategies of each business unit for making internal operating
decisions.





Summary
of financial information concerning the Company’s reportable segments is shown
in the following table for the three months ended March 31, 2009 and
2008:


ThreemonthsendedMarch31,2009Medical
                  Business
                
                
                Extraction
                  Business
                
                
                Total(unaudited)
                
                
                (unaudited)
                
                
                (unaudited)Net
      revenues
                
                $
                554,256
                
                
                $
                9,786
                
                
                $
                564,042Cost
      of revenues
                
                
                -
                
                
                
                (3,357
                )
                
                
                (3,357
                )Gross
      profit
                
                $
                554,256
                
                
                $
                6,429
                
                
                $
                560,685Depreciation
      and amortization
                
                $
                125,443
                
                
                $
                47,770
                
                
                $
                173,213Net
      income (loss)
                
                $
                201,419
                
                
                $
                (99,377
                )
                
                $
                102,042Expenditure
      for long-lived assets
                
                $
                -
                
                
                $
                -
                
                
                $
                -


F-18





GFR
PHARMACEUTICALS INC. AND SUBSIDIARIES


NOTES
TO CONDENSED CONSOLDIATED FINANCIAL STATEMENTS


FOR
THE THREE MONTHS ENDED MARCH 31, 2009




NOTE 18 SEGMENT REPORTING
(Continued)


ThreemonthsendedMarch31,2008Medical
                  Business
                
                
                Extraction
                  Business
                
                
                Total(unaudited)
                
                
                (unaudited)
                
                
                (unaudited)Net
      revenues
                
                $
                475,695
                
                
                $
                206,712
                
                
                $
                682,407Cost
      of revenues
                
                
                -
                
                
                
                (108,118
                )
                
                
                (108,118
                )Gross
      profit
                
                $
                475,695
                
                
                $
                98,594
                
                
                $
                574,289Depreciation
      and amortization
                
                $
                131,587
                
                
                $
                42,572
                
                
                $
                174,159Net
      income
                
                $
                111,868
                
                
                $
                37,110
                
                
                $
                148,978Expenditure
      for long-lived assets
                
                $
                167,231
                
                
                $
                14,587
                
                
                $
                181,818





NOTE 19 NETINCOME PER
SHARE





Basic
net income per share is computed using the weighted average number of the
ordinary shares outstanding during the year. Diluted net income per share is
computed using the weighted average number of ordinary shares and ordinary share
equivalents outstanding during the year. Pursuant to stock exchange transaction
on November 30, 2006, the weighted average number of common shares issued and
outstanding was adjusted to account for the effects of the stock exchange
transaction as a reverse acquisition.





The
following table sets forth the computation of basic and diluted net income per
share for the periods ended March 31, 2009 and 2008:


ThreemonthsendedMarch31,2009
                  
                  
                  2008(unauidted)
                  
                  
                  (unauidted)Basis
      and diluted net income per share calculationNumerator:-
      Net income in computing basic and diluted net income per
      share
                  
                  $
                  108,694
                  
                  
                  $
                  148,978Denominator:-
      Weighted average ordinary shares outstanding
                  
                  
                  42,079,940
                  
                  
                  
                  42,079,940Basic
      and diluted net income per share
                  
                  $
                  0.0024
                  
                  
                  $
                  0.0035





NOTE20 STOCK-BASED COMPENSATION





The Board
of Directors has authorized and GFRP has established the 2002 Incentive and
Non-qualified Stock Option Plan (“the Plan”) under which GFRP may grant to
employees, officers, directors, attorneys, consultants or other advisers of the
Company or affiliated companies up to 10,000,000 shares of GFRP’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 March 31, 2009 and 2008, no
options or shares have been granted under the Plan.





NOTE21 CHINA CONTRIBUTION
PLAN





Under the
PRC Law, full-time employees of its subsidiaries in the PRC, Hua Long, New
Century and Bao Sai are entitled to staff welfare benefits including medical
care, welfare subsidies, unemployment insurance and pension benefits through a
China government-mandated multi-employer defined contribution plan. Hua Long,
New Century and Bao Sai are required to accrue for these benefits based on
certain percentages of the employees’ salaries. The total contributions made for
such employee benefits were $5,401 and $3,581 for the periods ended March
31, 2009 and 2008, respectively.


