10-Q

United States

Securities and Exchange Commission

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended September 30, 2012

OR

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

Commission File No: 09081

GFR PHARMACEUTICALS, INC.

(Exact name of registrant as specified in its charter)

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

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

(Address of principal executive office)    (Zip Code) n/a

Registrant's telephone number: 86-29-8339-9676

N/A

Former name, former address and former fiscal year,

(if changed since last report)

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes X     No o

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

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

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

The number of shares of common stock, $0.001 par value per share, outstanding as of November 13, 2012 was 42,079,940.

GFR Pharmaceuticals

FORM 10-Q

QUARTERLY PERIOD ENDED SEPTEMBER 30, 2012

INDEX

TABLE OF CONTENTS

		Page
PART I – FINANCIAL INFORMATION
Item 1:	Financial Statements	3
Item 2:	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20
Item 3:	Quantitative and Qualitative Disclosures About Market Risk	25
Item 4:	Controls and Procedures	25
PART II – OTHER INFORMATION
Item 1:	Legal Proceedings	27
Item 1A:	Risk Factors	27
Item 2:	Unregistered Sales of Equity Securities and Use of Proceeds	27
Item 3:	Defaults Upon Senior Securities	27
Item 4:	Mine Safety Disclosures	27
Item 5:	Other Information	27
Item 6:	Exhibits	27

2

PART I. FINANCIAL INFORMATION

Item 1 Financial Statements

GFR PHARMACEUTICALS, INC.

INDEX TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

	Page
Condensed Consolidated Balance Sheets as of September 30, 2012 and December 31, 2011	4
Condensed Consolidated Statements of Operations And Comprehensive Income for The Three and Nine Months ended September 30, 2012 and 2011	5
Condensed Consolidated Statements of Cash Flows for The Nine Months ended September 30, 2012 and 2011	6
Condensed Consolidated Statement of Stockholders’ Equity for The Nine Months ended September 30, 2012	7
Notes to Condensed Consolidated Financial Statements	8-19

3

GFR PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

AS OF SEPTEMBER 30, 2012 AND DECEMBER 31, 2011

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

	September 30, 2012		December 31, 2011
	(Unaudited)		(Audited)
ASSETS
Current assets:
Cash and cash equivalents	$	853,694	$	460,883
Accounts receivable, net		726,240		532,167
Inventories, net		17,318		31,067
Prepayments and other current assets		78,780		61,272
Operating lease prepaid, current portion		7,828		7,806
Total current assets		1,683,860		1,093,195
Property, plant and equipment, net		10,303,798		11,097,390
Operating lease prepaid, non-current portion		133,409		138,879
TOTAL ASSETS	$	12,121,067	$	12,329,464
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	44,603	$	44,370
Amount due to stockholders		532,423		521,790
Income tax payable		91,568		202,473
Other payables and accrued liabilities		160,247		1,509,335
Total current liabilities		828,841		2,277,968
Long-term liabilities:
Loss in excess of investment in an unconsolidated affiliate		844,101		844,709
TOTAL LIABILITIES		1,672,942		3,122,677
Commitments and contingencies
Equity:
GFR Pharmaceuticals, Inc. stockholders’ equity:
Common stock, $0.001 par value; 100,000,000 shares authorized; 42,079,940 shares issued and outstanding as of September 30, 2012 and December 31, 2011		42,080		42,080
Additional paid-in capital		3,712,120		3,712,120
Accumulated other comprehensive income		521,104		501,866
Statutory reserve		1,002,635		1,002,635
Retained earnings		4,419,780		3,258,589
Total GFR Pharmaceuticals, Inc. stockholders’ equity		9,697,719		8,517,290
Non-controlling interest		750,406		689,497
Total equity		10,448,125		9,206,787
TOTAL LIABILITIES AND EQUITY	$	12,121,067	$	12,329,464

See accompanying notes to condensed consolidated financial statements.

