**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**WASHINGTON,
      D.C. 20549**







**FORM
      10-KSB/A**







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


****


**For the fiscal year ended December 31, 2007**


**OR**


**o**
            **TRANSITION
                REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
                1934.**


****


**For the transition period from _________ to _________**







**GFR
      PHARMACEUTICALS, INC.**


(Name
      of
      Small Business Issuer in Its Charter)







**000-27959**


(Commission
      file number)





**77-0517964**


(I.R.S.
      Employer  Identification
      No.)





**NEVADA**


( State
      or
      Other Jurisdiction of  Incorporation
      or Organization)





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


(Address
      of Principal Executive Office)





**(8629)
      8339-9676**


(Issuer’s
      Telephone Number, Including Area Code)









Securities
      registered under Section 12(b) of the Exchange Act: None




Securities
      registered under Section 12(g) of the Exchange Act: Common Stock, par value
      $.001 per share




Check
      whether the issuer is not required to file reports pursuant to Section 13 or
      15(d) of the Exchange Act. 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 x





Check
      whether the issuer: (1) filed all reports required to be filed by Sections
      13 or
      15(d) of the Exchange Act during the past 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 x No o





Check
      if
      there is no disclosure of delinquent filers in response to Item 405 of
      Regulation S-B contained in this form, and no disclosure will be contained,
      to
      the best of registrant’s knowledge, in definitive proxy or information
      statements incorporated by reference in Part III of this Form 10-KSB or any
      amendment to this Form 10-KSB. o





Issuer’s
      revenues for its most recent fiscal year were $3,201,088.





The
      aggregate market value of the issuer’s Common Stock held by non-affiliates (26,079,940 shares)
      was approximately $3,911,991 ,
      based
      an the average closing bid and ask price of $0.15 for the Common Stock on April
      2,
      2008.





As
      of March
      24,
      2008 ,
      there
      were 42,079,940 shares of the issuer’s Common Stock outstanding.





Transitional
      Small Business Disclosure Format (check one):  Yes
o
      No x















**CAUTIONARY
      STATEMENT REGARDING FORWARD LOOKING INFORMATION**




The
      discussion contained in this 10-KSB under the Securities Exchange Act of 1934,
      as amended, (the “Exchange Act”) contains forward-looking statements that
      involve risks and uncertainties. The issuer’s actual results could differ
      significantly from those discussed herein. These include statements about our
      expectations, beliefs, intentions or strategies for the future, which we
      indicate by words or phrases such as “anticipate,” “expect,” “intend,” “plan,”
“will,” “we believe,” “the Company believes,” “management believes” and similar
      language, including those set forth in the discussion under “Description of
      Business,” including the “Risk Factors” described in that section, and
“Management’s Discussion and Analysis or Plan of Operation” as well as those
      discussed elsewhere in this Form 10-KSB. We base our forward-looking statements
      on information currently available to us, and we assume no obligation to update
      them. Statements contained in this Form 10-KSB that are not historical facts
      are
      forward-looking statements that are subject to the “safe harbor” created by the
      Private Securities Litigation Reform Act of 1995.







**TABLE
      OF CONTE** **NTS**


PagePart
                IItem1.
            
            Description
                of Business
            
            11A.
            
            Risk
                Factors
            
            52.
            
            Description
                of Property
            
            73.
            
            Legal
                Proceedings
            
            74.
            
            Submission
                of Matters to a Vote of Security Holders
            
            7Part
                II5.
            
            Market
                for Common Equity and Related Stockholder
            
            76.
            
            Management’s
                Discussion and Analysis or Plan of Operation
            
            107.
            
            Financial
                Statements
            
            F-2
                - F-208.
            
            Changes
                in and Disagreements with Accountants on Accounting
            
            12and
                Financial Disclosure8A.
            
            Controls
                and Procedures
            
            128B.
            
            Other
                Information
            
            12Part
                III9.
            
            Directors,
                Executive Officers, Promoters and Control Person;
                Compliancewith
                Section 16(a) of the Exchange Act
            
            1310.
            
            Executive
                Compensation
            
            1611.
            
            Security
                Ownership of Certain Beneficial Owners and Managementand
                Related Stockholder Matters
            
            1712.
            
            Certain
                Relationships and Related Transactions
            
            1813.
            
            Exhibits
            
            1914.
            
            Principal
                Accountant Fees and Services
            
            20OtherSignature
                Page
            
            22










**PART
      I**





**Item
      1.**  **Description
      of Business**




**History**




We
      were
      incorporated under the laws of the State of Nevada on December 18, 1996 under
      the name Laredo Investment Corp. (“Laredo”). We ceased all operating activities
      during the period from December 18, 1996 to July 9, 1999 and were considered
      dormant. On July 9, 1999, we obtained a Certificate of renewal from the State
      of
      Nevada. From July 9, 1999 to January 21, 2000, we were in the development
      stage.




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




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




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




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




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





On
      June
      26, 2006, we and our predecessor executed a Plan of Exchange with Shan Xi New
      Century Technology Investment Development Company, Ltd. (“New Century”), a
      corporation organized and existing under the laws of the Peoples’ Republic of
      China, with Richard Pierce, the former president and our former majority
      shareholder and Mr. Li An Guo, the majority shareholder of New
      Century.




1





On
      October 15, 2006, we executed an acquisition agreement (the “Hua Long
      Agreement”) with Xi'an Hua Long Yu Tian Ke Ji Shi Ye Co., Ltd., a corporation
      organized and existing under the laws of the Peoples’ Republic of China (“Hua
      Long”), Dong, Jian Zhong and Guo, Li Zheng, the shareholders of Hua Long
      (collectively "Hua Long Shareholders").





Pursuant
      to the Hua Long 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. The acquisition
      of
      Hua Long allowed us to complete the legal processing regarding the share
      exchange with New Century in China. Upon completion of the acquisition, we
      owned
      a 100% interest of Hua Long and a 95% interest of New Century through Hua
      Long. Consolidated financial statements are filed in this annual report for
      the
      year ended December 31, 2007.




On
      December 11, 2006, pursuant to the Plan of Exchange Agreement, Mr. Pierce
      delivered 200,000 shares of our common stock to New Century and/or its nominee
      in exchange for total payments of $325,000 in cash and we issued to the New
      Century shareholders an amount equal to 40,000,000 new investment shares of
      our
      common stock pursuant to Regulation S under the Securities Act of 1933, as
      amended, representing approximately 95% of our then outstanding shares of common
      stock, in exchange for a 95% interest in the shares of registered capital of
      New
      Century. Upon completion of the exchange, New Century became our 95% owned
      indirect subsidiary.





**Recent
      Developments**





On
      January 1, 2008, New
      Century entered
      into a stock purchase agreement with the holders of all 60,000,000 shares of
      the
      capital stock of Xi’an Jiaoda Bao Sai Bio-technology Co., Ltd (“Bao Sai”) to
      acquire 58,060,000 shares of its capital stock of Bao Sai, or 96.77% of its
      capital stock. The purchase price for Bao Sai will equal 96.77% of Bao Sai’s
      stockholders’ equity 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 Company expects the acquisition to close
      on
      or before April 30, 2008, pending the completion of Bao Sai’s audited financial
      statements. Payment of the purchase price, when established, will be made in
      two
      cash installments commencing in 2008, first to Xi’an Bio-sep Biological Filling
      Engineering Technology Company, Ltd., the owner of 28 million shares, or 46.67%
      of Bao Sai, and the balance in 2009 to the other three selling stockholders,
      in
      amounts equal to their respective percentage of share ownership of Bao Sai.





Bao
      Sai
      is engaged in research, development, manufacture and sale of biological
      separation medium products, which is technological know-how and devices
      engineered to separate and purify biological products and medicines. Separation
      medium products are used in the production of antibiotics, genetic recombinant
      medicine, bacterin production, the gene chip, diagnostic reagents and other
      biochemical products. Bao Sai’s principal office and manufacturing facility is
      located at 99
      Yan
      Xiang Road, Biosep Building, Xi An, Shaan Xi Province, P. R. China. Bao Sai
      has
      approximately 50 employees.





Mr.
      Wang
      Li-An, one of the Company’s directors, is also a director of Bao Sai. Xi’an Bio-sep
      Biological Filling Engineering Technology Company, Ltd., which holds 46.67%
      of
      Bao Sai’s common stock, is controlled by Mr. Guo Li An, who owns 38.03% of the
      Company. Mr. Guo Li Zheng, who is Guo Li An’s brother, owns 15.5% of the Bao Sai
      common stock and no shares of the Company. Mr. Guo Li Zheng will be selling
      12.27% of Bao Sai and retaining 3.23%. Additionally, Mr. Zhao Yan Ding and
      Ms.
      Zhong Ya Li, the Company’s Chief Executive Officer and Chief Financial Officer,
      respectively, were officers of Bao Sai through the date of the acquisition
      agreement.




2




**Description
      of Business**




GFR
      Pharmaceuticals, Inc. is a holding company that holds 100% of Hua Long’s
      outstanding common stock. Hua Long is approved in China to, among other things,
      engage in industrial
      chromatography to separate and purify chemical components for further use
      in agricultural and biotechnology products and in medicines, as well as for
      the research, development, manufacture and sale of biological separation medium
      products. However,
      Hua Long currently has no operating business and serves as a holding company
      for
      95% of the outstanding stock of New Century.  New
      Century 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.





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. The respective
      profit sharing ratios and time periods are as follows:





1.
            From
                January 2002 through December 2003, 90% to
                Masep;


2.
            From
                January 2004 through December 2008, 80% to Masep (or to New Century,
                giving effect to the assignment as of February
                2006);


3.
            From
                January 2009 through December 2011, 70% to New
                Century;


4.
            From
                January 2012 through December 2014, 60% to New
                Century;


5.
            From
                January 2015 through December 2017, 50% to New Century.





Pursuant
      to the Tangdu Ageement, New Century has the power to appoint the Director of
      the
      Gamma Knife Center. Upon the termination of the Tangdu Agreement, the Tangdu
      Hospital has an option to purchase the equipment for fifty percent of its
      residual value.