F-19


GFR
PHARMACEUTICALS INC. AND SUBSIDIARIES


NOTES
TO CONDENSED CONSOLDIATED FINANCIAL STATEMENTS


FOR
THE THREE MONTHS ENDED MARCH 31, 2009





NOTE22 CONCENTRATION AND
RISK





(a) Major
customers





For both
periods ended March 31, 2009 and 2008, 100% of the Company’s assets were located
in the PRC and 100% of the Company’s revenues were derived from customers
located in the PRC.





For the
three months ended March 31, 2009, one customer represented more than 10% of the
Company’s revenue and accounts receivable, respectively. As of March 31, 2009,
this customer accounted for $586,514 of the Company’s
revenues 98% and $306,117 of accounts receivable.





For the
three months ended March 31, 2008, one customer represented more than 10% of the
Company’s revenue and accounts receivable, respectively. As of March 31, 2008,
this customer accounted for 70% of the Company’s revenues and 23% of accounts
receivable, amounting to $475,695 and $220,547, respectively.





(b) Major
vendors





For the
three months ended March 31, 2009, two vendors represented more than 10% of the
Company’s purchases and one of which represented more than 10% of the Company’s
accounts payable.





For the
three months ended March 31, 2008, one vendor represented more than 10% of the
Company’s purchases and accounts payable, respectively.





(c) Credit
risk





Financial
instruments that potentially subject the Company to significant concentrations
of credit risk consist principally of cash and trade accounts receivable. The
Company performs ongoing credit evaluations of its customers’ financial
condition, but does not require collateral to support such
receivables.





(d) Exchange
rate risk





The
reporting currency of the Company is US$, to date the majority of the revenues
and costs are denominated in RMB and a significant portion of the assets and
liabilities are denominated in RMB. As a result, the Company is exposed to
foreign exchange risk as its revenues and results of operations may be affected
by fluctuations in the exchange rate between US$ and RMB. If the RMB depreciates
against US$, the value of the RMB revenues and assets as expressed in US$
financial statements will decline. The Company does not hold any derivative or
other financial instruments that expose to substantial market risk.




NOTE 23 COMMITMENTSAND
CONTINGENCIES





Lease
Obligations





The
Company has entered into operating leases related to office space under
non-cancelable agreement expiring through June 2009.





As of
March 31, 2009, total future lease commitment was as follows:





Reminder
      of 2009
                
                $
                462





Rental
expense for the three months ended March 31, 2009 and 2008 totaled approximately
$527 and $3,010, respectively.


F-20





Item
2. Management’s Discussion and Analysis of Financial Condition and Results of
Operations.





GENERAL
DESCRIPTION OF BUSINESS




As used
herein the terms "we", "us", "our," the “Registrant,” “GFRP” and the "Company"
means, GFR Pharmaceuticals Inc., a Nevada corporation, formerly known as Laredo
Investment Corp. These terms also refer to our subsidiary corporations, Xi'an
Hua Long Yu Tian Ke Ji Shi Ye Co., Ltd. (“Hua Long") and New Century Scientific
Investment Ltd. ("New Century") and Xi’an Jiaoda Bao Sai Bio-Technology Co., Ltd
("Bao Sai"), all of which are organized and existing under the laws of the
Peoples’ Republic of China





We are a
high-tech company in China chartered and authorized by the Chinese government
for research and inventing, manufacturing and selling biological separation
medium products, which refers to the separation and purification of biological
products and natural medicines. Such technology has been widely used in
producing antibiotic products, Genetic Recombinant Medicine, the Gene Chip,
bacterin production, diagnoses reagent, and biochemical products.





We
were incorporated in the State of Nevada on December 18, 1996 as Laredo
Investment Corp. On August 9, 2004, Laredo Investment Corp. changed its name to
GFR Pharmaceuticals, Inc. GFRP specialized in formulating, blending,
encapsulating and packing nutritional products. The Company’s operations were
located in the province of British Columbia, Canada.




On
October 15, 2006, we executed an acquisition agreement with Hua Long. Pursuant
to the Agreement, we paid Hua Long Shareholders approximately $187,500 in cash
to acquire a 100% interest in the shares of registered capital of Hua Long. Hua
Long acts as the holding company of New Century Scientific Investment Ltd. ("New
Century"), a Chinese corporation with which we entered into a stock exchange
transaction through Hua Long, on December 11, 2006, pursuant to which 40,000,000
shares of GFRP common stock were exchanged for 95% of the equity of New
Century.





