**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 SECURITIESEXCHANGE
                ACT OF 1934





**For
      the quarterly period ended** **June
      30, 2008**





OR




o
            TRANSITION
                REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIESEXCHANGE
                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 incorporation or organization)
              
              (I.R.S.
                  Employer ID No)





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
      such filing requirements for the past 90 days. Yes o    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 o
            
            Accelerated
                filer o
            
            Non-accelerated
                filer o
              (Do
                not check if a smaller reporting company)
            
            Smaller
                reporting company o




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





The
      number of shares of common stock, no par value per share, outstanding as of
      August 13, 2008 was 42,079,940.









GFR
      PHARMACEUTICALS, INC.


FORM
      10-Q


QUARTERLY
      PERIOD ENDED June 30, 2008





INDEX




TABLE
        OF
        CONTENTS
  PagePART
                  I - FINANCIAL INFORMATIONItem
                  1:
              Financial
                  Statements
              
              F-1
                  - F-21Item
                  2:
              Management’s
                  Discussion and Analysis of Financial Condition and Results of
                  Operations
              
              1Item
                  3:
              Quantitative
                  and Qualitative Disclosures About Market Risk
              
              6Item
                  4T:
              Controls
                  and Procedures
              
              6PART
                  II - OTHER INFORMATIONItem
                  1:
              Legal
                  Proceedings
              
              7Item
                  1A:
              Risk
                  Factors
              
              7Item
                  2:
              Unregistered
                  Sales of Equity Securities and Use of Proceeds
              
              7Item
                  3:
              Defaults
                  Upon Senior Securities
              
              7Item
                  4:
              Submission
                  of Matters to a Vote of Security Holders
              
              7Item
                  5:
              Other
                  Information
              
              7Item
                  6:
              Exhibits
              
              7


**Item
      1. Financial Statements.**





**GFR
      PHARMACEUTICALS INC.**





**INDEX
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**





**(UNAUDITED)**


**Page**Condensed
                  Consolidated Balance Sheets as of June 30, 2008 and December 31,
                  2007
              
              F-2Condensed
                  Consolidated Statements of Operations And Comprehensive Income
                  for the
                  three and six months ended June 30, 2008 and 2007
              
              F-3Condensed
                  Consolidated Statements of Cash Flows for the six months ended
                  June 30,
                  2008 and 2007
              
              F-4Condensed
                  Consolidated Statement of Stockholders’ Equity for the six months ended
                  June 30, 2008
              
              F-5Notes
                  to Condensed Consolidated Financial Statements
              
              F-6
                  to F-21




F-1




**GFR
      PHARMACEUTICALS INC.**


**CONDENSED
      CONSOLIDATED BALANCE SHEETS**


**AS
      OF JUNE 30, 2008 AND DECEMBER 31, 2007**


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





June
                30,
              2008
            
            December
                31,
              2007(Unaudited)
            
            (Audited)**ASSETS**Current
                assets:Cash
                and cash equivalents
            
            $
            930,321
            
            $
            9,951Accounts
                receivable, net
            
            
            1,189,380
            
            
            343,087Inventories,
                net
            
            
            275,043
            
            
            -Amount
                due from related parties
            
            
            1,213,771
            
            
            28,232Notes
                receivable, net
            
            
            1,080,503
            
            
            -Prepayments
                and other receivables, net
            
            
            591,287
            
            
            314,185Total
                current assets
            
            
            5,280,305
            
            
            695,455Non-current
                assets:Property,
                plant and equipment, net
            
            
            7,898,068
            
            
            5,585,711Intangible
                assets, net
            
            
            160,850
            
            
            -Investment
                in an unconsolidated affiliate
            
            
            336,557
            
            
            -**TOTAL
                ASSETS**
            
            $
            13,675,780
            
            $
            6,281,166**LIABILITIES
                AND STOCKHOLDERS’ EQUITY**Current
                liabilities:Accounts
                payable, trade
            
            $
            28,345
            
            $
            -Note
                payable
            
            
            436,567
            
            
            -Current
                portion of long-term note payable, related parties
            
            
            715,056
            
            
            -Income
                tax payable
            
            
            238,653
            
            
            214,570Amount
                due to related parties
            
            
            1,879,126
            
            
            -Other
                payables and accrued liabilities
            
            
            474,633
            
            
            59,675Total
                current liabilities
            
            
            3,772,380
            
            
            274,245Long-term
                liabilities:Note
                payable, related parties
            
            
            2,329,932
            
            
            -Total
                liabilities
            
            
            6,102,312
            
            
            274,245Minority
                interest
            
            
            545,765
            
            
            328,605Commitments
                and contingenciesStockholders’
                equity:Common
                stock, $0.001 par value; 100,000,000 shares authorized; 42,079,940
                shares
                issued and outstanding as of June 30, 2008 and December 31,
                2007
            
            
            42,080
            
            
            42,080Additional
                paid-in capital
            
            
            3,712,120
            
            
            3,712,120Accumulated
                other comprehensive income
            
            
            619,299
            
            
            134,797Statutory
                reserve
            
            
            236,818
            
            
            236,818Retained
                earnings
            
            
            2,417,386
            
            
            1,552,501Total
                stockholders’ equity
            
            
            7,027,703
            
            
            5,678,316**TOTAL
                LIABILITIES AND STOCKHOLDERS’ EQUITY**
            
            $
            13,675,780
            
            $
            6,281,166




See
      accompanying notes to condensed consolidated financial statements.




F-2


**GFR
      PHARMACEUTICALS INC.**


**CONDENSED
      CONSOLIDATED STATEMENTS OF OPERATIONS**


**AND
      COMPREHENSIVE INCOME**


**FOR
      THE THREE AND SIX MONTHS ENDED JUNE 30, 2008 AND 2007**


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


**(Unaudited)**





Three
                months ended
              June
                30,
            
            Six
                months ended
              June
                30,2008
            
            2007
            
            2008
            
            2007**REVENUE,
                NET**Service
                revenue
            
            $
            1,503,258
            
            $
            1,045,957
            
            $
            1,978,953
            
            $
            1,445,836Product
                sales
            
            
            36,055
            
            
            -
            
            
            242,767Total
                revenue, net
            
            
            1,539,313
            
            
            1,045,957
            
            
            2,221,720
            
            
            1,445,836**COST
                OF REVENUE**(exclusive
                of depreciation)Cost
                of products
            
            
            27,828
            
            
            -
            
            
            135,946
            
            
            -**GROSS
                PROFIT**
            
            
            1,511,485
            
            
            1,045,957
            
            
            2,085,774
            
            
            1,445,836**OPERATING
                EXPENSES:**Depreciation
                and amortization
            
            
            182,666
            
            
            113,504
            
            
            356,825
            
            
            225,142General
                and administrative
            
            
            341,992
            
            
            121,420
            
            
            542,354
            
            
            372,963Total
                operating expenses
            
            
            524,658
            
            
            234,924
            
            
            899,179
            
            
            598,105**INCOME
                FROM OPERATIONS**
            
            
            986,827
            
            
            811,033
            
            
            1,186,595
            
            
            847,731**OTHER
                INCOME (EXPENSE):**Interest
                income
            
            
            26
            
            
            105
            
            
            88
            
            
            195Equity
                in net income of an unconsolidated affiliate
            
            
            3,441
            
            
            -
            
            
            6,716
            
            
            -Interest
                expense
            
            
            -
            
            
            (32,662
            )
            
            -
            
            
            (57,108
            )3,467
            
            
            (32,557
            )
            