3





We
      plan
      on expanding our market percentage by investing in an additional tumor therapy
      center or hospital and a modernized tumor institute. We expect that in the
      next
      three years Tangdu Hospital will be a well-known tumor institute in west
      China.




**Employees**




We
      are
      divided into five departments, including administration, marketing, facility
      management, network and finance. There are  currently
      27 employees. The payroll package for the management team and general staff
      consist of basic salary and bonus. The allowance package is executed pursuant
      to
      the regulations of national employment law. The Company has not issued any
      incentive stock options to any employees.


4


**Item
      1A. Risk Factors.**





**RISK
      FACTORS**




*An
      investment in our Common Stock involves a number of very significant risks.
      You
      should carefully consider the following risks and uncertainties in addition
      to
      other information in this Form 10-KSB in evaluating us and our business before
      purchasing shares of our Common Stock. Our business, operating results and
      financial condition could seriously be harmed due to any of the following risks.
      The risks described below are not the only ones facing us. Additional risks
      not
      presently known to us may also impair our business operations. You could lose
      all or part of your investment due to any of these risks.*




**Risks
      Related to Our Business**




**Because
      there is no assurance that we will generate significant revenues, we face a
      high
      risk of business failure.**




For
      the
      years ended December 31, 2006 and 2007, revenues were $1,543,064 and
      $ 3,201,0888 respectively. Our ability to increase sales depends on numerous factors,
      including market acceptance of existing products, the successful introduction
      of
      new products, growth of consumer discretionary spending, and the ability to
      recruit new independent sales consultants. Business in all of our segments
      is
      driven by consumer preferences. Accordingly, there can be no assurances that
      our
      current or future products will maintain or achieve market acceptance. We can
      provide investors with no assurance that revenues will increase to a level
      which
      will reflect profitability. If we are unsuccessful in generating significant
      revenues, our business will most likely fail and our investors could lose their
      investment.





**Dependence
      on key corporate management personnel.**




Our
      success depends in large part on the contributions of our key corporate
      management. We do not maintain any key person life insurance policies. The
      loss
      of our key corporate management personnel could have a material adverse effect
      on us.





**Our
      Company and all of its assets are located in a jurisdiction that may not enforce
      the judgment of a US court.**





Although
      we are incorporated in Nevada, the Company’s principal place of business and all
      of its assets are located in the People’s Republic of China. In the past, some
      U.S. plaintiffs and/or judgment creditors have found it difficult or impossible
      to enforce U.S. court orders and/or judgments in the People’s Republic of China.
      We can make no assurance that any shareholder or Company creditor who obtains
      a
      judgment or order against the Company, in Nevada or any other US jurisdiction,
      will be able to successfully enforce that judgment or order against the Company.




***One
      customer accounts for all of our revenues.***





One
      customer accounts for all of our revenues. In the event we lose this vital
      customer, our financial condition will be materially and adversely effected.


5





**Risks
      Related to Our Common Stock**




**Our
      Common Stock has been relatively thinly traded and we cannot predict the extent
      to which an active trading market will develop.**




Our
      Common Stock is currently traded on the Over the Counter Bulletin Board. Our
      Common Stock is thinly traded compared to larger more widely known companies.
      Thinly traded Common Stock can be more volatile than Common Stock trading in
      an
      active public market. We cannot predict the extent to which an active public
      market for our Common Stock will develop or be sustained.




**We
      may need to raise additional capital which may not be available on acceptable
      terms or at all.**




In
      the
      future, we may be required to raise funds. There can be no assurance that
      financing will be available in amounts or on terms acceptable to us. The
      inability to obtain capital may reduce our ability to continue to conduct
      business operations. If we are unable to obtain additional financing, we will
      likely be required to curtail our development plans. Any equity financing may
      involve substantial dilution to our then existing stockholders.




**We
      do not intend to pay dividends on any investment in the shares of our
      stock.**




We
      have
      never paid any cash dividends and currently do not intend to pay any dividends
      for the foreseeable future. To the extent that we require additional funding
      currently not provided for in our financing plan, our funding sources may
      prohibit the payment of a dividend. Because we do not intend to declare
      dividends, any gain on an investment in us will need to come through an increase
      in the stock’s price. This may never happen and investors may lose all of their
      investment in us.




**Because
      our securities are subject to penny stock rules, you may have difficulty
      reselling your shares.**




Our
      shares as penny stocks are covered by Section 15(g) of the Securities Exchange
      Act of 1934 which imposes additional sales practice requirements on
      broker/dealers who sell our securities including the delivery of a standardized
      disclosure document; disclosure and confirmation of quotation prices; disclosure
      of compensation the broker/dealer receives; and, furnishing monthly account
      statements. These rules apply to companies whose shares are not traded on a
      national stock exchange or on the NASDAQ system, trade at less than $5.00 per
      share, or who do not meet certain other financial requirements specified by
      the
      SEC. These rules require brokers who sell “penny stocks” to persons other than
      established customers and “accredited investors” to complete certain
      documentation, make suitability inquiries of investors, and provide investors
      with certain information concerning the risks of trading in such penny stocks.
      These rules may discourage or restrict the ability of brokers to sell our shares
      of Common Stock and may affect the secondary market for our shares of Common
      Stock. These rules could also hamper our ability to raise funds in the primary
      market for our shares of Common Stock.


6


**Item
      2.**  **Description
      of Property**




Our
      main
      office is located at 99 Yan Xiang Road, Biosep Building, Xi An, Shaan Xi
      Province, P.R. China 710054, People’s Republic of China and has a total area of
      372 square meters. The Company
      rents the office under from Bao Sai for a term of one year, commencing January
      1, 2008 and ending December 31, 2008 at an annual rent of $3,534. Through
      December 31, 2008, we paid no rent on the premises. No other businesses operate
      from this office.




We
      also
      rent an operating office for New Century at Xi
      An Shi
      Gao Xin Qu Keji 2 Lu 68 Hao, Xi An Ruanjian Yuan C Zuo 2401 Shi at an
      annual rent of $1,969. These two spaces are adequate for our present and planned
      future operations.





There
      is
      no private ownership of land in China. Land use rights are obtained from the
      government for periods ranging from 50 to 70 years, and are typically renewable.
      Land use rights can be transferred upon approval by the land administrative
      authorities of China (State Land Administration Bureau) upon payment of the
      required transfer fee.





We
      own
      three different imaging and radiation oncology devices which we provide to
      Tongdu Hospital for use in their Gamma Knife Center.




**Item
      3.****Legal
      Proceedings**




None





**Item
      4.**  **Submission
      of Matters to a Vote of Security Holders**




None.





**PART
      II**




**Item
        5. **Market
        for Common Equity and Related and
        Stockholder****


**Market
      for Common Stock**




Our
      Common Stock is quoted on the OTC Electronic Bulletin Board, a service
      maintained by The NASDAQ Stock Market, Inc., under the symbol “GFRP.OB”. Trading
      in our Common Stock in the over-the-counter market has been limited and sporadic
      and the quotations set forth below are not necessarily indicative of actual
      market conditions. Further, these quotations reflect inter-dealer prices,
      without retail mark-up, markdown, or commission, and do not necessarily reflect
      actual transactions. Set forth below is the range high and low bid information
      for our Common Stock for each quarter of the years ended December 31, 2006
      and
      2007.




7




High
            
            Low2007Quarter
                Ended March 31, 2007
            
            $
            0.49
            
            $
            0.49Quarter
                Ended June 30, 2007
            
            $
            0.31
            
            
            0.31Quarter
                Ended September 30, 2007
            
            $
            0.60
            
            
            0.60Quarter
                Ended December 31, 2007
            
            $
            0.34
            
            
            0.342006Quarter
                Ended March 31, 2006
            
            $
            1.25
            
            $
            1.05Quarter
                Ended June 30, 2006
            
            $
            1.51
            
            $
            0.60Quarter
                Ended September 30, 2006
            
            $
            1.45
            
            $
            0.89Quarter
                Ended December 31, 2006
            
            $
            1.03
            
            $
            0.31




On
      April
      2, 2008, the closing price of our Common Stock was $.15 per share.




As
      of  March
      24 ,
      2008
      there were approximately 3,764  stockholders
      of record of our Common Stock. Our registrar and transfer agent is
      Guardian Registrar & Transfer, 7951 South West 6th Street, Suite 216,
      Plantation, FL 33324. Their telephone number is (954) 915-0105.





**Limited
      Market for Common Stock**




There
      is
      currently a limited trading market for our shares of Common Stock, and there
      can
      be no assurance that a more substantial market will ever develop or be
      maintained. Any market price for our shares of Common Stock is likely to be
      very
      volatile, and numerous factors beyond our control may have a significant adverse
      effect. In addition, the stock markets generally have experienced, and continue
      to experience, extreme price and volume fluctuations which have affected the
      market price of many small capital companies and which have often been unrelated
      to the operating performance of these companies. These broad market
      fluctuations, as well as general economic and political conditions, may also
      adversely affect the market price of our Common Stock. Further, there is no
      correlation between the present limited market price of our Common Stock and
      our
      revenues, book value, assets or other established criteria of value. The present
      limited quotations of our Common Stock should not be considered indicative
      of
      the actual value of our Common Stock.




**Dividends**




We
      have
      not paid any cash dividends to date and does not anticipate or contemplate
      paying cash dividends in the foreseeable future until earnings would generate
      funds in excess of those required to provide for our growth needs. We currently
      intend to retain any future earnings to fund the development and growth of
      its
      business.




**Recent
      Sales of Unregistered Securities**




On
      December 11, 2006, GFRP issued to New Century’s owners an amount equal to
      40,000,000 new investment shares of common stock of GFRP pursuant to Regulation
      S under the Securities Act of 1933, as amended, in exchange for 95% of the
      registered capital of New Century.




8





On
      January 16, 2007, the Company issued 1,000,000 shares of common stock to
      Greentree Financial Group, Inc. in consideration for business advisory services,
      pursuant to Section 4(2) of the Securities Act of 1933, as amended. The fair
      value of this stock issuance was determined using the fair value of the
      Company’s common stock on the date of issuance, at a price of $0.30 per
      share.