The
acquisition of Hua Long allowed us to complete the share exchange with New
Century in China. Upon completion of the acquisition, we owned 100% equity
interest of Hua Long which in turn owns a 95% equity interest in New Century.
The transaction was treated for accounting purposes as a capital transaction and
recapitalization by the accounting acquirer, Hua Long, and as a re-organization
by the accounting acquiree.




Subsequent
to completion of the exchange transaction and acquisition, we have continued
operations of New Century, through Hua Long. The principal activity of New
Century is to lease diagnostic imaging medical equipment to
hospitals.  Our current operation commenced in March
2006.  All customers are located in China.




New
Century, formerly Shan Xi New Century Technology Investment Development Company
Ltd., owns radiology and oncology equipment and provides it to Tangdu Hospital
in Shan Xi province, which is affiliated with the Fourth Military Medical
University. New Century currently owns three different devices used for
radiological imaging for the brain and body and cancer treatment. The Company’s
medical equipment is used in Tangdu Hospital’s Gamma Knife Therapeutic Center
(the “Center”).  The Center averaged approximately 218 cases per
month for the first quarter of 2009, compared to 204 cases per month in the same
period of 2008, New Century is paid a percentage of profits from the
Center.





Pursuant
to the Purchase Agreement dated January 1, 2008, by and among New Century and
the holders of all 60,000,000 shares of the capital stock of Bao Sai, the
Company acquired 58,060,000 shares of its capital stock of Bao Sai, or 96.77% of
its common stock, as of January 1, 2008.


1


Supplemental
Agreements executed on May 14, 2008 set the aggregate purchase price for the
shares at $4,500,211.  The Purchase Agreement set forth that the
purchase price of the 58,060,000 shares would equal Bao Sai’s net asset value
based on Bao Sai’s audited financial statements for the fiscal year ended
December 31, 2007 prepared in accordance with Generally Accepted Accounting
Principals.  The net asset value was $4,650,420.




Pursuant
to the Supplemental Agreements, the Company will pay an aggregate purchase price
of RMB 15,873,030 yuan to Xi’an Bio-sep Biological Filler Engineering Technology
Co., Ltd. for 46.67% of the Bao Sai stock (28 million shares) in two
installments.  For the year ended December 31, 2008, the Company made
a payment of purchase price consideration totaling $2,322,436. As of December
31, 2008, we still have note payable in the amount of $2,493,318 due on December
31, 2009.




Bao Sai
is engaged in research, development, manufacture and sale of biological
separation medium products, which is technological know-how and devices
engineered to separate and purify biological products and medicines. Separation
medium products are used in the production of antibiotics, genetic recombinant
medicine, bacterin production, the gene chip, diagnostic reagents and other
biochemical products. Bao Sai’s principal office and manufacturing facility is
located at 99 Yan Xiang Road, Biosep Building, Xi An, Shaan Xi Province, P. R.
China.





New
Century’s strategic purchase of Bao Sai will provide us with key technology in
the biotech purification field and in chromatography and an experienced R&D
team.   The acquisition increased the number of our full time
employees by about 50. The Bao Sai employees are primarily in sales, research
and development and administrative areas.





We feel
that the acquisition will put us in a strong position to increase Bao Sai’s
market share and revenue in 2009. The Company believes that it has strong
prospects of increasing its overall market share and revenues in part because
our diagnostic imaging and radiation oncology treatments and equipment are all
covered by the Chinese national medical insurance system.





The
Company is focused on strengthening its market share and improving its business
performance. We have no plans to purchase or sell any plant or
equipment.  We experience little, if any, seasonality in our
business.