            6,804
            
            
            (56,913
            )**INCOME
                BEFORE INCOME TAXES AND MINORITY INTEREST**
            
            
            990,294
            
            
            778,476
            
            
            1,193,399
            
            
            790,818Income
                tax expense
            
            
            (237,491
            )
            
            (269,632
            )
            
            (283,915
            )
            
            (341,582
            )Minority
                interest
            
            
            (36,896
            )
            
            (41,020
            )
            
            (44,599
            )
            
            (51,921
            )**NET
                INCOME**
            
            $
            715,907
            
            $
            467,824
            
            $
            864,885
            
            $
            397,315Other
                comprehensive income:-
                Foreign currency translation gain
            
            
            184,849
            
            
            13,951
            
            
            484,502
            
            
            24,997**COMPREHENSIVE
                INCOME**
            
            $
            900,756
            
            $
            481,775
            
            $
            1,349,387
            
            $
            422,312Net
                income per share - Basic and diluted
            
            $
            0.02
            
            $
            0.01
            
            $
            0.02
            
            $
            0.01Weighted
                average shares outstanding - basic and diluted
            
            
            42,079,940
            
            
            42,079,940
            
            
            42,079,940
            
            
            41,935,496




See
      accompanying notes to condensed consolidated financial statements.




F-3


**GFR
      PHARMACEUTICALS INC.**


**CONDENSED
      CONSOLIDATED STATEMENTS OF CASH FLOWS**


**FOR
      THE SIX MONTHS ENDED JUNE 30, 2008 AND 2007**


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


**(Unaudited)**


Six
                  months ended
                June
                  30,2008
              
              2007**Cash
                  flows from operating activities:**Net
                  income
              
              $
              864,885
              
              $
              397,315Adjustments
                  to reconcile net income to net cash provided by operating
                  activities:Depreciation
                  and amortization
              
              
              356,825
              
              
              225,142Stock-based
                  compensation
              
              
              -
              
              
              228,000Equity
                  in net income of an unconsolidated affiliate
              
              
              (6,716
              )Minority
                  interest
              
              
              44,599
              
              
              51,921Change
                  in operating assets and liabilities:
              
              
              
              
              
              -Accounts
                  receivable, trade
              
              
              (264,322
              )
              
              83,305Inventories
              
              
              (51
              )
              
              -Prepayments
                  and other receivables
              
              
              143,001
              
              
              122,915Accounts
                  payable, trade
              
              
              (887,603
              )
              
              -Income
                  tax payable
              
              
              9,984
              
              
              341,582Other
                  payables and accrued liabilities
              
              
              (50,604
              )
              
              21,852Net
                  cash provided by operating activities
              
              
              209,998
              
              
              1,472,032**Cash
                  flows from investing activities:**Partial
                  payment in relation to the Bao Sai acquisition, net of cash
                  acquired
              
              
              (855,693
              )
              
              -Repayment
                  from an unconsolidated affiliate
              
              
              174,851
              
              
              -Proceeds
                  from repayment of note receivable
              
              
              1,399,768
              
              
              -Purchase
                  of property, plant and equipment
              
              
              (205,069
              )
              
              (291,134
              )Net
                  cash provided by (used in) investing activities
              
              
              513,857
              
              
              (291,134
              )**Cash
                  flows from financing activities:**Advances
                  to related companies
              
              
              (49,377
              )
              
              -Payment
                  of note payable to related parties
              
              
              (1,413,907
              )
              
              -Repayment
                  of short-term bank loan
              
              
              -
              
              
              (640,169
              )Advance
                  from (repayment to) stockholders
              
              
              219,509
              
              
              (76,661
              )Net
                  cash provided by (used in) financing activities
              
              
              170,132
              
              
              (716,830
              )Effect
                  of exchange rate changes on cash and cash equivalents
              
              
              26,383
              
              
              24,997**NET
                  CHANGE IN CASH AND CASH EQUIVALENTS**
              
              
              920,370
              
              
              489,065**CASH
                  AND CASH EQUIVALENTS, BEGINNING OF PERIOD**
              
              
              9,951
              
              
              64,543**CASH
                  AND CASH EQUIVALENTS, END OF PERIOD**
              
              $
              930,321
              
              $
              553,608**SUPPLEMENTAL
                  DISCLOSURE OF CASH FLOW INFORMATION:**Cash
                  paid for income taxes
              
              $
              268,328
              
              $
              -Cash
                  paid for interest expenses
              
              $
              -
              
              $
              57,108





See
      accompanying notes to condensed consolidated financial statements.




F-4


**GFR
      PHARMACEUTICALS INC.**


**CONDENSED
      CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY**


**FOR
      THE SIX MONTHS ENDED JUNE 30, 2008 AND 2007**


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


**(Unaudited)**


Common
                  stock
              
              Additional
              
              Accumulated
                other
              
              
              
              
              
              TotalNo.
                  of shares
              
              Amount
              
              paid-in
                  capital
              
              comprehensive
                  income
              
              Statutory
                  reserve
              
              Retained
                  earnings
              
              Stockholders’
                equityBalance
                  as of January 1, 2008
              
              
              42,079,940
              
              $
              42,080
              
              $
              3,712,120
              
              $
              134,797
              
              $
              236,818
              
              $
              1,552,501
              
              $
              5,678,316Foreign
                  currency translation adjustment
              
              
              -
              
              
              -
              
              
              -
              
              
              484,502
              
              
              -
              
              
              -
              
              
              484,502Net
                  income for the period
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              864,885
              
              
              864,885Balance
                  as of June 30, 2008
              
              
              42,079,940
              
              $
              42,080
              
              $
              3,712,120
              
              $
              619,299
              
              $
              236,818
              
              $
              2,417,386
              
              $
              7,027,703


See
      accompanying notes to condensed consolidated financial statements.




F-5


**GFR
      PHARMACEUTICALS INC.**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMTNES**


**FOR
      THE SIX MONTHS ENDED JUNE 30, 2008 AND 2007**





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





The
      accompanying unaudited condensed consolidated financial statements have been
      prepared by management in accordance with both accounting principles generally
      accepted in the United States (“GAAP”), and the instructions to Form 10-Q and
      Rule 10-01 of Regulation S-X. Certain information and note disclosures normally
      included in audited financial statements prepared in accordance with generally
      accepted accounting principles have been condensed or omitted pursuant to those
      rules and regulations, although the Company believes that the disclosures made
      are adequate to make the information not misleading.





In
      the
      opinion of management, the consolidated balance sheet as of December 31, 2007
      which has been derived from audited financial statements and these unaudited
      condensed consolidated financial statements reflect all normal and recurring
      adjustments considered necessary to state fairly the results for the periods
      presented. The results for the period ended June 30, 2008 are not necessarily
      indicative of the results to be expected for the entire fiscal year ending
      December 31, 2008 or for any future period.





These
      unaudited condensed consolidated financial statements and notes thereto should
      be read in conjunction with the Management’s Discussion and the audited
      financial statements and notes thereto included in the Annual Report on Form
      10-KSB for the year ended December 31, 2007.




**NOTE
      2**  **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 Ke Ji Shi Ye 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 assets and liabilities of
      Xi’an Jiaoda Bao Sai Bio-Technology Co., Ltd ("Bao Sai") pursuant to the terms
      of a Stock Purchase Agreement dated January 1, 2008, between GFRP and Bao Sai.
      The consideration was $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”).





F-6


**NOTE
          3**  **SUMMARY
          OF SIGNIFICANT ACCOUNTING POLICIES**
 
 ·
                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.
 
 ·
                Basis
                    of consolidation
 
 The
          condensed consolidated financial statements include the financial statements
          of
          GFRP and its subsidiaries, Hua Long, New
          Centur y
          and Bao
          Sai.
 