**Securities
      Authorized for Issuance under Equity Compensation Plans.**





The
      Board
      of Directors has authorized and GFRP has established the 2002 Incentive and
      Non-qualified Stock Option Plan (the “Plan”) under which GFRP may grant to
      employees, officers, directors, attorneys, consultants or other advisers of
      the
      Company or affiliated companies up to 10,000,000 shares of GFRP’s common stock
      with such exercise price and vesting periods as the Board of Directors deems
      to
      be in the best interest of the Company. As of December 31, 2007 and 2006, no
      options or shares have been granted under the Plan. A copy of the Plan is filed
      as an exhibit to our Form S-8 filed with the Commission in June 19, 2002.


9


**Item
      6.  Management’s Discussion and Analysis or Plan of
      Operation**




The
      following discussion should be read in conjunction with, and is qualified in
      its
      entirety by, the financial statements and related notes thereto and other
      financial information included in this Annual Report on Form 10-KSB. Certain
      statements in this “Management’s Discussion and Analysis of Financial Condition
      and Results of Operations” are forward-looking.





**Introduction
      and Plan of Operation**




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




Over
      the
      next 12 months the Company will require RMB15 Million (approximately $2,137,000)
      to pay the shareholders of Bao Sai for their shares.





New
      Century’s strategic purchase of Bao Sai will provide us with key technology in
      the biotech purification field and will provide us with important patented
      technologies, an experienced R&D team, and New Century’s additional market
      share. We feel that the acquisition will put us in a strong position for
      increasing our market share and revenue in 2008. The acquisition increased
      the
      number or our full time employees by about 50. The Bao Sai employees are
      primarily in sales, research and development and administrative areas.





The
      company is presently in a strong financial position and has sufficient in cash
      flow to meet is financial obligations. We believe that we have strong prospects
      of increasing our market share and revenues because our diagnostic imaging
      and
      radiation oncology treatments and equipment are all covered by the Chinese
      national medical insurance system. Additionally, the acquisition of Bao Sai
      provides us with vital technology and experience in the field of chromatography.
      We experience little, if any, seasonality in our business.





The
      Company is focused on strengthening its market share and improving its business
      performance. We have no plans to purchase or sell any plants or
      equipment.





**Year
      Ended December 31, 2007 Compared to Year Ended December 31,
      2006**




Net
      revenue increased from $1,534,064 for the year ended December 31, 2006 to
      $3,201,088 for the year ended December 31, 2007, an increase of 108.7%.
      Comprehensive income increased from $628,265 in 2006 to $1,215,233 in 2007,
      an
      increase of 93.4%. Such increase was due primarily to an increase in income
      from
      operations in 2007 as compared to 2006, which was $2,107,128 and $790,667,
      respectively. Net income increased from $619,567 for the year ended December
      31,
      2006 to $1,170,014 for the year ended December 31, 2007, an increase of
      88.84%




10


**Liquidity**





Working
      capital increased from $(717,867) at December 31, 2006 to $412,210 at December
      31, 2007, and stockholder’s equity increased from $4,163,083 to $5,678,316 for
      the same periods. The primary reason for the increase in working capital in
      2007
      was the substantial increase in net income earned from operations in 2007.




**Liquidity
      Analysis**




December
                31, 2007
            
            December
                31, 2006Working
                Capital
            
            $
            412,210
            
            $
            (717,867
            )Stockholders’
                Equity
            
            $
            5,678,316
            
            $
            4,163,083Total
                Debt
            
            $
            274,275
            
            $
            1,612,733




**Off
      balance sheet arrangements.**




**None.**


11


**Item
      7.**  **Financial
      Statements**





**GFR
      PHARMACEUTICALS INC.**





**INDEX
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**Page**Report
                  of Independent Registered Public Accounting Firm
              
              
              F-2Consolidated
                  Balance Sheets
              
              
              F-3Consolidated
                  Statements of Operations And Comprehensive Income
              
              
              F-4Consolidated
                  Statements of Cash Flows
              
              
              F-5Consolidated
                  Statements of Stockholders’ Equity
              
              
              F-6Notes
                  to Consolidated Financial Statement
              
              
              F-7
                  to F-20




F-1




**REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**





The
      Board
      of Directors and Stockholders of


**GFR
      Pharmaceuticals Inc**





We
      have
      audited the accompanying consolidated balance sheets of GFR Pharmaceuticals
      Inc
      and its subsidiaries (“the Company”) as of December 31, 2007 and 2006 and the
      related consolidated statements of operations and comprehensive income, cash
      flows and stockholders’ equity for the years ended December 31, 2007 and 2006.
      The financial statements are the responsibility of the Company’s management. Our
      responsibility is to express an opinion on these financial statements based
      on
      our audits.





We
      conducted our audits in accordance with the standards of the Public Company
      Accounting Oversight Board (United States). Those standards require that we
      plan
      and perform the audits to obtain reasonable assurance about whether the
      financial statements are free of material misstatement. The Company is not
      required to have, nor were we engaged to perform, an audit of its internal
      control over financial reporting. Our audits include consideration of internal
      control over financial reporting as a basis for designing audit procedures
      that
      are appropriate in the circumstances, but not for the purpose of expressing
      an
      opinion on the effectiveness of the Company’s internal control over financial
      reporting. Accordingly, we express no such opinion. An audit also includes
      examining, on a test basis, evidence supporting the amounts and disclosures
      in
      the financial statements, assessing the accounting principles used and
      significant estimates made by management, as well as evaluating the overall
      financial statement presentation. We believe that our audits provide a
      reasonable basis for our opinion.





In
      our
      opinion, the consolidated financial statements referred to above present fairly,
      in all material respects, the financial position of the Company as of December
      31, 2007 and 2006 and the results of operations and cash flows for the years
      ended December 31, 2007 and 2006 and in conformity with accounting principles
      generally accepted in the United States of America.








Zhong
      Yi
      (Hong Kong) C.P.A. Company Limited


Certified
      Public Accountants





Hong
      Kong, China


April
      7,
      2008





F-2





**GFR
      PHARMACEUTICALS INC.**


**CONSOLIDATED
      BALANCE SHEETS**


**AS
      OF DECEMBER 31, 2007 AND 2006**


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





As
                of December 31,2007
            
            2006**ASSETS**Current
                assets:Cash
                and cash equivalents
            
            $
            9,951
            
            $
            64,543Accounts
                receivable, trade
            
            
            343,087
            
            
            472,601Amount
                due from a stockholder
            
            
            28,232
            
            
            -Prepayments
                and deposits
            
            
            314,185
            
            
            187,761Total
                current assets
            
            
            695,455
            
            
            724,905Property,
                plant and equipment, net
            
            
            5,585,711
            
            
            5,272,074**TOTAL
                ASSETS**
            
            $
            6,281,166
            
            $
            5,996,979**LIABILITIES
                AND STOCKHOLDERS’ EQUITY**Current
                liabilities:Short-term
                bank loan
            
            $
            -
            
            $
            1,280,000Income
                tax payable
            
            
            214,570
            
            
            11,474Other
                payables and accrued liabilities
            
            
            59,675
            
            
            151,298Total
                current liabilities
            
            
            274,245
            
            
            1,442,772Non-current
                liabilities:Amount
                due to a stockholder
            
            
            -
            
            
            169,961Total
                liabilities
            
            
            274,245
            
            
            1,612,733Minority
                interest
            
            
            328,605
            
            
            221,163Stockholders’
                equity:Common
                stock, $0.001 par value; 100,000,000 shares authorized; 42,079,940
                and
                41,079,940 shares issued and outstanding as of December 31, 2007
                and
                2006
            
            
            42,080
            
            
            41,080Additional
                paid-in capital
            
            
            3,712,120
            
            
            3,413,120Accumulated
                other comprehensive income
            
            
            134,797
            
            
            89,578Statutory
                reserve
            
            
            236,818
            
            
            77,579Retained
                earnings
            
            
            1,552,501
            
            
            541,726Total
                stockholders’ equity
            
            
            5,678,316
            
            
            4,163,083**TOTAL
                LIABILITIES AND STOCKHOLDERS’ EQUITY**
            
            $
            6,281,166
            
            $
            5,996,979




See
      accompanying notes to consolidated financial statements.




F-3




**GFR
      PHARMACEUTICALS INC.**


**CONSOLIDATED
      STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME**


**FOR
      THE YEARS ENDED DECEMBER 31, 2007 AND 2006**


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





Years
                ended December 31,2007
            
            2006**REVENUE,
                NET**
            
            $
            3,201,088
            
            $
            1,543,064**OPERATING
                EXPENSES:**Consulting
                and professional fee
            
            
            62,379
            
            
            172,793Depreciation
            
            
            460,850
            
            
            427,835General
                and administrative
            
            
            570,731
            
            
            151,769Total
                operating expenses
            
            
            1,093,960
            
            
            752,397**INCOME
                FROM OPERATIONS**
            
            
            2,107,128
            
            
            790,667**OTHER
                INCOME (EXPENSE):**Interest
                income
            
            
            273
            
            
            516Interest
                expense
            
            
            (78,370
            )
            
            (120,779
            )Total
                other expense
            
            
            (78,097
            )
            
            (120,263
            )**INCOME
                BEFORE INCOME TAXES AND MINORITY INTEREST**
            
            
            2,029,031
            
            
            670,404Income
                tax expenses
            
            
            (780,300
            )
            
            (11,474
            )Minority
                interest
            
            
            (78,717
            )
            
            (39,363
            )**NET
                INCOME**
            
            $
            1,170,014
            
            $
            619,567Other
                comprehensive income:-
                Foreign currency translation gain
            
            
            45,219
            
            
            8,698**COMPREHENSIVE
                INCOME**
            
            $
            1,215,233
            
            $
            628,265Net
                income per share - Basic and diluted
            
            $
            0.03
            
            $
            0.02Weighted
                average number of shares outstanding during the year - Basic and
                diluted
            
            
            42,007,718
            
            
            40,047,997





See
      accompanying notes to consolidated financial statements.