RESULTS
OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2008





FORWARD
LOOKING STATEMENTS




Certain statements in this report,
including statements of our expectations, intentions, plans and beliefs,
including those contained in or implied by "Management's Discussion and
Analysis" and the Notes to Consolidated Financial Statements, are
"forward-looking statements", within the meaning of Section 21E of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), that are
subject to certain events, risks and uncertainties that may be outside our
control. The words “believe”, “expect”, “anticipate”, “optimistic”, “intend”,
“will”, and similar expressions identify forward-looking statements. Readers are
cautioned not to place undue reliance on these forward-looking statements, which
speak only as of the date on which they are made. We undertake no obligation to
update or revise any forward-looking statements. These forward-looking
statements include statements of management's plans and objectives for our
future operations and statements of future economic performance, information
regarding our expansion and possible results from expansion, our expected
growth, our capital budget and future capital requirements, the availability of
funds and our ability to meet future capital needs, the realization of our
deferred tax assets, and the assumptions described in this report underlying
such forward-looking statements. Actual results and developments could differ
materially from those expressed in or implied by such statements due to a number
of factors, including, without limitation, those described in the context of
such forward-looking statements, our expansion and acquisition strategy, our
ability to achieve operating efficiencies, our dependence on network
infrastructure, capacity, telecommunications carriers and other suppliers,
industry pricing and technology trends, evolving industry standards, domestic
and international regulatory matters, general economic and business conditions,
the strength and financial resources of our competitors, our ability to find and
retain skilled personnel, the political and economic climate in which we conduct
operations and the risk factors described from time to time in our other
documents and reports filed with the Securities and Exchange Commission (the
"Commission"). Additional factors that could cause actual results to differ
materially from the forward-looking statements include, but are not limited to:
1) our ability to successfully develop and deliver our services on a timely
basis and in the prescribed condition; 2) our ability to compete effectively
with other companies in the same industry; 3) our ability to raise sufficient
capital in order to effectuate our business plan; and 4) our ability to retain
our key executives.


2


Revenues




Entering
the first quarter of 2009, we continued to realize our revenues from the
business operations of two subsidiaries: New Century and Bao Sai. New Century
owns radiology and oncology equipment and provides it to Tangdu Hospital’s Gamma
Knife Therapeutic Center (the “Center”) in Shan Xi province, which is affiliated
with the Fourth Military Medical University. New Century currently owns three
different devices used for radiological imaging for the brain and body and
cancer treatment. New Century receives a percentage of profits from the Center.
We recognize net revenues based on the total amount received from the patients
during the month, less the monthly operating costs incurred at the centers. The
service revenues were recorded when services are received by the customers and
realized the amounts net of provisions for discounts, allowance and taxes which
are recognized at the time of services performed. The revenue from our operation
of the Center increased from $475,695 for the quarter ended March 31, 2008 to
$554,256 for the same period of 2009. During the first quarter of 2009, the
Center,.on average handled approximately 218 cases per month, compared to 204
cases per month in the same period of 2008.





However,
despite of our increased revenue from the services the Center provided, our
overall revenues for the first quarter of 2009 slightly decreased to $564,042
from $682,407 for the same period ended March 31, 2008. The reduction was
attributed to the decreased production sales from our Bao Sai subsidiary, from
$206,712 for the three months ended March 31, 2008 to $9,786 for the same period
of 2009. Since our Bao Sai operation was still in a developmental stage after
the acquisition in May 2008, we expect it will put us in a stronger position for
increasing our market share and revenue later in 2009.





Our
business operates entirely in Chinese Renminbi, but we report our results in our
SEC filings in U.S. Dollars.  The conversion of our accounts from RMB
to Dollars results in translation adjustments.  While our net income
is added to the retained earnings on our balance sheet; the translation
adjustments are added to a line item on our balance sheet labeled “other
comprehensive income,” since it is more reflective of changes in the relative
values of U.S. and Chinese currencies than of the success of our
business.





Expenses




Operating
expenses for the three months ended March 31, 2009 were $388,412, as compared to
operating expenses of $374,521 for the same period ended March 31,
2008.  Increased operating expenses during the three months ended
March 31, 2009 were due primarily to the increase of our business scope and
scale as a result of our acquisition of new subsidiary Bao Sai in May 2008. The
acquisition increased the number or our full time employees by about
50.





Net
Income





Our net
income slightly declined from $148,978 during the three months ended March 31,
2008, to $102,042 during the three months ended March 31, 2009.  Such
decline was primarily due to our decreased revenue from Bao Sai’s production
sales and slight increase of our operating expenses for the first quarter of
2009.


3


We expect
to be profitable during fiscal year 2009 through the implementation of our
marketing strategies. However, we cannot be certain that we will be able to
successfully implement our marketing strategies and there can be no assurance
for the achievement of any revenue growth or, therefore, that we will be
profitable.