 All
          significant inter-company balances and transactions within the Company
          have been
          eliminated upon consolidation.
 
 Upon
          the
          acquisition of Bao Sai, the results of subsidiary acquired during the periods
          are included in the consolidated financial statement from the effective
          date of
          acquisition.
 
 Investment
          in an unconsolidated affiliate, namely Xi’ an Bao Sai Medicine Co., Ltd
          (“Medicine”) over which the Company has significant influence are accounted for
          under the equity method of accounting whereby the investment is initially
          recorded at the cost of acquisition and adjusted to recognize the Company’s
          share in undistributed earnings or losses since acquisition. The Company’s share
          in the earnings or losses for its unconsolidated affiliate is reflected
          in
          equity share in income of unconsolidated affiliates. If the investment
          in an unconsolidated affiliateis
          reduced to a zero balance due to prior losses, the Company recognizes any
          further losses related to its share to the extent that any receivables,
          loans or
          advances to the unconsolidated affiliateare
          evaluated to be uncollectible.
 
 ·
                Cash
                    and cash equivalents
 
 Cash
          and
          cash equivalents are carried at cost and represent cash on hand, demand
          deposits
          placed with banks or other financial institutions and all highly liquid
          investments with an original maturity of three months or less as of the
          purchase
          date of such investments.
 
 ·
                Accounts
                    receivable
 
 Accounts
          receivable are recorded at the invoiced amount and do not bear interest.
          The
          Company extends unsecured credit to its customers in the ordinary course
          of
          business but mitigates the associated risks by performing credit checks
          and
          actively pursuing past due accounts. An allowance for doubtful accounts
          is
          established and determined based on managements’ assessment of known
          requirements, aging of receivables, payment history, the customer’s current
          credit worthiness and the economic environment.
 
 ·
                Allowance
                    for doubtful accounts
 
 The
          allowance for loan losses on small-balance receivables reflects management’s
          best estimate of probable losses determined principally on the basis of
          historical experience. For larger loans, including specific allowances
          for known
          troubled accounts. The Company maintains a general reserve for all losses
          and
          receivable at 0.05% of the balances.
 
 ·
                Inventories
 
 Inventories
          are stated at the lower of cost or market (net realizable value), cost
          being
          determined on a weighted average method. Costs include material, labor
          and
          manufacturing overhead costs. The Company quarterly reviews historical
          sales
          activity to determine excess, slow moving items and potentially obsolete
          items
          and also evaluates the impact of any anticipated changes in future demand.
          The
          Company provides inventory allowances based on excess and obsolete inventories
          determined principally by customer demand.
  F-7
 
 ·
                Property,
                    plant and equipment, net
 
 Property,
          plant and equipment are stated at cost less accumulated depreciation and
          accumulated impairment losses, if any. Depreciation is calculated on the
          straight-line basis over the following expected useful lives from the date
          on
          which they become fully operational and after taking into account their
          estimated residual values:
 
 Depreciable
                    life
                
                Residual
                    valueBuildings
                
                
                20
                    to 40 years
                
                
                5
                %Plant
                    and equipment
                
                
                5
                    to 16 years
                
                
                5
                %Motor
                    vehicles
                
                
                8
                    to 12 years
                
                
                5
                %Furniture,
                    fixture and office equipment
                
                
                5
                    to 8 years
                
                
                5
                %
 
 Expenditure
          for repairs and maintenance is expensed as incurred. When assets have retired
          or
          sold, the cost and related accumulated depreciation are removed from the
          accounts and any resulting gain or loss is recognized in the results of
          operations.
 
 ·
                Intangible
                    asset
 
 Intangible
          asset include technical know-how purchased from a third party. In accordance
          with Statement of Financial Accounting Standards (“SFAS”) No. 142, *“Goodwill
          and Other Intangible Assets”* (“SFAS
          No. 142”), intangible assets with finite useful lives related to developed
          technology, customer lists, trade names and other intangibles are being
          amortized on a straight-line basis over the estimated useful life of the
          related
          asset.
 
 Technical
          know-how is carried at cost less accumulated amortization and impairment
          charge
          and is amortized on a straight-line basis over its estimated useful lives
          of 10
          years beginning at the time it is granted.
 
 ·
                Land
                    use right
 
 All
          lands
          in the PRC are owned by the PRC government. The government in the PRC,
          according
          to the relevant PRC law, may sell the right to use the land for a specified
          period of time. Thus, all of the Company’s land purchases in the PRC are
          considered to be leasehold land and are stated at cost less accumulated
          amortization and any recognized impairment loss. Amortization is provided
          over
          the term of the land use right agreements on a straight-line basis, which
          is 50
          years and they will expire in 2052.
 
 ·
                Impairment
                    of long-lived assets
 
 In
          accordance with Statement
          of Financial Accounting Standard ( " SFAS " ) SFAS
          No.
          144, *“Accounting
          for the Impairment or Disposal of Long-Lived Assets”* ,
          all
          long-lived assets such as plant and equipment held and used by the Company
          are
          reviewed for impairment whenever events or changes in circumstances indicate
          that the carrying amount of an asset may not be recoverable. Recoverability
          of assets to be held and used is evaluated by a comparison of the carrying
          amount of assets to estimated discounted net cash flows expected to be
          generated
          by the assets. If such assets are considered to be impaired, the impairment
          to
          be recognized is measured by the amount by which the carrying amounts of
          the
          assets exceed the fair value of the assets. There has been no impairment
          as of
          June 30, 2008.
  F-8
  (a)
                Service
                    revenue
 
 In
          accordance with the SEC’s Staff Accounting Bulletin No. 104, “ *Revenue
          Recognition”* ,
          the
          Company records revenue 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.
 
 Pursuant
          to the agreements entered into between the Company and Tong Du Hospital
          ( " the
          Hospital " ),
          the
          Company and the Hospital would jointly operate the medical center in the
          provision of diagnostic imaging services to the patients. In return, the
          Company
          and the Hospital would share net revenues from services rendered, on a
          monthly
          basis, when earned, at their net realizable amounts from patients for services
          rendered at contractually established billing rates, after deducting the
          total
          operating cost of the centers. The Company recognizes net revenues based
          on the
          total amount received from the patients during the month, less the monthly
          operating costs incurred at the center.
 
 The
          Company records the revenue, net of business tax, from the customers through
          the
          Hospital, on a net basis in compliance with EITF 99-19, *“Reporting
          Revenues Gross as a Principal versus Net as an Agent.”*
 
 (b)
                Sales
                    of products
 
 Revenue
          is recognized when products are delivered to customers. Provisions for
          discounts
          and rebates to customers, estimated returns and allowances, and other
          adjustments are provided for in the same period the related sales are recorded.
          In instances where products are configured to customer requirements, revenue
          is
          recorded upon the successful completion of the Company’s final test procedures
          and the customer’s acceptance.
 
 The
          Company is subject to valued-added tax (“VAT”) under the PRC tax law which is
          levied on the majority of the products at the rate of 17% on the invoiced
          value
          of sales. Output VAT is borne by customers in addition to the invoiced
          value of
          sales and input VAT is borne by the subsidiaries in addition to the invoiced
          value of purchases to the extent not refunded for export sales.
 
 (c)
                Interest
                    income
 
 Interest
          income is recognized on a time apportionment basis, taking into account
          the
          principal amounts outstanding and the interest rates applicable.
 