F-4




**GFR
      PHARMACEUTICALS INC.**


**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**


**FOR
      THE YEARS ENDED DECEMBER 31, 2007 AND 2006**


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




Years
                ended December 31,2007
            
            
            2006**Cash
                flows from operating activities:**Net
                income
            
            $
            1,170,014
            
            $
            619,567Adjustments
                to reconcile net income to net cash provided by (used in) operating
                activities:Minority
                interest
            
            
            78,717
            
            
            39,363Depreciation
            
            
            460,850
            
            
            427,835Stock
                issued for service rendered, non-cash
            
            
            300,000
            
            
            -Change
                in operating assets and liabilities:Accounts
                receivable, trade
            
            
            156,401
            
            
            (472,601
            )Prepayments
                and deposits
            
            
            (110,981
            )
            
            (187,761
            )Income
                tax payable
            
            
            195,452
            
            
            11,474Other
                payables and accrued liabilities
            
            
            (96,517
            )
            
            155,445Net
                cash provided by operating activities
            
            
            2,153,936
            
            
            593,322**Cash
                flows from investing activities:**Purchase
                of property, plant and equipment
            
            
            (281,425
            )
            
            (205,198
            )Net
                cash used in investing activities
            
            
            (281,425
            )
            
            (205,198
            )**Cash
                flows from financing activities:**Advances
                to a stockholder
            
            
            -
            
            
            196,771Repayment
                of stockholder advances
            
            
            (606,937
            )
            
            -Repayment
                of short-term bank loan
            
            
            (1,322,227
            )
            
            (535,275
            )Net
                cash used in financing activities
            
            
            (1,929,164
            )
            
            (338,504
            )**Foreign
                currency translation adjustment**
            
            
            2,061
            
            
            8,698**NET
                CHANGE IN CASH AND CASH EQUIVALENTS**
            
            
            (54,592
            )
            
            58,318**CASH
                AND CASH EQUIVALENTS, BEGINNING OF YEAR**
            
            
            64,543
            
            
            6,225**CASH
                AND CASH EQUIVALENTS, END OF YEAR**
            
            $
            9,951
            
            $
            64,543**SUPPLEMENTAL
                DISCLOSURE OF CASH FLOW INFORMATION:**Cash
                paid for income taxes
            
            $
            584,848
            
            $
            -Cash
                paid for interest expenses
            
            $
            -
            
            $
            120,779**SUPPLEMENTAL
                DISCLOSURE OF NON-CASH TRANSACTIONS:**Equipment
                financed by minority interest in a subsidiary
            
            $
            -
            
            $
            181,130Equipment
                financed by a stockholder
            
            $
            -
            
            $
            3,441,463




See
      accompanying notes to consolidated financial statements.




F-5




**GFR
        PHARMACEUTICALS INC.**
 **CONSOLIDATED
        STATEMENT OF STOCKHOLDERS’ EQUITY**
 **FOR
        THE YEARS ENDED DECEMBER 31, 2007 AND 2006**
 **(Currency
        expressed in United States Dollars (“US$”), except for number of
        shares)**


Common
                stockNo.
                of shares
            
            
            Amount
            
            
            Additional
              paid-in
                capital
            
            
            Deferred
              compensation
            
            
            Accumulated
              other
              comprehensive
              income
            
            
            Statutory
              reserve
            
            
            (Accumulated
                deficits)/retained
              earnings
            
            
            Total
              equityBalance
                as of January 31, 2006
            
            
            40,000,000
            
            $
            40,000
            
            $
            3,414,200
            
            $
            3,441,463
            
            $
            80,880
            
            $
            -
            
            $
            (262
            )
            $
            6,976,281Shares
                issued to complete reverse acquisition
            
            
            1,079,940
            
            
            1,080
            
            
            (1,080
            )
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -Equipment
                financed by stockholders
            
            
            -
            
            
            -
            
            
            -
            
            
            (3,441,463
            )
            
            -
            
            
            -
            
            
            -
            
            
            (3,441,463
            )Net
                income for the year
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            619,567
            
            
            619,567Transfer
                from retained earnings to statutory reserve
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            77,579
            
            
            (77,579
            )
            
            -Foreign
                currency translation adjustment
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            8,698
            
            
            -
            
            
            -
            
            
            8,698Balance
                as of January 1, 2007
            
            
            41,079,940
            
            $
            41,080
            
            $
            3,413,120
            
            $
            -
            
            $
            89,578
            
            $
            77,579
            
            $
            541,726
            
            $
            4,163,083Shares
                issued for service rendered, non-cash
            
            
            1,000,000
            
            
            1,000
            
            
            299,000
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            300,000Foreign
                currency translation adjustment
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            45,219
            
            
            -
            
            
            -
            
            
            45,219Net
                income for the year
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            1,170,014
            
            
            1,170,014Transfer
                from retained earnings to statutory reserve
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            159,239
            
            
            (159,239
            )
            
            -Balance
                as of December 31, 2007
            
            
            42,079,940
            
            $
            42,080
            
            $
            3,712,120
            
            $
            -
            
            $
            134,797
            
            $
            236,818
            
            $
            1,552,501
            
            $
            5,678,316




See
      accompanying notes to consolidated financial statements.




F-6




**GFR
      PHARMACEUTICALS, INC.**


**NOTES
      TO THE CONSOLIDATED FINANCIAL STATEMENTS**


**FOR
      THE YEARS ENDED DECEMBER 31, 2007 AND 2006**


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


**NOTE** **** **1**  **ORGANIZATION
      AND BUSINESS BACKGROUND**





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





On
      October 15, 2006, GFRP executed an acquisition agreement with Xi’an Hua Long Yu
      Tian Ke Ji Shi Ye Co., Ltd. (“Hua Long”). Pursuant
      to the agreement, GFRP paid Hua Long’s original equity owners $181,950 in cash
      to acquire for 100% interest in the registered capital of Hua Long. Upon
      completion of the acquisition, GFRP owned 100% interest in Hua
      Long.





Hua
      Long
      was incorporated as a limited liability company in the People’s Republic of
      China (the “PRC”) on December 23, 1999 with its principal place of business in
      Xi’an City, Shaanxi Province, the PRC. Its principal activity (until September
      30, 2006) was to supply and install computer equipment and the provision of
      technical services to customers. All the Company’s customers were located in the
      PRC. Since October 1, 2006, Hua Long ceased all its computer equipment trading
      operation and became an investment holding company.





On
      December 11, 2006, GFRP completed a stock exchange transaction, through Hua
      Long, with New Century Scientific Investment Ltd. (“New Century”) whereby
      40,000,000 shares of the Company’s common stock in exchange for 95% of the
      equity ownership in New Century. New Century was incorporated as a limited
      liability company in the PRC on November 23, 2001 with its principal place
      of
      business in Xi’an
      City, Shaanxi Province, the PRC. Upon
      completion of the acquisition, GFRP owned 100% equity interest of Hua Long
      which
      in turn owns 95% equity interest of New Century.





In
      February and March 2006, New Century entered into the agreements ("the
      Agreement") with Ma Si Pu and Tong Du Hospital in the PRC. Pursuant to the
      Agreement, New Century and Tong Du Hospital agreed to jointly operate a
      Positive Emission Tomography (“PET”) Scanner and Rotary Gamma Ray Stereotactic
      Neurosurgery System imaging center in the Hospital in Xian City, Shaanxi
      Province, the PRC. The Company agreed to provide two sets of diagnostic imaging
      medical equipment to the Hospital and receive the spare parts and related
      maintenance services to the equipment from Ma Si Pu. The Hospital agreed to
      provide the related technical personnel (nurses and doctors), recruit patients
      and support the administration such as billing and collection, to operate the
      equipment and the center. The duration of the Agreement was 11 years, and it
      will expire in 2017. At the expiration of the Agreement, the Hospital has an
      option to purchase the medical equipment used in the center at 50% of their
      residual values.




The
      stock
      exchange transaction has been accounted for as a reverse acquisition and
      recapitalization of the GFRP whereby New Century is deemed to be the accounting
      acquirer (legal acquiree) and GFRP to be the accounting acquiree (legal
      acquirer). The accompanying consolidated financial statements are in substance
      those of New Century, with the assets and liabilities, and revenues and
      expenses, of GFRP being included effective from the date of stock exchange
      transaction.





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





**NOTE** **** **2**  **SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES**





·
              Basis
                  of presentation




These
      accompanying consolidated financial statements have been prepared in accordance
      with generally accepted accounting principles in the United States of
      America.





·
            Use
                of estimates





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





F-7


**GFR
        PHARMACEUTICALS, INC.**
 **NOTES
        TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
        THE YEARS ENDED DECEMBER 31, 2007 AND 2006**
 **(Currency
        expressed in United States Dollars (“US$”))**




·
            Basis
                of consolidation





The
      consolidated financial statements include the financial statements of GFRP
      and
      its subsidiaries, Hua Long and New
      Centur y.





All
      significant inter-company balances and transactions within the Company have
      been
      eliminated upon consolidation.





·
            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. As of December 31, 2007 and
      2006, the Company has determined that no allowance for doubtful accounts is
      required.





·
            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 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.





F-8


**GFR
        PHARMACEUTICALS, INC.**
 **NOTES
        TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
        THE YEARS ENDED DECEMBER 31, 2007 AND 2006**
 **(Currency
        expressed in United States Dollars (“US$”))**




·
            Construction
                in progress





Construction
      in progress is stated at cost, which includes the cost of construction and
      other
      direct costs attributable to the expansion of medical center. No provision
      for
      depreciation is made on construction in progress until such time as the relevant
      assets are completed and put into operational use. Interest incurred during
      the
      period of construction has not been capitalized as such amounts are considered
      to be immaterial at this time. Construction in progress was completed in
      December 2007.





·
            Impairment
                of long-lived assets





In
      accordance with 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
      December 31, 2007 or 2006.





·
            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.





·
            Advertising
                costs





The
      Company expenses advertising costs are accounted for in accordance with SOP
      93-7, *“Reporting
      for Advertising Costs”* .
      No
      advertising expenses were incurred for the years ended December 31, 2007 and
      2006.