4

GFR PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

AND COMPREHENSIVE INCOME

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2012 AND 2011

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

(Unaudited)

	Three months ended September 30,						Nine months ended September 30,
	2012			2011			2012			2011
Revenue, net:
Service revenue	$	994,523		$	1,167,673		$	3,003,160		$	3,270,406
Product sales		71,606			4,450			175,763			57,572
Total revenues, net		1,066,129			1,172,123			3,178,923			3,327,978
Cost of revenue: (inclusive of depreciation)
Cost of service		(337,546	)		(183,930	)		(660,602	)		(547,886	)
Cost of products		(56,441	)		(4,518	)		(126,760	)		(47,203	)
Total cost of revenue		(393,987	)		(188,448	)		(787,362	)		(595,089	)
Gross profit		672,142			983,675			2,391,561			2,732,889
Operating expenses:
Depreciation and amortization		(62,596	)		(59,630	)		(202,854	)		(166,412	)
Recovery from uncollectible accounts		98			42,947			4,878			161,881
General and administrative		(177,651	)		(134,016	)		(609,155	)		(521,674	)
Total operating expenses		(240,149	)		(150,699	)		(807,131	)		(526,205	)
Income from operations		431,993			832,976			1,584,430			2,206,684
Other income:
Interest income		494			337			1,284			1,055
Total other income		494			337			1,284			1,055
Income before income taxes		432,487			833,313			1,585,714			2,207,739
Income tax expense		(94,587	)		(181,709	)		(363,614	)		(468,457	)
Net income		337,900			651,604			1,222,100			1,739,282
Less: net income attributable to non-controlling interest		(16,480	)		(28,862	)		(60,909	)		(72,878	)
Net income attributable to GFR Pharmaceuticals, Inc.	$	321,420		$	622,742		$	1,161,191		$	1,666,404
Net income per share – Basic and diluted	$	0.01		$	0.01		$	0.03		$	0.04
Weighted average common shares outstanding – Basic and diluted		42,079,940			42,079,940			42,079,940			42,079,940

See accompanying notes to condensed consolidated financial statements.

5

GFR PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2012 AND 2011

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

(Unaudited)

	Nine months ended September 30,
	2012			2011
Cash flows from operating activities:
Net income attributable to GFR Pharmaceuticals, Inc.	$	1,161,191		$	1,666,404
Net income attributable to non-controlling interest		60,909			72,878
Consolidated net income		1,222,100			1,739,282
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization		851,330			618,210
Recovery from doubtful accounts		(317	)		(161,881	)
Recovery from allowance for obsolete stock		(52,968	)		(7,039	)
Loss on disposal of property, plant and equipment		2,306			-
Change in operating assets and liabilities:
Accounts receivable		(1,478,407	)		(1,382,510	)
Inventories		66,821			(44,329	)
Prepayments and other current assets		(17,033	)		(168,869	)
Accounts payable		105			55,506
Income tax payable		(111,112	)		(13,668	)
Other payables and accrued liabilities		(91,010	)		(163,206	)
Net cash provided by operating activities		391,815			471,496
Cash flows from investing activities:
Purchase of plant and equipment		(1,489	)		(302,370	)
Proceeds from disposal of property, plant and equipment		1,581			-
Net cash provided by (used in) investing activities		92			(302,370	)
Cash flows from financing activities:
Repayment to a related party		-			(33,685	)
Net cash used in financing activities		-			(33,685	)
Effect on exchange rate change on cash and cash equivalents		904			11,867
NET CHANGE IN CASH AND CASH EQUIVALENTS		392,811			147,308
CASH AND CASH EQUIVALENT, BEGINNING OF PERIOD		460,883			300,716
CASH AND CASH EQUIVALENT, END OF PERIOD	$	853,694		$	448,024
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for income taxes	$	268,944		$	286,528
Cash paid for interest	$	-		$	-
NON-CASH INVESTING AND FINANCING TRANSACTIONS:
Purchase of plant and equipment	$	21,342		$	-
Deposit on equipment purchase	$	-		$	1,537,040

See accompanying notes to condensed consolidated financial statements.

6

GFR PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2012

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

(Unaudited)

	GFR Pharmaceuticals, Inc. stockholders’ equity
	Common stock				Additional paid-in capital		Accumulated other comprehensive income		Statutory reserve		Retained earnings		Non-controlling interest		Total equity
	No. of shares		Amount
Balance as of January 1, 2012		42,079,940	$	42,080	$	3,712,120	$	501,866	$	1,002,635	$	3,258,589	$	689,497	$	9,206,787
Foreign currency translation adjustment		-		-		-		19,238		-		-		-		19,238
Net income for the period		-		-		-		-		-		1,161,191		60,909		1,222,100
Balance as of September 30, 2012		42,079,940	$	42,080	$	3,712,120	$	521,104	$	1,002,635	$	4,419,780	$	750,406	$	10,448,125

See accompanying notes to condensed consolidated financial statements.