 ·
                Income
                    taxes
 
 The
          Company accounts for income tax using SFAS No. 109 *“Accounting
          for Income Taxes”* ,
          which
          requires the asset and liability approach for financial accounting and
          reporting
          for income taxes. Under this approach, deferred income taxes are provided
          for
          the estimated future tax effects attributable to temporary differences
          between
          financial statement carrying amounts of assets and liabilities and their
          respective tax bases, and for the expected future tax benefits from loss
          carry-forwards and provisions, if any. Deferred tax assets and liabilities
          are
          measured using the enacted tax rates expected in the years of recovery
          or
          reversal and the effect from a change in tax rates is recognized in the
          statements of operations and comprehensive income in the period of enactment.
          A
          valuation allowance is provided to reduce the amount of deferred tax assets
          if
          it is considered more likely than not that some portion of, or all of the
          deferred tax assets will not be realized.
 
 Effective
          January 1, 2007, the Company also adopts
          the provisions of the Financial Accounting Standards Interpretation No.
          48, *“Accounting
          for Uncertainty in Income Taxes”* ("FIN
          48"). FIN 48 prescribes a recognition threshold and measurement process
          for
          recording in the financial statements uncertain tax positions taken or
          expected
          to be taken in a tax return. FIN 48 also provides guidance on de-recognition,
          classification, interest and penalties, accounting in interim periods,
          disclosures and transitions. In
          connection with the adoption of FIN 48, the Company has analyzed the filing
          positions in all of the jurisdictions where the Company is required to
          file
          income tax returns, as well as all open tax years in these jurisdictions.
          There
          was no impact on the condensed consolidated financial statements. The Company
          did not have any unrecognized tax benefits and there was no effect on the
          financial condition or results of operations for the period ended June
          30,
          2008.
  F-9
 
 The
          Company conducts its major businesses in the PRC and is subject to tax
          in this
          jurisdiction. As a result of its business activities, the Company files
          tax
          returns that are subject to examination by the local and foreign tax
          authorities.
 
 ·
                Net
                    income per share
 
 The
          Company calculates net income per share in accordance with SFAS No. 128,
          *“* *Earnings
          per Share.”* Basic
          income per share is computed by dividing the net income by the weighted-average
          number of common shares outstanding during the period. Diluted income (loss)
          per
          share is computed similar to basic income per share except that the denominator
          is increased to include the number of additional common shares that would
          have
          been outstanding if the potential common stock equivalents had been issued
          and
          if the additional common shares were dilutive.
 
 ·
                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.
 
 ·
                Foreign
                    currencies translation
 
 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 condensed consolidated statement of
          operations.
 
 The
          reporting currency of the Company is the 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, the Renminbi Yuan ("RMB"),
          which
          is functional currency as being the primary currency of the economic environment
          in which these entities operate.
 
 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 period:
  2008
                
                2007Months
                    end RMB:US$ exchange rate
                
                
                6.8718
                
                
                7.5850Average
                    monthly RMB:US$ exchange rate
                
                
                7.0726
                
                
                7.6988
  F-10
  ·
                Stock-based
                    compensation
 
 The
          Company adopts SFAS
          No.
          123 (revised 2004), " *Share-Based
          Payment* "
          ("SFAS
          No. 123R") using
          the fair value method. Under
          SFAS No. 123R, stock-based compensation expense is measured at the grant
          date
          based on the value of the option or restricted stock and is recognized
          as
          expense, less expected forfeitures, over the requisite service
          period.
 
 ·
                Related
                    parties
 
 Parties,
          which can be a corporation or individual, are considered to be related
          if the
          Company has the ability, directly or indirectly, to control the other party
          or
          exercise significant influence over the other party in making financial
          and
          operating decisions. Companies are also considered to be related if they
          are
          subject to common control or common significant influence.
 
 ·
                Segment
                    reporting
 
 SFAS
          No.
          131 *“Disclosures
          about Segments of an Enterprise and Related Information”* establishes standards for reporting information about operating segments
          on a
          basis consistent with the Company’s internal organization structure as well as
          information about geographical areas, business segments and major customers
          in
          the financial statements. Commencing this year, the Company operates in
          two
          reportable segments: Medical Business and Extraction Business in the
          PRC.
 
 ·
                Fair
                    value of financial instruments
 
 The
          Company values its financial instruments as required by SFAS No. 107,
“ *Disclosures
          about Fair Value of Financial Instruments* ”.
          The
          estimated fair value amounts have been determined by the Company, using
          available market information and appropriate valuation methodologies. The
          estimates presented herein are not necessarily indicative of amounts that
          the
          Company could realize in a current market exchange.
 
 The
          Company’s financial instruments primarily consist of cash and cash equivalents,
          accounts receivable, amounts due from (to) related parties, notes receivable,
          prepayments and other receivables, accounts payable, note payable, income
          tax
          payable, other payables and accrued liabilities.
 
 As
          of the
          balance sheet date, the estimated fair values of the financial instruments
          were
          not materially different from their carrying values as presented due to
          the
          short term maturities of these instruments and that the interest rates
          on the
          borrowings approximate those that would have been available for loans of
          similar
          remaining maturity and risk profile at respective period ends.
 
 ·
                Recently
                    issued accounting standards
 
 The
          Company has reviewed all recently issued, but not yet effective, accounting
          pronouncements and do not believe the future adoption of any such pronouncements
          may be expected to cause a material impact on its financial condition or
          the
          results of its operations.
 
 In
          February 2007, the FASB issued SFAS No. 159, *"The
          Fair Value Option for Financial Assets and Financial Liabilities" ("SFAS
          No.
          159").* SFAS No.
          159 permits entities to choose to measure, on an item-by-item basis, specified
          financial instruments and certain other items at fair value. Unrealized
          gains
          and losses on items for which the fair value option has been elected are
          required to be reported in earnings at each reporting date. SFAS No. 159
          is
          effective for fiscal years beginning after November 15, 2007, the provisions
          of
          which are required to be applied prospectively. The Company believes that
          SFAS
          159 should not have a material impact on the consolidated financial position
          or
          results of operations.
  F-11
 
 In
          December 2007, the FASB issued SFAS No. 141 (Revised 2007), *"Business Combinations" ("SFAS No. 141R")* .
          SFAS
          No. 141R will change the accounting for business combinations. Under SFAS
          No.
          141R, an acquiring entity will be required to recognize all the assets
          acquired
          and liabilities assumed in a transaction at the acquisition-date fair value
          with
          limited exceptions. SFAS No. 141R will change the accounting treatment
          and
          disclosure for certain specific items in a business combination. SFAS No.
          141R
          applies prospectively to business combinations for which the acquisition
          date is
          on or after the beginning of the first annual reporting period beginning
          on or
          after December 15, 2008. Accordingly, any business combinations the Company
          engages in will be recorded and disclosed following existing GAAP until
          January
          1, 2009. The Company expects SFAS No. 141R will have an impact on accounting
          for
          business combinations once adopted but the effect is dependent upon acquisitions
          at that time. The Company is still assessing the impact of this
          pronouncement.
 
 In
          December 2007, the FASB issued SFAS No. 160, *"Noncontrolling
          Interests in Consolidated Financial Statements—An
          Amendment of
          ARB No. 51, or SFAS No. 160" ("SFAS No. 160")* .
          SFAS
          No. 160 establishes new accounting and reporting standards for the
          noncontrolling interest in a subsidiary and for the deconsolidation of
          a
          subsidiary. SFAS No. 160 is effective for fiscal years beginning on or
          after
          December 15, 2008. The Company believes that SFAS 160 should not have a
          material
          impact on the consolidated financial position or results of
          operations.
 