F-9




**GFR
        PHARMACEUTICALS, INC.**
 **NOTES
        TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
        THE YEARS ENDED DECEMBER 31, 2007 AND 2006**
 **(Currency
        expressed in United States Dollars (“US$”))**




·
            Retirement
                plan costs





Contributions
      to retirement schemes (which are defined contribution plans) are charged to
      general and administrative expenses in the consolidated statements of operations
      and comprehensive income as and when the related employee service is
      provided.





·
            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.





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. The adoption of FIN 48 did not have a significant impact on the
      Company’s consolidated financial statements.





The
      Company conducts 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 foreign tax
      authority.





·
            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 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.





F-10


**GFR
        PHARMACEUTICALS, INC.**
 **NOTES
        TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
        THE YEARS ENDED DECEMBER 31, 2007 AND 2006**
 **(Currency
        expressed in United States Dollars (“US$”))**


·
            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 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 and New Century maintain their
      books
      and records in its local currency, the Renminbi (“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 United States dollars (“US$”) has been made at the
      following exchange rates for the respective period:




2007
            
            2006Months
                end RMB:US$ exchange rate
            
            
            7.314
            
            
            7.813Average
                monthly RMB:US$ exchange rate
            
            
            7.563
            
            
            7.945




·
            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. The Company operates in one reportable
      segment.





F-11


**GFR
        PHARMACEUTICALS, INC.**
 **NOTES
        TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
        THE YEARS ENDED DECEMBER 31, 2007 AND 2006**
 **(Currency
        expressed in United States Dollars (“US$”))**


·
            Fair
                value of financial instruments





The
      Company values its financial instruments as required by Statement of Financial
      Accounting Standard (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, amount due from a stockholder, prepayments and deposits,
      short-term bank loan, other payables and accrued liabilities and income tax
      payable.





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 pronouncements





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
      September 2006, the FASB issued SFAS No. 157, *"Fair
      Value Measurements"* ("SFAS
      No. 157"). SFAS No. 157 defines fair value, establishes a framework for
      measuring fair value in generally accepted accounting principles ("GAAP"),
      and
      expands disclosures about fair value measurements. This statement applies under
      other accounting pronouncements that require or permit fair value measurement
      where the FASB has previously determined that under those pronouncements fair
      value is the appropriate measurement. This statement does not require any new
      fair value measurements but may require companies to change current practice.
      This statement is effective for those fiscal years beginning after November
      15,
      2007 and to the interim periods within those fiscal years. The Company believes
      that SFAS No. 157 should not have a material impact on the consolidated
      financial position or results of 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.





In
      December 2007, the FASB issued SFAS No. 141 (Revised 2007), *"Business
      Combinations",* or
      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.




F-12




**GFR
        PHARMACEUTICALS, INC.**
 **NOTES
        TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
        THE YEARS ENDED DECEMBER 31, 2007 AND 2006**
 **(Currency
        expressed in United States Dollars (“US$”))**




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 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.




**NOTE
      3**  **ACCOUNTS
      RECEIVABLE, TRADE**





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 is required as of December 31, 2007 and
      2006.





**NOTE
      4**  **AMOUNT
      DUE FROM (TO) A STOCKHOLDER**





As
      of
      December 31, 2007, a balance of $28,232 due from a stockholder, Mr. Guo Li
      An
      represented a temporary advance from the Company which was unsecured,
      interest-free and repayable on demand. Subsequent to balance sheet date, the
      amount was fully repaid.





As
      of
      December 31, 2006, a balance of $169,961 due to a stockholder, Mr. Guo Li An
      represented advances to the Company which was unsecured, interest-free and
      has
      no fixed repayment term. The imputed interest on the amount due to a stockholder
      was not significant.





**NOTE
      5**  **PREPAYMENTS
      AND DEPOSITS**





Prepayments
      and deposits consisted of the following:




As
                of December 31,2007
            
            2006Advances
                to employees
            
            
            18,587
            
            
            17,923Prepayment
                for equipment purchase
            
            
            256,358
            
            
            127,514Prepaid
                expenses
            
            
            39,240
            
            
            42,324$
            314,185
            
            $
            187,761





F-13


**GFR
        PHARMACEUTICALS, INC.**
 **NOTES
        TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
        THE YEARS ENDED DECEMBER 31, 2007 AND 2006**
 **(Currency
        expressed in United States Dollars (“US$”))**


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





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





As
                of December 31,2007
            
            2006Buildings
            
            $
            608,053
            
            $
            83,133Medical
                equipment
            
            
            5,379,652
            
            
            5,379,652Furniture,
                fixture and equipment
            
            
            18,944
            
            
            17,027Construction
                in progress
            
            
            -
            
            
            245,412Foreign
                exchange adjustment
            
            
            547,366
            
            
            -6,554,015
            
            
            5,725,224Less:
                accumulated depreciation
            
            
            (914,000
            )
            
            (453,150
            )Less:
                foreign exchange adjustments
            
            
            (54,304
            )
            
            -Property,
                plant and equipment, net
            
            $
            5,585,711
            
            $
            5,272,074





Depreciation
      expense for the years ended December 31, 2007 and 2006 were $460,850 and
      $427,835, respectively.





As
      of
      December 31, 2007, no plant and equipment of the Company were pledged as
      securities for the indebtedness. As of December 31, 2006, certain medical
      equipment with a net book value of $2,627,945 and was pledged as security in
      connection with outstanding loan facilities, respectively (see Note 8).




**NOTE
      7**  **OTHER
      PAYABLES AND ACCRUED LIABILITIES**





Other
      payables and accrued liabilities consisted of the followings:





As
                of December 31,2007
            
            2006Business
                tax payable
            
            $
            17,154
            
            $
            83,028Government
                levy payable
            
            
            1,292
            
            
            13,969Salaries
                payable
            
            
            6,216
            
            
            11,128Accrued
                expenses
            
            
            35,013
            
            
            43,173$
            59,675
            
            $
            151,298





F-14




**GFR
        PHARMACEUTICALS, INC.**
 **NOTES
        TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
        THE YEARS ENDED DECEMBER 31, 2007 AND 2006**
 **(Currency
        expressed in United States Dollars (“US$”))**




**NOTE
      8**  **SHORT-TERM
      BANK LOAN**





As
      of
      December 31, 2006, the Company had an outstanding balance on a short-term bank
      loan of US$1,280,000 (approximately RMB 10,000,000) which had been secured
      by
      certain medical equipment (see Note 6). Interest was charged at 7.6% per annum
      payable quarterly, with principle due March 3, 2007.





On
      March
      3, 2007, the Company failed to meet the loan repayment requirement under the
      debt agreement. In accordance with default provisions in the agreement, the
      Company paid the additional interest charges of $61,572 at 11.4% per annum
      for
      the year ended December 31, 2007.





On
      October 19, 2007, the Company repaid the full amount of the loan, including
      all
      related interest charges.




**NOTE
      9**  **INCOME
      TAXES**





The
      Company is registered in the United States of America and is subject to taxation
      in two jurisdictions: the United States of America and the PRC. The Company’s
      operations in the United States of America have resulted in net operating losses
      for income tax purposes. The Company generated substantially all its net income
      from the operation of its subsidiaries in the PRC and subject to the PRC tax
      law. The Company has recorded income tax expenses for the years ended December
      31, 2007 and 2006.





The
      components of income before income taxes and minority interest separating U.S.
      and PRC tax law are as follows:





Years
                ended December 31,2007
            
            2006Loss
                subject to U.S. tax
            
            $
            (306,915
            )
            $
            (94,100
            )Income
                subject to PRC tax
            
            
            2,335,946
            
            
            764,504Income
                before income taxes and minority interest
            
            $
            2,029,031
            
            $
            670,404





*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.





F-15




**GFR
        PHARMACEUTICALS, INC.**
 **NOTES
        TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
        THE YEARS ENDED DECEMBER 31, 2007 AND 2006**
 **(Currency
        expressed in United States Dollars (“US$”))**




As
      of
      December 31, 2007, the Company’s U.S. operations incurred $306,915 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 2028. The Company has provided for a full valuation allowance of
      $140,355 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*





All
      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 (the “PRC Income Tax”).
      Under the PRC Income Tax, Hua Long, as a foreign investment enterprise is
      exempted from income tax for the first two profit making years with a 50%
      exemption of income tax (that is 30%) for the next three years. New Century
      is
      domestic company which is generally subject to a statutory rate of 33%, which
      comprises 30% national income tax and 3% local income tax.





On
      March
      16, 2007, the National People’s Congress approved the Corporate Income Tax Law
      of the People’s Republic of China (the “New CIT Law”). The new CIT Law, among
      other things, imposes a unified income tax rate of 25% for both domestic and
      foreign invested enterprises with effect from January 1, 2008. New Century
      will
      be entitled to the tax rate reduction from 33% to 25% that may impact the
      carrying value of deferred tax assets as a result of new tax rate. However,
      Hua
      Long is considered a foreign invested enterprise and its ultimate applicable
      effective tax rate in 2008 and beyond will depend on many factors, including
      but
      not limited to whether certain of its legal entity will be subject to a
      transitional policy under the Corporate Income Tax Law, whether Hua Long can
      continue to enjoy the unexpired tax holidays.





The
      reconciliation of income tax rate to the effective income tax rate based on
      income before income taxes and minority interest of PRC operations for the
      period ended December 31, 2007 and 2006 are as follows:





Years
                ended December 31,2007
            
            2006Income
                before income taxes
            
            $
            2,335,946
            
            $
            764,504Statutory
                income tax rate
            
            
            33
            %
            
            33
            %770,862
            
            
            252,286Expenses
                not deductible for the PRC income tax
            
            
            6,170
            
            
            3,663Provisions
                and accrued liabilities
            
            
            3,268
            
            
            -Effect
                from tax holiday
            
            
            -
            
            
            (244,475
            )Income
                tax expenses
            
            $
            780,300
            
            $
            11,474





For
      PRC
      operation, its effective income tax rates for the years ended December 31,
      2007
      and 2006 were 33.4% and 1.5%, respectively.