Impact of
Inflation




We
believe that inflation has had a negligible effect on operations during this
period. We believe that we can offset inflationary increases in the cost of
sales by increasing sales and improving operating efficiencies.




LIQUIDITY
AND CAPITAL RESOURCES




As of
March 31, 2009, cash in the bank decreased to $30,446 from $552,398 as of
December 31, 2008. This decline is primarily due to repayment of $708,119 of
notes payable to related parties arising from the acquisition of Bao Sai. Our
cash flows provided by operating activities for the three months ended March 31,
2009 increased by $247,540 or 155% to $406,340, compared to that of $158,800
from operating activities for the three months ended March 31, 2008 . The
increase in the positive cash flows from operations for the first quarter of
2009 was due primarily to the collected accounts receivable of $237,799, the
increase in the non-cash depreciation expenses to $178,402, the decrease in
prepayments to $50,093, and the increase in income tax payable of $109,474,
partially offset by the decreased net income of $102,042 and increased account
payables of $(87,430).





However,
cash flows used in investment activities were $(708,119) for the three months
ended March 31, 2009, which was used to repay the notes payable to related
parties. .Meanwhile, cash flows used in financing activities were $(220,134) for
the three months ended March 31, 2009, due primarily to the payment of notes
payable in the amount of $(219,417).





At March
31, 2009, we had a negative working capital of $(3,381,700)
compared to $(3,672,650) at December 31, 2008.  Our stockholders’
equity increased from $2,712,927 at March 31, 2008 to $2,815,054 at March 31,
2009. .





Overall,
we have funded our cash needs from inception through March 31, 2009 primarily
with a series of debt and equity transactions, including note payable to related
parties of $1,784,684, accounts payable of $37,241, and amount due to
stockholders of $1,949,508. If we are unable to receive additional cash from our
related parties, we may need to rely on financing from outside sources through
debt or equity transactions. Our related parties are under no legal obligation
to provide us with capital infusions. Failure to obtain such financing could
have a material adverse effect on operations and financial
condition.





Item
3. Quantitative and Qualitative Disclosures about Market Risk




Not
applicable.





Item
4. Controls and Procedures





Evaluation of Disclosure Controls
and Procedures. Under the supervision and with the participation of our
management, including our Chief Executive Officer, Zhao Yan Ding, and Principal
Financial Officer, Zhong Ya Li, we evaluated the effectiveness of the design and
operation of our disclosure controls and procedures (as defined in Rule
13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the "Exchange
Act")) as of the end of the period covered by this report.  Based upon
that evaluation, our Chief Executive Officer and Principal Financial Officer
concluded that our disclosure controls and procedures as of the end of the
period covered by this report were effective such that the information required
to be disclosed by us in reports filed under the Securities Exchange Act of 1934
is (i) recorded, processed, summarized and reported within the time periods
specified in the SEC's rules and forms and (ii) accumulated and communicated to
our management to allow timely decisions regarding disclosure.  A
controls system cannot provide absolute assurance, however, that the objectives
of the controls system are met, and no evaluation of controls can provide
absolute assurance that all control issues and instances of fraud, if any,
within a company have been detected.


4


Changes in Internal Control Over
Financial Reporting.  During the most recent quarter ended
March 31, 2009, there has been no change in our internal control over financial
reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act)
that has materially affected, or is reasonably likely to materially affect, our
internal control over financial reporting.





PART
II. OTHER INFORMATION





Item
1. Legal Proceedings





None





Item
1A.  Risk Factors





Not
applicable.





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





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




31.1
                        Certification
      of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted
      pursuant to Section 302 of the Sarbanes-Oxley Act of
  200231.2
                        Certification
      of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted
      pursuant to Section 302 of the Sarbanes-Oxley Act of
  200232.1
                        Certification
      of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted
      pursuant to Section 906 of the Sarbanes-Oxley Act of
  200232.2
                        Certification
      of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted
      pursuant to Section 906 of the Sarbanes-Oxley Act of
  2002




5




SIGNATURE





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





GFR
      PHARMACEUTICALS, INC.DATE:  May  13
      , 2009
                      By:
                      /s/
      Zhao Yan DingZhao
      Yan Ding, Chief Executive
Officer


By:
                          /s/
      Zhong Ya LiZhong
      Ya Li, Principal
Financial Officer




6