 In
          March
          2008, the FASB issued SFAS No. 161, *"Disclosures
          about Derivative Instruments and Hedging Activities" ("SFAS No.
          161")* .
          SFAS
          161 requires companies with derivative instruments to disclose information
          that
          should enable financial-statement users to understand how and why a company
          uses
          derivative instruments, how derivative instruments and related hedged items
          are
          accounted for under FASB Statement No. 133 *"Accounting
          for Derivative Instruments and Hedging Activities"* and how
          derivative instruments and related hedged items affect a company's financial
          position, financial performance and cash flows. SFAS No. 161 is effective
          for
          financial statements issued for fiscal years and interim periods beginning
          after
          November 15, 2008. The adoption of this statement is not expected to have
          a
          material effect on the Company's future financial position or results of
          operations.
 
 In
          May
          2008, the FASB issued SFAS No. 162, *“The
          Hierarchy of Generally Accepted Accounting Principles”* ("SFAS
          No. 162"). This statement identifies the sources of accounting principles
          and
          the framework for selecting the principles to be used in the preparation
          of
          financial statements in conformity with generally accepted accounting principles
          (GAAP) in the United States. This statement is effective 60 days following
          the
          SEC’s approval of the Public Company Accounting Oversight Board amendments
          to AU
          Section 411, *“The
          Meaning of Present Fairly in Conformity With Generally Accepted Accounting
          Principles”* .
          The
          Company does not expect the adoption of SFAS No. 162 to have a material
          effect
          on the financial condition or results of operations of the Company.
  **NOTE
          4**  **ACQUISITION
          OF 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, bacterin production, the gene chip, diagnostic reagents and other
          biochemical products.
  F-12
 
 Upon
          the
          completion of the transaction, Bao Sai became a subsidiary of the Company.
          The
          acquisition was accounted for under the purchase method of accounting.
          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:
                    minority interest
                
                
                (150,209
                )Purchase
                    price
                
                $
                4,500,211Satisfied
                    by:Net
                    cash to be paid to acquire Bao Sai
                
                $
                4,500,211
 
 The
          purchase price is scheduled to be paid by the Company in two installments
          over 2
          years due December 31, 2009. The first installment will be 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 by December 31, 2008. 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, ending December
          31,
          2009.
 
 As
          of
          June 30, 2008, the purchase price consideration is payable are as
          follows:
 
 Years
                    ending December 31,
                
                Approximately
                
                Equal
                    to RMB2008
                
                
                715,056
                
                
                5,401,1002009
                
                
                2,329,932
                
                
                17,598,900Total:
                
                $
                3,044,988
                
                
                23,000,000
 
 For
          the
          six months ended June 30, 2008, the Company made a partial payment of purchase
          price consideration totaling $1,413,907 (equivalent to RMB10,000,000).
  F-13
  **NOTE
          5**  **ACCOUNTS
          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. No allowance for doubtful
          accounts was charged to operations during the six months ended June 30,
          2008.
 
 June
                    30,
                  2008
                
                December
                    31,
                  2007(Unaudited)
                
                (Audited)Accounts
                    receivable, cost
                
                $
                1,196,311
                
                $
                343,087Less:
                    allowance for doubtful accounts
                
                
                (6,931
                )
                
                -Accounts
                    receivable, net
                
                $
                1,189,380
                
                $
                343,087
  **NOTE
          6**  **NOTES
          RECEIVABLE, NET**
 
 June
                    30,
                  2008
                
                December
                    31,
                  2007(Unaudited)
                
                (Audited)Notes
                    receivable, cost
                
                $
                1,091,417
                
                $
                -Less:
                    allowance for doubtful accounts
                
                
                (10,914
                )
                
                -Notes
                    receivable, net
                
                $
                1,080,503
                
                $
                -
 
 On
          September 3, 2007, the Company disposed of its investment in 75% of Hua
          Yang for a
          cash consideration of $1,091,417 (equivalent to RMB7,500,000). As of June
          30,
          2008, the balance was unsecured and interest-free and repayable in 4
          installments due in full by December 31, 2008.
 
 On
          December 10, 2007, the Company disposed of a building for a cash consideration
          of $1,424,055 (equivalent to RMB10,000,000). During the six months ended
          June
          30, 2008, the Company received payment in full from the purchaser.
 
 **NOTE
          7**  **INVENTORIES,
          NET**
  Inventories
          consisted of the followings:
  June
                    30,
                  2008
                
                December
                    31,
                  2007(Unaudited)
                
                (Audited)Raw
                    materials
                
                $
                74,871
                
                $
                -Work
                    in process
                
                
                2,427
                
                
                -Finished
                    goods
                
                
                563,153
                
                
                -640,451-Less:
                    inventory allowances
                
                
                (365,408
                )
                
                -Inventories,
                    net
                
                $
                275,043
                
                $
                -
 
 No
          provision for inventory allowance was charged to operations during the
          three and
          six months ended June 30, 2008.
  F-14
  **NOTE
          8**  **AMOUNT
          DUE FROM (TO) RELATED PARTIES**
 
 (a)  Amount
          due from related companies
 
 June
                    30,
                  2008
                
                December
                    31,
                  2007(Unaudited)
                
                (Audited)Amount
                    due from related parties, cost
                
                $
                1,234,897
                
                $
                28,232Less:
                    allowance for doubtful accounts
                
                
                (21,126
                )
                
                -Amount
                    due from related parties, net
                
                $
                1,213,771
                
                $
                28,232
 
 As
          of
          June 30, 2008, a net balance of $1,213,771 was due from a former subsidiary
          of
          the Company, which amount represented a temporary advance from the Company
          and
          which advance was unsecured, interest-free, with a fixed term of
          repayment.
 
 (b)  Amount
          due to a stockholder
 
 As
          of
          June 30, 2008, a balance of $1,879,126 was due to a stockholder, Mr Lian
          Guo
          which represented a temporary advance to the Company, which was unsecured,
          interest-free and repayable on demand.
  **NOTE
          9**  **PREPAYMENTS
          AND OTHER RECEIVABLES**
 
 Prepayments
          and other receivables consisted of the following:
 
 June
                    30,
                  2008
                
                December
                    31,
                  2007(Unaudited)
                
                (Audited)Deposits
                
                $
                195,060
                
                $
                -Advances
                    to employees
                
                
                121,317
                
                
                18,587Prepayment
                    for equipment purchase
                
                
                80,911
                
                
                256,358Prepayments
                
                
                193,999
                
                
                39,240$
                591,287
                
                $
                314,185
 
 **NOTE
          10**  **PROPERTY,
          PLANT AND EQUIPMENT, NET**
 
 Property,
          plant and equipment, net, consisted of the following:
 
 June
                    30,
                  2008
                
                December
                    31,
                  2007(Unaudited)
                
                (Audited)Buildings
                
                $
                2,293,130
                
                $
                608,053Plant
                    and equipment
                
                
                6,484,961
                
                
                5,379,652Motor
                    vehicles
                
                
                246,592
                
                
                -Furniture,
                    fixture and office equipment
                
                
                146,804
                
                
                18,944Foreign
                    translation difference
                
                
                583,501
                
                
                547,3669,754,988
                
                
                6,554,015Less:
                    accumulated depreciation
                
                
                (1,756,315
                )
                
                (914,000
                )Less:
                    foreign translation difference
                
                
                (100,605
                )
                
                (54,304
                )Property,
                    plant and equipment, net
                
                $
                7,898,068
                
                $
                5,585,711
  F-15
  Depreciation
          expense for the three and six months ended June 30, 2008 totaled $180,889
          and
          $353,320, respectively. Depreciation expense for the three and six months
          ended
          June 30, 2007 was $113,504 and $225,142, respectively.
 