F-16




**GFR
        PHARMACEUTICALS, INC.**
 **NOTES
        TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
        THE YEARS ENDED DECEMBER 31, 2007 AND 2006**
 **(Currency
        expressed in United States Dollars (“US$”))**




The
      following table sets forth the significant components of the aggregate net
      deferred tax assets of the Company as of December 31, 2007 and
      2006:




Years
                ended December 31,2007
            
            2006Deferred
                tax assets:-
                Net operating loss carryforwards
            
            $
            140,355
            
            $
            32,935Less:
                valuation allowance
            
            
            (140,355
            )
            
            (32,935
            )Income
                tax expenses
            
            $
            -
            
            $
            -





As
      of
      December 31, 2007 and 2006, valuation allowance of $140,355 and $32,935 was
      provided to the deferred tax assets due to the uncertainty surrounding their
      realization.




**NOTE
      10**  **NET
      INCOME PER SHARE**





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





The
      following table sets forth the computation of basic and diluted net income
      per
      share for the years ended December 31, 2007 and 2006:





Years
                ended December 31,2007
            
            2006Basis
                and diluted net income per share calculationNumerator:-
                Net income in computing basic and diluted net income per
                share
            
            $
            1,170,014
            
            $
            619,567Denominator:-
                Weighted average ordinary shares outstanding
            
            
            42,007,718
            
            
            40,047,997Basic
                and diluted net income per share
            
            $
            0.03
            
            $
            0.02





F-17
 
 **GFR
          PHARMACEUTICALS, INC.**
 **NOTES
          TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
          THE YEARS ENDED DECEMBER 31, 2007 AND 2006**
 **(Currency
          expressed in United States Dollars (“US$”))**


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





The
      Board
      of Directors has authorized and GFRP has established the 2002 Incentive and
      Non-qualified Stock Option Plan (“the Plan”) under which GFRP may grant to
      employees, officers, directors, attorneys, consultants or other advisers of
      the
      Company or affiliated companies up to 10,000,000 shares of GFRP’s common stock
      with such exercise price and vesting periods as the Board of Directors deems
      to
      be in the best interest of the Company. As of December 31, 2007 and 2006, no
      options or shares have been granted under the Plan.





On
      January 27, 2007, the Company issued 1,000,000 shares of common stock for
      business advisory services to Greentree Financial Group, Inc, for services
      through the two-year period ending December 31, 2007. The fair value of this
      stock issuance was determined using the fair value of the Company’s common stock
      on the date of issuance, at a price of $0.30 per share. The Company calculated
      a
      stock-based compensation cost of $300,000 and recognized $300,000 for the year
      ended December 31, 2007. As of December 31, 2007, deferred compensation has
      been
      fully amortized to the statement of operation.




**NOTE
      12**  **CHINA
      CONTRIBUTION PLAN**





Under
      the
      PRC Law, full-time employees of its subsidiaries in the PRC, Hua Long and New
      Century are entitled to staff welfare benefits including medical care, welfare
      subsidies, unemployment insurance and pension benefits through a China
      government-mandated multi-employer defined contribution plan. Hua Long and
      New
      Century are required to accrue for these benefits based on certain percentages
      of the employees’ salaries. The total contributions made for such employee
      benefits were $1,426 and $1,350 for the years ended December 31, 2007 and 2006,
      respectively.




**NOTE
      13**  **STATUTORY
      RESERVES**





Under
      the
      PRC Law the Company’s subsidiaries, Hua Long and New Century are required to
      make appropriations to the statutory reserve based on after-tax net earnings
      and
      determined in accordance with generally accepted accounting principles of the
      People’s Republic of China (the “PRC GAAP”). Appropriation to the statutory
      reserve should be at least 10% of the after-tax net income until the reserve
      is
      equal to 50% of the registered capital. The statutory reserve is established
      for
      the purpose of providing employee facilities and other collective benefits
      to
      the employees and is non-distributable other than in liquidation.





For
      the
      years ended December 31, 2007 and 2006, the Company’s PRC subsidiaries
      contributed $159,239 and $77,579 to statutory reserve,
      respectively.




**NOTE
      14**  **CONCENTRATION
      AND RISK**





(a)  Major
      customers





For
      both
      years ended December 31, 2007 and 2006, 100% of the Company’s assets were
      located in the PRC and 100% of the Company’s revenues were derived from
      customers located in the PRC.





For
      the
      year ended December 31, 2007, one customer represented more than 10% of the
      Company’s revenue and accounts receivable, respectively. As of December 31,
      2007, this customer accounted for 100% of the Company’s revenues and accounts
      receivable, amounting to $3,201,088 and $343,087, respectively.




F-18


**GFR
        PHARMACEUTICALS, INC.**
 **NOTES
        TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
        THE YEARS ENDED DECEMBER 31, 2007 AND 2006**
 **(Currency
        expressed in United States Dollars (“US$”))**




For
      the
      year ended December 31, 2006, one customer represented more than 10% of the
      Company’s revenue and accounts receivable, respectively. As of December 31,
      2006, this customer accounts for both 100% of revenues amounting to $1,543,064
      and $472,601 of accounts receivable, respectively.





(b)  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.





(c)  Exchange
      rate risk





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




**NOTE
      15**  **COMMITMENT
      AND CONTINGENCIES**





The
      Company rented office premises under non-cancelable operating lease agreements
      for a period of one to two years, due December 2008 and June 2009. Costs
      incurred under these operating leases are recorded as rental expense and totaled
      approximately $984 for the year ended December 31, 2007.





As
      of
      December 31, 2007, future minimum annual operating lease payments are as
      follows:





Years
                ending December 31,2008
            
            $
            5,5032009
            
            
            1,088Total
                future minimum operating lease payments
            
            $
            6,591





F-19


**GFR
        PHARMACEUTICALS, INC.**
 **NOTES
        TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
        THE YEARS ENDED DECEMBER 31, 2007 AND 2006**
 **(Currency
        expressed in United States Dollars (“US$”))**


**NOTE** **** **16**  **SUBSEQUENT
      EVENTS**





On
      January 1, 2008, New Century entered into a stock purchase agreement with the
      holders of all 60,000,000 shares of the capital stock of Xi’an Jiaoda Bao Sai
      Bio-technology Co., Ltd (“Bao Sai”) to acquire 58,060,000 shares of its capital
      stock of Bao Sai, or 96.77% of its capital stock. New Century is an indirect
      subsidiary of GFR Pharmaceuticals, Inc. by virtue of its 100% ownership of
      Xi’an
      Hua Long Yu Tian Ke Ji Shi Ye Co., Ltd., which, in turn, owns approximately
      95%
      of New Century. The purchase price for Bao Sai will equal 96.77% of Bao Sai’s
      stockholders’ equity 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 Company expects the acquisition to close
      on
      or before April 30, 2008, pending the completion of Bao Sai’s audited financial
      statements. Payment of the purchase price, when established, will be made in
      two
      cash installments commencing in 2008, first to Xi’an Bio-sep Biological Filling
      Engineering Technology Company, Ltd., the owner of 28 million shares, or 46.67%
      of Bao Sai, and the balance in 2009 to the other three selling stockholders,
      in
      amounts equal to their respective percentage of share ownership of Bao Sai.





Bao
      Sai
      is engaged in research, development, manufacture and sale of biological
      separation medium products, which is technological know-how and devices
      engineered to separate and purify biological products and medicines. Separation
      medium products are used in the production of antibiotics, genetic recombinant
      medicine, bacterin production, the gene chip, diagnostic reagents and other
      biochemical products. Bao Sai’s principal office and manufacturing facility is
      located at 99 Yan Xiang Road, Biosep Building, Xi An, Shaan Xi Province, P.
      R.
      China. Bao Sai has approximately 50 employees.





Mr.
      Wang
      Li-An, one of the Company’s directors, is also a director of Bao Sai. Xi’an
      Bio-sep Biological Filling Engineering Technology Company, Ltd., which holds
      46.67% of Bao Sai’s common stock, is controlled by Mr. Guo Li An, who owns
      38.03% of the Company. Mr. Guo Li Zheng, who is Guo Li An’s brother, owns 15.5%
      of the Bao Sai common stock and no shares of the Company. Mr. Guo Li Zheng
      will
      be selling 12.27% of Bao Sai and retaining 3.23%. Additionally, Mr. Zhao Yan
      Ding and Ms. Zhong Ya Li, the Company’s Chief Executive Officer and Chief
      Financial Officer, respectively, were officers of Bao Sai through the date
      of
      the Acquisition Agreement.




F-20




**Item
        8. **Changes
        in and Disagreements with Accountants on Accounting and Financial
        Disclosure****




On
      January 11, 2007, our Board of Directors made the decision to dismiss Robison,
      Hill & Company as our independent auditor. Currently, Zhong Yi (Hong Kong)
      C.P.A. Company Ltd. ("Zhong Yi") is our new independent auditor pursuant to
      the
      engagement letter, dated December 15, 2006, which was approved by our Board
      of
      Directors. We do not have an audit committee.





During
      our two most recent fiscal years ended December 31, 2004 and 2005 and the
      subsequent interim period through December 15, 2006, we did not consult Zhong
      Yi
      with respect to any of the matters described in Item 304(a)(2) of Regulation
      S-K.





Robison,
      Hill & Company's audit reports regarding our financial statements for the
      year ended December 31, 2004 and 2005, contained no adverse opinion or
      disclaimer of opinion nor were they qualified or modified as to the uncertainty,
      audit scope or accounting principles.





In
      connection with the prior audits for the fiscal year ended December 31, 2004
      and
      2005, and the review for the interim periods ended March 31, 2006, June 30,
      2006
      and September 30, 2006, there have been no disagreements with Robison, Hill
      & Company on any matter of accounting principles or practices, financial
      statement disclosure or auditing scope or procedure, which if not resolved
      to
      the satisfaction of Robison, Hill & Company would have caused it to make
      reference to the subject matter of the disagreement in connection with its
      report on these financial statements for those periods. In addition, Robison,
      Hill & Company had no disagreements with us for the interim period from
      October 1, 2006 up to January 11, 2007.