 **NOTE
          11**  **INTANGIBLE
          ASSETS, NET**
 
 June
                    20,
                  2008
                
                December
                    31,
                  2007(Unaudited)
                
                (Audited)Technical
                    know-how
                
                $
                1,091,703
                
                $
                -Land
                    use right
                
                
                153,437
                
                
                -Foreign
                    translation difference
                
                
                158,726
                
                
                -1,403,866
                
                
                -Less:
                    accumulated amortization
                
                
                (779,468
                )
                
                -Less:
                    accumulated impairment charge
                
                
                (406,571
                )
                
                -Less:
                    foreign translation difference
                
                
                (56,977
                )
                
                -Net
                    book value
                
                $
                160,850
                
                $
                -
 
 Amortization
          expenses for the three and six months ended June 30, 2008 were $1,777 and
          $3,505
          respectively.
 
 As
          of
          June 30, 2008, the carrying value of the technical know-how was stated
          as zero.
          The Company recognized a full impairment charge in
          prior
          years for recoverability test.
  **NOTE
          12**  **INVESTMENT
          IN AN UNCONSOLIDATED AFFILIATE**
 
 The
          Company has a 75% equity interest in Xi’an Bao Sai Medicine Co., Ltd
          (“Medicine”), which was registered as a limited liability company in the PRC.
          Medicine’s principal activity is contracting with third parties for the use of a
          medicine dispensing license in exchange for a fixed monthly rental income
          over
          an agreed period of time. Although the Company owns more than 50% of the
          equity,
          pursuant to a contractual agreement, the Company transferred its control
          rights
          of Medicine to an affiliated third party who has ultimate control on management
          decision. Therefore, the Company does not control policy decisions in Medicine,
          therefore, the 75%-investment in Medicine is accounted for under the equity
          method. Prior to its acquisition, Medicine was a subsidiary of Bao Sai
          which
          primarily engaged in the medicine wholesale and retailing businesses. However,
          the business did not perform well and was discontinued.
 
 As
          of
          June 30, 2008, the investment in an unconsolidated affiliate is presented
          as
          follows:-
 
 Investment
                    in Medicine at the date of acquisition
                
                $
                106,804Amount
                    due from Medicine
                
                
                1,087,826Share
                    of accumulated losses in Medicine
                
                
                (870,823
                )Equity
                    in net income of unconsolidated affiliate
                
                
                6,716Foreign
                    translation difference
                
                
                6,034Net
                    investment
                
                $
                336,557
 
 A
          summary
          of the operating results of Medicine for the three months ended June 30,
          2008 is
          described as below:
 
 Revenue
                
                $
                8,955Net
                    income
                
                $
                8,955
  F-16
  The
          balance of $1,087,826 due from Medicine, represented a temporary advance
          from
          the Company which was unsecured and interest-free with a fixed repayment
          term of
          5 installments, due in full no later than 2012. As of June
          30,
          2008 ,
          the
          future installments to be received are as follows:
 
 Periods
                    ending December 31,
                
                Approximately2008
                
                $
                3,4552009
                
                
                273,4482010
                
                
                273,4482011
                
                
                273,4482012
                
                
                264,027Total:
                
                $
                1,087,826
  **NOTE
          13**  **NOTE
          PAYABLE**
 
 As
          of
          June 30, 2008, a balance of $436,567 represented a temporary advance from
          Shaanxi Zhai Hua Nuan Tong Zhileng Gongcheng Co., Ltd to the Company. Interest
          on this note is charged at 10.46% per annum, payable monthly, with principle
          and
          accrued but unpaid interest due on December 20, 2008.
  **NOTE
          14**  **OTHER
          PAYABLES AND ACCRUED LIABILITIES**
 
 Other
          payables and accrued liabilities consisted of the followings:
 
 June
                    30,
                  2008
                
                December
                    31,
                  2007(Unaudited)
                
                (Audited)Business
                    tax payable
                
                $
                28,717
                
                $
                17,154Salaries
                    and welfare payable
                
                
                98,653
                
                
                1,292Temporary
                    advances
                
                
                113,239
                
                
                -Accrued
                    expenses
                
                
                184,216
                
                
                6,216Other
                    payable
                
                
                49,808
                
                
                35,013$
                474,633
                
                $
                59,675
  **NOTE
          15**  **INCOME
          TAXES**
 
 For
          the
          six months ended June 30, 2008 and 2007, the local (“the United States”) and
          foreign components of income (loss) before income taxes and minority interest
          were comprised of the following:
 
 Six
                    months ended
                  June
                    30,2008
                
                2007Local
                
                $
                (14,000
                )
                $
                (233,665
                )Foreign
                
                
                1,207,399
                
                
                1,024,483Income
                    before income taxes and minority interest
                
                $
                1,193,399
                
                $
                790,818
  F-17
  The
          provision for income taxes consisted of the following:
 
 Six
                    months ended
                  June
                    30,2008
                
                2007Current:Local
                
                $
                -
                
                $
                -Foreign
                
                
                283,915
                
                
                341,582Deferred:Local
                
                
                -
                
                
                -Foreign
                
                
                -
                
                
                -Provision
                    for income taxes
                
                $
                283,915
                
                $
                341,582
 
 The
          effective tax rate in the periods presented is the result of the mix of
          income
          earned in various tax jurisdictions that apply a broad range of income
          tax
          rates. The Company has subsidiaries and branches that operate in various
          countries: United States and the PRC that are subject to tax in the
          jurisdictions in which they operate, as follows:
 
 *United
          States of America*
 
 The
          Company is registered in the State of Nevada and is
          subject to the tax laws of the United States of America.
 
 As
          of
          June 30, 2008, the Company’s United States operations incurred $415,015 of net
          operating losses available for federal tax purposes, which are available
          to
          offset future taxable income. The net operating loss carry forwards begin
          to
          expire in 2029. The Company has provided for a full valuation allowance
          of
          $141,105 for future tax benefits from the net operating loss carry forwards
          as
          the management believes it is more likely than not that these assets will
          not be
          realized in the future.
 
 *The
          PRC*
 
 The
          Company generated substantially all of its net income from the operation
          of its
          subsidiaries in the PRC which is subject to the PRC tax law. The Company
          has
          recorded income tax expenses for the six months ended June 30, 2008 and
          2007.
 
 All
          of
          the Company’s PRC subsidiaries are subject to the Corporate Income Tax governed
          by the Income Tax Law of the People’s Republic of China. Effective from January
          1, 2008, the Corporate Income Tax Law of the People’s Republic of China (the
“New CIT Law”) is followed. The new CIT Law, among other things, imposes a
          unified income tax rate of 25% for both domestic and foreign invested
          enterprises. Under the New CIT Law, Hua Long, as a foreign investment
          enterprise, its tax holidays are expired and subject to the new statutory
          income
          rate of 25%. Bao Sai and New Century are domestic companies which are entitled
          to the tax rate reduction from 33% to 25%.
 
 The
          reconciliation of income tax rate to the effective income tax rate based
          on
          income before income taxes and minority interest under the PRC tax jurisdiction
          for the periods ended June 30, 2008 and 2007 are as follows:
  Six
                    months ended
                  June
                    30,2008
                
                2007Income
                    before income taxes
                
                $
                1,207,399
                
                $
                1,024,483Statutory
                    income tax rate
                
                
                25
                %
                
                33
                %Income
                    tax expense at statutory tax rate
                
                
                301,850
                
                
                338,079Expenses
                    not deductible for the PRC income tax
                
                
                3,395
                
                
                3,503Net
                    operating loss carry forwards
                
                
                (21,330
                )
                
                -Income
                    tax expenses
                
                $
                283,915
                
                $
                341,582
  F-18
  Under
          the
          PRC tax jurisdiction, its effective income tax rate for the six months
          ended
          June 30, 2008 and 2007 were 23.5% and 33.0%, respectively.
 