**Item
      8A.**  **Controls
      and Procedures**





**Management’s
      Report of Internal Control over Financial Reporting.**





We
      are
      responsible for establishing and maintaining adequate internal control over
      financial reporting in accordance with Exchange Act Rule 13a-15. With the
      participation of our Chief Executive Officer and Chief Financial Officer, our
      management conducted an evaluation of the effectiveness of our internal control
      over financial reporting as of December 31, 2007 based on the criteria
      established in *Internal
      Control-Integrated Framework* issued
      by
      the Committee of Sponsoring Organizations of the Treadway Commission. Based
      on
      this evaluation, management concluded that our internal control over financial
      reporting was effective as of December 31, 2007, based on those criteria. A
      control system, no matter how well conceived and operated, can provide only
      reasonable, not absolute, assurance that the objectives of the control system
      are met. Because of the inherent limitations in all control systems, no
      evaluation of controls can provide absolute assurance that all control issues
      and instances of fraud, if any, within the Company have been
      detected.





**Item
      8B.**  **Other
      Information**




None




12





**PART
      III**




**Item
      9.**  **Directors
      and Executive Officers of the Registrant.**




**Identification
      of Directors and Executive Officers**




The
      following table sets forth the names and ages of our directors and executive
      officers, the positions and offices held with us, and the period during which
      each served in such positions and offices. Each director and executive officer
      serves for a term of one (1) year and until his successor is duly elected and
      qualified.




**DIRECTORS
      AND OFFICERS**


**Name**
              
              **Age**
              
              **Position**
              
              **Period
                  In Office**Zhao
                  Yan Ding
              
              34
              
              Chief
                  Executive Officer &
              
              January
                  2008 - PresentDirectorZhong
                  Ya Li
              
              28
              
              Chief
                  Financial Officer &
              
              January
                  2008 - PresentDirectorWang
                  Li An
              
              44
              
              Director
              
              September
                  2006 - Present




The
      following is a summary of the business experience and other biographical
      information with respect to each of the Company’s officers and directors listed
      in the above-referenced table.




**Zhao
      Yan Ding - Chief Executive Officer and Director**





Mr.
      Zhao
      Yan Ding, our new Chief Executive Officer and Director is 34 year
      old.  He holds a university degree as a senior engineer. He worked for
      Xi'an Herbal Medicine Company in the Administration and Marketing Department
      from 1997 to 2001, and gained the honor of advanced staff within two years.
      In
      2001, he took a position with Xi'an Rising Bio-sep Bio-technique Co., Ltd.
      in
      the Researches & Production Department.  He also worked for
      Zhejiang Haikang Bio-Products Co., Ltd, to set up their bio research department
      within company. From 2003 to the present, he has worked with the Xi'an Bio-sep
      Bio-technique Co., Ltd. as their chief of research and the supervisor of the
      company.





**Zhong
      Ya Li - Chief Financial Officer and Director**





Ms.
      Zhong
      Ya Li, our new Chief Financial Officer and Director is 28 years
      old.  She holds a university degree in accounting.  Ms.
      Zhong Ya Li previously worked at Xi'an Rising Building Management Co., Ltd
      as a
      cashier and the chief accountant from 1999 to 2003. Then she worked for the
      Xi'an Bio-sep Bio-technique Co., Ltd as their Chief Accountant. In 2006, she
      was
      promoted to Vice Chief Financial Officer of the Xi'an Bio-sep Bio-technique
      Co.,
      Ltd.





**Wang
      Li An - Director**




Mr.
      Wang
      Li An has been a director of the Company since September 2006 and the Chairman
      of the Board of Director of New Century since March 2006. Mr. Li An is also
      the
      Vice General Manager and Director of Bao Sai since June 2005. From July 2002
      to
      May 2005, Mr. Wang was the Secretary of the Board of Bao Sai and was responsible
      for corporate finance, taxation, capital restructure, operational management,
      and government relations. From October 1997 to June 2002, Mr. Wang was the
      dean
      of Security Investment Department of Shaanxi Rising Group Corp. and was
      responsible for the initial set up of the subsidiaries and capital investment.
      Mr. Wang graduated from Xia Men University in 1987 with a bachelor degree in
      Mathematics .




13




**Audit
      Committee Financial Expert**




We
      do not
      have a separately designated standing audit committee. The entire Board of
      Directors acts as an audit committee for the purpose of overseeing the
      accounting and financial reporting processes, and audits of our financial
      statements. The Commission recently adopted new regulations relating to audit
      committee composition and functions, including disclosure requirements relating
      to the presence of an “audit committee financial expert” serving on its audit
      committee. In connection with these new requirements, our Board of Directors
      examined the Commission’s definition of “audit committee financial expert” and
      concluded that the Company does not currently have a person that qualifies
      as
      such an expert. Presently, there are three directors serving on our Board,
      and we are not in a position at this time to attract, retain and compensate
      additional directors in order to acquire a director who qualifies as an “audit
      committee financial expert”, but we intend to retain an additional director who
      will qualify as such an expert, as soon as reasonably practicable. While neither
      of our current directors meets the qualifications of an “audit committee
      financial expert”, each of our directors, by virtue of his past employment
      experience, has considerable knowledge of financial statements, finance, and
      accounting, and has significant employment experience involving financial
      oversight responsibilities. Accordingly, we believe that our current directors
      capably fulfill the duties and responsibilities of an audit committee in the
      absence of such an expert.




**Code
      of Ethics**




We
      have
      adopted a code of ethics that applies to our principal chief executive officer,
      principal financial officer, principal accounting officer or controller, or
      persons performing similar functions (the “Code of Ethics”). The Code of Ethics
      is designed to deter wrongdoing, and to promote the following:




·
                Honest
                    and ethical conduct, including the ethical handling of actual
                    or apparent
                    conflicts of interest between personal and professional
                    relationships.  ·
                Full,
                    fair, accurate, timely and understandable disclosure in reports
                    and
                    documents that a small business issuer files with, or submits
                    to, the
                    Commission and in other public communications made by the small
                    business
                    issuer.  ·
                Compliance
                    with applicable governmental laws, rules and
                    regulations.  ·
                The
                    prompt internal reporting of violations of the code to an appropriate
                    person or persons identified in the code.  ·
                Accountability
                    for adherence to the code.
  Additionally, the
          Chief Financial Officer, Zhong
          Ya
          Li,  carries
          out her functions under the code of ethics and rules of professional conduct
          as
          outlined by the Peoples Republic of China.




14





**Section
      16(a) Beneficial Ownership Reporting Compliance**




Under
      Section 16(a) of the Exchange Act, all executive officers, directors, and each
      person who is the beneficial owner of more than 10% of the common stock of
      a
      company that files reports pursuant to Section 12 of the Exchange Act, are
      required to report the ownership of such common stock, options, and stock
      appreciation rights (other than certain cash-only rights) and any changes in
      that ownership with the Commission. Specific due dates for these reports have
      been established, and we are required to report, in this Form 10-KSB, any
      failure to comply therewith during the fiscal year ended December 2007 .
      We
      believe that the following persons failed to satisfy the filing requirements
      of
      Section 16(a):





1.
            Mr.
                Wang Li An, Director - failed to file Form 3 or
                5


2.
            Ms.
                Zhong Ya Li, Director & CFO - failed to file Form 3 or
                5


3.
            Mr.
                Zhao Yan Ding, Director & CEO - failed to file Form 3 or
                5




15





**Item
      10.****Executive
      Compensation**




**Summary
      Compensation Table**





The
      following table sets forth compensation earned by the executive officers during
      2007.





**Name**
              **and**
              **Principal**
              **Position**
            
            **Year**
            
            **Salary**
              **($)**
            
            **Bonus**
              **($)**
            
            **Stock**
              **Awards**
              **($)**
            
            **Option
                Awards**
              **($)**
            
            **Non-Equity**
              **Incentive
                Plan**
              **Compensation**
              **($)**
            
            **Nonqualified**
              **Deferred**
              **Compensation**
              **Earnings**
              **($)**
            
            **All
                Other**
              **Compensation**
              **($)**
            
            **Total**
              **($)**Zhao
                Yan Ding
              Chief
                Executive Officer
            
            
            2007
              2006
              2005
            
            
            -
              -
              -
            
            
            -
              -
              -
            
            
            -
              -
              -
            
            
            -
              -
              -
            
            
            -
              -
              -
            
            
            -
              -
              -
            
            
            -
              -
              -
            
            
            -
              -
              -Zhong
                Ya Li, Chief Financial Officer
            
            
            2007
              2006
              2005
            
            
            -
              -
              -
            
            
            -
              -
              -
            
            
            -
              -
              -
            
            
            -
              -
              -
            
            
            -
              -
              -
            
            
            -
              -
              -
            
            
            -
              -
              -
            
            
            -
              -
              -Jie
                Su, former Director, former CEO & former President
            
            
            2007
              2006
              2005
            
            
            15,867
              15,000
              15,000Zhi
                Dong Wang, former director, former CFO & former VP
            
            
            2007
              2006
              2005
            
            
            -
              -
              -





Neither
      Mr. Zhao Yan Ding nor Ms. Zhong Ya Li received any compensation during the
      three
      years preceding December 31, 2007. Mr. Zhao and Ms. Zhong each receive no annual
      compensation for their services as executive officers of the
      Company.




**Employment
      Contracts**




There
      are
      no employment agreements with any of our officers or directors.




**Stock
      Option Awards**




There
      were no options granted to any of our officers or directors during 2007.





**Director
      Compensation**





The
      Company’s directors are not compensated for their services. ****




16


**Item
      11.**  **Security
      Ownership of Certain Beneficial Owners and Management and Related Stockholder
      Matters**




The
      following table sets forth certain information regarding the beneficial
      ownership of our Common Stock as of March
      24,
      2008 (i) each person known to us to be the beneficial owner of more than 5%
      of
      its Common Stock, (ii) each of our directors and executive officers, and (iii)
      all directors and executive officers as a group. As of March 24, 2008, there
      were 42,079,940 **** shares
      of
      Common Stock issued and outstanding.




Name
                and Address of Beneficial Owner(1)
            
            Amount
                and Nature
              of
                Beneficial Ownership(2)(3)
            
            Percentage
              of
                Class(3)Li
                An Guo
              XinChengQuChangLeXiLu169Hao
              Xi’An
                ShanXi
            
            
            16,000,000
            
            
            38.0
            %Mr.
                Wang Li An
              c/o
                GFR Pharmaceuticals, Inc.
              99
                Yan Xiang Road, Biosep Building
              Xi
                An, Shaan Xi Province, P.R. China 710054
            
            
            0
            
            
            0Ms.
                Zhong Ya Li
              c/o
                GFR Pharmaceuticals, Inc.
              99
                Yan Xiang Road, Biosep Building
              Xi
                An, Shaan Xi Province, P.R. China 710054
            
            
            0
            
            
            0Mr.
                Zhao Yan Ding
              c/o
                GFR Pharmaceuticals, Inc.
              99
                Yan Xiang Road, Biosep Building
              Xi
                An, Shaan Xi Province, P.R. China 710054
            
            
            0
            
            
            0Officers
                and directors as a group (3 persons)
            
            
            0
            
            
            0







(1)
            As
                used herein, a person is deemed to be the “beneficial owner” of a security
                if he or she has or shares voting or investment power with respect
                to such
                security, or has the right to acquire such ownership within sixty
                (60)
                days. As used herein, “voting power” includes the power to vote or to
                direct the voting of shares, and “investment power” includes the power to
                dispose or to direct the disposition of shares, irrespective of any
                economic interest therein.




(2)
            Except
                as otherwise indicated by footnote, the persons named in the table
                have
                sole voting and investment power with respect to all Common Stock
                beneficially owned by them.




(3)
            Percentage
                ownership for a given individual or group is calculated on the basis
                of
                (i) the amount of outstanding shares owned as of March 24,
                2008*plus*,
                (ii) the number of shares that such individual or group has the right
                to
                acquire within sixty (60) days pursuant to options, warrants, conversion
                privileges or other rights.





17


**Item
      12.**  **Certain
      Relationships and Related Transactions**




On
      December 11, 2006, pursuant to the Plan of Exchange, dated June 26, 2006, Mr.
      Pierce delivered the 200,000 shares of common stock of the Company to the New
      Century and/or its nominee in exchange for total payments of $325,000 in
      cash




On
      December 11, 2006, the Company issued to the New Century Shareholders an amount
      equal to 40,000,000 new investment shares of common stock of the Registrant
      pursuant to Regulation S under the Securities Act of 1933, as amended,
      representing approximately 95% of the Registrant's then outstanding shares
      of
      common stock, in exchange for a 95% interest in the shares of registered capital
      of New Century.





On
      January 1, 2008, New
      Century entered
      into a stock purchase agreement with the holders of all 60,000,000 shares of
      the
      capital stock of Xi’an Jiaoda Bao Sai Bio-technology Co., Ltd (“Bao Sai”) to
      acquire 58,060,000 shares of its capital stock of Bao Sai, or 96.77% of its
      capital stock. The purchase price for Bao Sai will equal 96.77% of Bao Sai’s
      stockholders’ equity 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 Company expects the acquisition to close
      on
      or before April 30, 2008, pending the completion of Bao Sai’s audited financial
      statements. Payment of the purchase price, when established, will be made in
      two
      cash installments commencing in 2008, first to Xi’an Bio-sep Biological Filling
      Engineering Technology Company, Ltd., the owner of 28 million shares, or 46.67%
      of Bao Sai, and the balance in 2009 to the other three selling stockholders,
      in
      amounts equal to their respective percentage of share ownership of Bao Sai.





Mr.
      Wang
      Li-An, one of the Company’s directors, is also a director of Bao Sai. Xi’an Bio-sep
      Biological Filling Engineering Technology Company, Ltd., which holds 46.67%
      of
      Bao Sai’s common stock, is controlled by Mr. Guo Li An, who owns 38.03% of the
      Company. Mr. Guo Li Zheng, who is Guo Li An’s brother, owns 15.5% of the Bao Sai
      common stock and no shares of the Company. Mr. Guo Li Zheng will be selling
      12.27% of Bao Sai and retaining 3.23%. Additionally, Mr. Zhao Yan Ding and
      Ms.
      Zhong Ya Li, the Company’s Chief Executive Officer and Chief Financial Officer,
      respectively, were officers of Bao Sai through the date of the acquisition
      agreement.





The
      Company rents an office from Bao Sai for a term of one year, commencing January
      1, 2008 and ending December 31, 2008, at an annual rent of $3,534. Mr. Guo
      Li
      An, who owns 38.03% of the Company, beneficially owns 46.67% of Bao Sai.




18


**Item
      13.**  **Exhibits** ****




(a)  Exhibits .




Exhibit
                Number
            
            Description2.1
            
            Purchase
                Agreement for Bao Sai, dated January 1, 2008(1)3.1
            
            Articles
                of Incorporation as Amended(2)3.2
            
            Bylaws(2)4.1
            
            See
                Exhibits 3.1 and 3.2 for the provisions of our Articles of Incorporation
                and Bylaws that define the rights of holders of our Common
                Stock4.2
            
            Specimen
                of Common Stock Certificate(3)4.3
            
            2002
                Non-Qualified Stock Incentive Plan(4)10.1
            
            Cooperation
                Agreement with Tangdu Hospital, as last amended on February 2, 2006
                (English & Chinese versions)10.2
            
            Bao
                Sai Purchase Agreement, dated January 1, 2008
                (5)16.1
            
            Letter
                on Change in Certifying Accountant(6)17.1
            
            Plan
                of Exchange and Letter of Intent(7)14.1
            
            Code
                of Ethics(8)31.1
            
            Rule
                13a-14(a)/15d-14(a) Certifications of Zhao Yan Ding, Chief Executive
                Officer31.2
            
            Rule
                13a-14(a)/15d-14(a) Certifications ofZhong
                Ya Li,
                Chief Financial Officer32.1
            
            Section
                1350 Certifications ofZhao
                Yan Ding,
                Chief Executive Officer32.2
            
            Section
                1350 Certifications ofZhong
                Ya Li,
                Chief Financial Officer





(1)
            Filed
                as an Exhibit to our Form 8-K filed with the Commission on March
                23,
                2008(2)
            Filed
                as an Exhibit to our Form 10-SB12G, as filed with the Commission
                on
                November 5, 1999.(3)
            Filed
                as an Exhibit to the Company’s Annual Report on Form 10-KSB, as filed with
                the Commission on April 21, 2006.(4)
            Filed
                as Exhibit 4.1 to our Form S-8 filed June 19, 2002(5)
            Filed
                as Exhibit 10.8 to our Form 8-K filed March 28, 2008(6)
            Filed
                as an Exhibit to the Company’s Current Report on Form 8-K, as filed with
                the Commission on February 2, 2007(7)
            Contained
                in Form 8-K, as filed with the Commission on July 3,
                2006.(8)
            Filed
                as an Exhibit to our Form 10-KSB filed with the commission April
                13,
                2007





19





**Item
      14.**  **Principal
      Accountant Fees and Services**




Fees
      Billed For Audit and Non-Audit Services





The
      following table represents the aggregate fees billed for professional audit
      services rendered to the Company by Robinson
      Hill & Company ("Robinson") for the year 2005, and by Zhong Yi (Hong Kong),
      our current independent auditor, for the year ended December 31, 2007, and
      all
      fees billed for other services rendered by these firms during those
      periods.







2007
            
            2006Year
                  Ended December 31,
            
            Zhong
                Yi
            
            Zhong
                YiAudit
                Fees(1)
            
            $
            44,000
            
            $
            44,000Audit-Related
                Fees(2)
            
            
            —
            
            
            —Tax
                Fees(3)
            
            
            —
            
            
            300All
                Other Fees(4)
            
            
            —
            
            
            —Total
                Accounting Fees and Services
            
            $
            44,000
            
            $
            44,000





(1)
            *Audit
                Fees*.
                These are fees for professional services for the audit of our annual
                financial statements, and for the review of the financial statements
                included in our filings on Form 10-QSB, and for services that are
                normally
                provided in connection with statutory and regulatory filings or
                engagements.





(2)
            *Audit-Related
                Fees*.
                These are fees for the assurance and related services reasonably
                related
                to the performance of the audit or the review of our financial
                statements.





(3)
            *Tax
                Fees*.
                These are fees for professional services with respect to tax compliance,
                tax advice, and tax planning.





(4)
            *All
                Other Fees*.
                These are fees for permissible work that does not fall within any
                of the
                other fee categories, i.e., Audit Fees, Audit-Related Fees, or Tax
                Fees.




20


**Pre-Approval
      Policy for Audit and Non-Audit Services**




We
      do not have a standing audit committee, and the full Board performs all
      functions of an audit committee, including the pre-approval of all audit and
      non-audit services before we engage an accountant. All of the services rendered
      to us by the independent accountants during
      2007 were pre-approved by our Board of Directors.




21





**SIGNATURES**




In
      accordance with the Section 13 or 15(d) of the Exchange Act, the registrant
      caused this report to be signed on its behalf by the undersigned, thereunto
      duly
      authorized.




Date:
      April 29 ,
      2008


**GFR
                PHARMACEUTICALS, INC.**By:
            /s/
                Zhao
                Yan Ding**Zhao
                Yan Ding**,
                Chief Executive Officer




By:
              /s/
                    Zhong
                    Ya Li**Zhong
                    Ya Li****,**
                    Chief Financial Officer


In
      accordance with the Exchange Act, this report has been signed below by the
      following persons on behalf of the registrant and in the capacities and on
      the
      dates indicated.




**Signature**
            
            **Title**
            
            **Date**/s/
                Zhao
                Yan Ding
            
            Director
            
            April
                29, 2008**Zhao
                Yan Ding**/s/
                Zhong
                Ya Li
            
            Director
            
            April
                29, 2008**Zhong
                Ya Li**/s/
                Wang
                Li-An**Wang
                Li-An**
            
            Director
            
            April29,
                2008




22