 For
          the
          six months ended June 30, 2008, Hua Long and Bao Sai were exempted from
          Corporate Income Tax due to cumulative tax losses.
 
 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 June 30, 2008 were as follows:
  Deferred
                    tax assets:-
                    Net operating loss carry forwards
                
                $
                942,278Less:
                    valuation allowance
                
                
                (942,278
                )Net
                    deferred tax assets
                
                $
                -
 
 As
          of
          June 30, 2008, the Company had approximately an aggregate $3,619,708 of
          cumulative tax losses which can be carried forward to offset future taxable
          income. The deferred tax assets of the Company consisted mainly of tax
          losses
          and for which a full valuation allowance has been provided, as the management
          believes it is more likely than not that these assets will not be realized
          in
          the future.
  **NOTE
          16**  **SEGMENT
          REPORTING**
 
 The
          Company’s business units have been aggregated into two reportable segments, as
          defined by SFAS 131:
 ·
                  Medical
                      Business - joint operation of PET Scanner and Rotary Gamma
                      Ray
                      Stereotactic Neurosurgery System imaging center in the
                      PRC.
  ·
                  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 June 30, 2008 and 2007. 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.
  F-19
 
 Summary
          of financial information concerning the Company’s reportable segments is shown
          in the following table for the three months ended June 30, 2008 and 2007:
  Three
                      months ended June 30, 2008Medical
                    Business
                  
                  Extraction
                    Business
                  
                  TotalOperating
                      revenues
                  
                  $
                  1,122,457
                  
                  $
                  416,856
                  
                  $
                  1,539,313Cost
                      of revenues
                  
                  
                  -
                  
                  
                  (27,828
                  )
                  
                  (27,828
                  )Gross
                      profit
                  
                  
                  1,122,457
                  
                  
                  389,028
                  
                  
                  1,511,485Depreciation
                      and amortization
                  
                  
                  138,436
                  
                  
                  44,230
                  
                  
                  182,666Net
                      income
                  
                  $
                  654,184
                  
                  $
                  61,723
                  
                  $
                  715,907Expenditure
                      for long-lived assets
                  
                  $
                  23,038
                  
                  $
                  213
                  
                  $
                  23,251
  Three
                      months ended June 30, 2007Medical
                    Business
                  
                  Extraction
                    Business
                  
                  TotalOperating
                      revenues
                  
                  $
                  1,045,957
                  
                  $
                  -
                  
                  $
                  1,045,957Depreciation
                      and amortization
                  
                  
                  113,504
                  
                  
                  -
                  
                  
                  113,504Net
                      income
                  
                  $
                  467,824
                  
                  $
                  -
                  
                  $
                  467,824Expenditure
                      for long-lived assets
                  
                  $
                  287,613
                  
                  $
                  -
                  
                  $
                  287,613
 
 Summary
          of financial information concerning the Company’s reportable segments is shown
          in the following table for the six months ended June 30, 2008 and 2007:
 Six
                      months ended June 30, 2008Medical
                    Business
                  
                  Extraction
                    Business
                  
                  TotalOperating
                      revenues
                  
                  $
                  1,598,152
                  
                  $
                  623,568
                  
                  $
                  2,221,720Cost
                      of revenues
                  
                  
                  -
                  
                  
                  (135,946
                  )
                  
                  (135,946
                  )Gross
                      profit
                  
                  
                  1,598,152
                  
                  
                  487,622
                  
                  
                  2,085,774Depreciation
                      and amortization
                  
                  
                  270,023
                  
                  
                  86,802
                  
                  
                  356,825Net
                      income
                  
                  $
                  766,052
                  
                  $
                  98,833
                  
                  $
                  864,885Expenditure
                      for long-lived assets
                  
                  $
                  190,269
                  
                  $
                  14,800
                  
                  $
                  205,069
  Six
                        months ended June 30, 2007Medical
                      Business
                    
                    Extraction
                      Business
                    
                    TotalOperating
                        revenues
                    
                    $
                    1,445,836
                    
                    $
                    -
                    
                    $
                    1,445,836Depreciation
                        and amortization
                    
                    
                    225,142
                    
                    
                    -
                    
                    
                    225,142Net
                        income
                    
                    
                    397,315
                    
                    
                    -
                    
                    
                    397,315Expenditure
                        for long-lived assets
                    
                    $
                    291,134
                    
                    $
                    -
                    
                    $
                    291,134
 **NOTE
          17**  **CONCENTRATION
          AND RISK**
 
 The
          Company is exposed to the followings concentrations of risk:
 
 (a)  Major
          customers
 
 For
          both
          periods ended June 30, 2008 and 2007, 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.
  F-20
 
 For
          the
          three and six months ended June 30, 2008, one customer represented more
          than 10%
          of the Company’s revenue and accounts receivable, respectively. As of June 30,
          2008, this customer accounted for 72% of revenues amounting to $1,596,152
          for
          the six months ended and $436,098 of accounts receivable,
          respectively.
 
 For
          the
          three and six months ended June 30, 2007, one customer represented more
          than 10%
          of the Company’s revenue and accounts receivable, respectively. As of June 30,
          2007, this customer accounted for both 100% of revenues amounting to $389,296
          for the six months ended and $168,915 of accounts receivable,
          respectively.
 
 (b)  Major
          vendors
 
 For
          the
          three and six months ended June 30, 2008, one vendor represented more than
          10%
          of the Company’s purchases and accounts payable, respectively.
 
 For
          the
          three and six months ended June 30, 2007, no 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$ and 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
          RMB
          depreciates against US$, the value of RMB revenues and assets as expressed
          in
          US$ financial statements will decline. The Company does not hold any derivative
          or other financial instruments that expose to substantial market
          risk.
 
 **NOTE
          18**  **COMMITMENT
          AND CONTINGENCIES**
 
 The
          Company rented office space under non-cancelable operating lease agreements.
          One
          of the leases expires on December 31, 2008 and the other expires on June
          19,
          2009. Costs incurred under these operating leases are recorded as rental
          expense
          and totaled approximately $3,054 and $0 for the period ended June 30, 2008
          and
          2007. As of June 30, 2008, future minimum annual operating lease payments
          are as
          follows:
 
 Years
                    ending June 30:2009
                
                $
                3,801
 
 F-21
 
 **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
          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”), which averaged 137 cases per month in 2006 and 204 cases per
          month in 2007. 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 capital stock of Bao Sai, or 96.77%
          of its
          common stock, as of January 1, 2008.
 
 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.
  1
 
 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. The Company will pay the first such installment of RMB 10
          million
          yuan on or before June 30, 2008, and the second such installment of RMB
          5,872,920 yuan on or before October 31, 2008. The Company will pay the
          other
          three shareholders an aggregate of RMB 17,040,832 yuan proportionately
          for their
          respective shares (collectively, 30,060,000 shares) on or before December
          30,
          2009. Upon the completion of the transaction, Bao Sai became a subsidiary
          of the
          Company.
  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 and purification of blood products, biochemical products,
          natural medicines and genetic engineering, which can effectively get rid
          of
          insecurity substances of drugs, such as impurity endotoxin. 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. Bao Sai has approximately
          50
          employees.
 
 Bao
          Sai
          has produced more than 50 varieties of products including agarose, dextran
          and
          silica gel.. In the PRC, Bao Sai is the first company which specializes
          in
          research, development, manufacture and sale of biological separation medium
          products and is also one of a few enterprises that has the ability to complete
          this project. The industrial preparative chromatographic system products
          include
          Flange industrial preparative chromatographic columns, mechanical lock
          axial
          compression preparative chromatographic columns and automatic hydraulic
          pressure
          axial compression preparative chromatographic columns. By taking its scientific
          and technological advantages, the Company has established the first production
          line of industrial preparative chromatographic system for the refinement
          of
          natural products in China which the Company expects to enable it to provide
          high
          quality public service in technology and technical support for bio-medical
          industry and research organizations in PRC.
  **RESULTS
          OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED JUNE 30,
          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
 
 CRITICAL
          ACCOUNTING POLICIES
 
 *Revenue
          recognition*
 
 a)  
                    Service revenue
 
 In
          accordance with the SEC’s Staff Accounting Bulletin No. 104, Revenue
          Recognition, the Company records revenue 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.
 
 Pursuant
          to the Cooperation Agreement and the Additional Cooperation Agreement entered
          into between the Company and Tong Du Hospital (“Hospital”) dated February 2,
          2006, the Company and the Hospital would jointly operate the medical center
          in
          the provision of diagnostic imaging services to the patients.  In
          return, the Company and the Hospital would share net revenues from services
          rendered, on a monthly basis, when earned, at their net realizable amounts
          from
          patients for services rendered at contractually established billing rates,
          after
          deducting the total operating cost of the centers.  The Company
          recognizes net revenues based on the total amount received from the patients
          during the month, less the monthly operating costs incurred at the
          centers.
 
 The
          Company records the revenue, net of sales tax, from the customers through
          the
          Hospital, on a net basis in compliance with EITF 99-19, *“Reporting
          Revenues Gross as a Principle versus Net as an Agent.”*
 
 b)  
                    Interest income
 
 Interest
          income is recognized on a time apportionment basis, taking into account
          the
          principal amounts outstanding and the interest rates applicable.
  3
 
 *Stock-based
          compensation*
 
 The
          Company adopts SFAS No. 123R, *“Share-Based
          Payment”* using
          the fair value method.  Under SFAS No. 123R, stock-based
          compensation expense is measured at the grant date based on the value of
          the
          option or restricted stock and is recognized as expense, less expected
          forfeitures, over the requisite service period.
 
 *Property,
          plant and equipment, net*
 
 Property,
          plant and equipment are stated at cost less accumulated depreciation and
          accumulated impairment losses, if any.  Depreciation is calculated on the
          straight-line basis over the following expected useful lives from the date
          on
          which they become fully operational and after taking into account their
          estimated residual values:
  Depreciable life
                
                Residual valueBuildings
                
                
                20
                    years
                
                
                5
                %Medical
                    equipment
                
                
                13
                    to 16 years
                
                
                5
                %Furniture,
                    fixture and equipment
                
                
                5
                    years
                
                
                5
                %
 
 Expenditure
          for maintenance and repairs is expensed as incurred.
 
 **Revenues**
 
 We
          recorded revenues of $1,539,313 and $2,221,720 for the three and six months
          ended June 30, 2008, respectively. 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. For the
          six
          months ended June 30, 2008, the Center averaged approximately 188 cases
          per
          month as opposed to 204 cases per month in 2007. New Century receives a
          percentage of profits from the Center.
 
 New
          Century entered into its relationship with Tangdu Hospital on February
          2, 2006,
          when it accepted the rights and responsibilities previously held by Masep
          Medical Science & Technology Development (Shenzhen) Co., Ltd. (“Masep”)
          which Masep undertook pursuant to the “Cooperation Establishment of ‘Tangdu
          Gamma Knife Therapeutic Center’ Agreement” by and between Masep and Tandgu
          Hospital, dated May 18, 2001, as amended (the “Tangdu Agreement”). Pursuant to
          the terms of the Tangdu Agreement, New Century presently receives eighty
          percent
          (80%) of the profits generated by the Center. New Century’s profit sharing
          percentage decreases over the term of the Tangdu Agreement, which is sixteen
          years from the date that the Center opened in January 2002.
 
 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
          services revenues are recorded when services are received by the customers
          and
          the amounts realized net of provisions for discounts, allowances and taxes
          which
          are recognized at the time of services performed. Net revenues of $1,539,313
          and
          $2,221,720 for the three and six months ended June 30, 2008 represent an
          increase of $493,356 and $775,884 or 47% and 54%, respectively, as compared
          to
          net revenues from the same period ended June 30, 2007. Such increase was
          due
          primarily to the additional revenue from sales of Bao Sai’s products, which
          totaled $36,055 and $242,767 during the three and six months ended June
          30,
          2008.
  4
  **Net
          Income**
 
 Our
          net
          income was $715,907 and $864,885 for the three and six months ended June
          30,
          2008, an increase of $248,083 and $467,570, or 53% and 118%, respectively,
          as
          compared to net income for the same period ended June 30, 2007. Such increase
          was due primarily to the increase in revenues covering the operating expenses
          in
          these periods.
 
 We
          expect
          to be profitable during fiscal year 2008 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 and any revenue growth will take place in the
          future.
 
 **Expenses**
 
 Operating
          expenses for the three and six months ended June 30, 2008 were $524,658
          and
          $899,179, as compared to operating expenses of $234,924 and $598,105 for
          the
          same period ended June 30, 2007. Increases of $289,734 and $301,074 of
          operating
          expenses during the three and six months ended June 30, 2008 or 123% and
          50%,
          respectively, were due primarily to the increase of our business scope
          and
          scale.
 
 **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**
 
 Cash
          flows provided by operating activities were $209,998 for six months ended
          June
          30, 2008, compared to cash flows of $1,472,032 from operating activities
          for the
          same period ended June 30, 2007. Positive cash flows from operations for
          the six
          months ended June 30, 2008 were due primarily to the net income of $864,885,
          the
          increase in the non-cash depreciation expenses to $356,825, the decrease
          in
          prepayments by $ 143,001, and the increase of $9,984 in income tax payable.
          The
          negative cash flow was also attributable to the increase in the accounts
          receivable of $264,322, the decrease in the accounts payable of $887,603,
          and
          the decrease in the other payables of $50,604.
 
 Cash
          flows provided by investment activities were $513,857 for the six months
          ended
          June 30, 2008 were due primarily to the proceeds from the repayment of
          a note
          receivable of $1,399,768, a partial payment in relation to the Bao Sai
          acquisition, net of cash acquired of $855,693 and the purhcase of property
          and equipment of $205,069 during this period.
 
 At
          present, the revenue of GFRP includes revenues derived from the business
          of New
          Century and the revenue of product sales of Bao Sai. The revenue of New
          Century
          were primarily used to make the purchase price payment for Bao Sai , and
          all
          additional funds are primarily used as working capital. Within the next
          two
          years Bao Sai intends to obtain third party financing for the the production
          and
          distribution of Separation Media and Industrial Preparative Chromatographic
          System of Bao Sai. Neither the Company nor Bai Sai has any definitive
          arrangements for such financing as of yet.
 
 5
  **Item
          3. Quantitative and Qualitative Disclosures about Market
          Risk**
  A
          small
          reporting company is not required to provide the information required by
          this
          Item **.**
 
 **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.
 
 *Changes
          in Internal Control Over Financial Reporting.* During
          the most recent quarter ended June 30, 2008, 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.
 
 6
  **PART
          II. OTHER INFORMATION**
 
 **Item
          1. Legal Proceedings**
 
 **Item
          1A. Risk Factors**
 
 A
          small
          reporting company is not required to provide the information required by
          this
          Item.
  **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
 
 7
  **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:
                  August 14, 2008
                By
                /s/
                  Zhao
                  Yan DingZhao
                  Yan Ding, Chief Executive Officer
  8