7

GFR PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2012

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

(Unaudited)

NOTE－1         BASIS OF PRESENTATION

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

In the opinion of management, the consolidated balance sheet as of December 31, 2011 which has been derived from audited financial statements and these unaudited condensed consolidated financial statements reflect all normal and recurring adjustments considered necessary to state fairly the results for the periods presented. The results for the period ended September 30, 2012 are not necessarily indicative of the results to be expected for the entire fiscal year ending December 31, 2012 or for any future periods.

These unaudited condensed consolidated financial statements and notes thereto should be read in conjunction with the Management’s Discussion and the audited financial statements and notes thereto included in the Annual Report on Form 10-K for the year ended December 31, 2011.

NOTE－2         ORGANIZATION AND BUSINESS BACKGROUND

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

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

GFRP and its subsidiaries are hereinafter referred to as (the “Company”).

NOTE－3         SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The accompanying condensed consolidated financial statements reflect the application of certain significant accounting policies as described in this note and elsewhere in the accompanying condensed consolidated financial statements and notes.

· Use of estimates

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

· Basis of consolidation

The condensed consolidated financial statements include the financial statements of GFRP and its subsidiaries. All significant inter-company balances and transactions within the Company have been eliminated upon consolidation.

8

GFR PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2012

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

(Unaudited)

· Equity method of accounting

Under Accounting Standards Codification (“ASC”) Topic 810 “Consolidation” (“ASC 810”), consolidation of a majority-owned subsidiary is precluded where control does not rest with the majority owner. From May 1, 2007, GFRP’s subsidiary Medicine ceased business and leased out its business license. Accordingly, GFRP deconsolidated Medicine and accounted Medicine for under the equity method of accounting.

Generally accepted accounting principles require that the investment in the investee be reported using the equity method under the provision of ASC Topic 323 “Investments - Equity Method and Joint Ventures” (“ASC 323”) when an investor corporation can exercise significant influence over the operations and financial policies of an investee corporation. When the equity method of accounting is used, the investor initially records the investment in the stock of an investee at cost. The investment account is then adjusted to recognize the investor’s share of the income or losses of the investee when it is earned by the investee. Such amounts are included when determining the net income of the investor in the period they are reported by the investee.

As a result of deconsolidation under ASC 810 and the application of the equity method under ASC 323, GFRP had a negative basis in its investment in Medicine, the Equity Investee, because the subsidiary generated significant losses and intercompany liabilities in excess of its asset balances. This negative investment, “Loss in excess of investment in Equity Investee,” is reflected as a single amount on the Company’s condensed consolidated balance sheet as $844,101 and $844,709 liability as of September 30, 2012 and December 31, 2011.

Since Medicine’s results are no longer consolidated and GFRP believes that it is not obligated to fund future operating losses at Medicine, any adjustments reflected in Medicine’s financial statements subsequent to May 1, 2007 are not expected to affect the results of operations of GFRP.

· 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 and allowance for doubtful accounts

Accounts receivable are recorded at the invoiced amount and do not bear interest. Management reviews the adequacy of the allowance for doubtful accounts on an ongoing basis, using historical collection trends and aging of receivables. Management also periodically evaluates individual customer’s financial condition, credit history, and the current economic conditions to make adjustments in the allowance when it is considered necessary. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. The Company does not have any off-balance-sheet credit exposure related to its customers. As of September 30, 2012 and December 31, 2011, the allowance for doubtful accounts was $494,342 and $497,292, respectively.

· Inventories

Inventories are stated at the lower of cost or market value (net realizable value), cost being determined on a weighted average method. Costs include material, labor and manufacturing overhead costs. The Company quarterly reviews historical sales activity to determine excess, slow moving items and potentially obsolete items and also evaluates the impact of any anticipated changes in future demand. The Company provides inventory allowances based on excess and obsolete inventories determined principally by customer demand. As of September 30, 2012 and December 31, 2011, the inventory allowance was $584,331 and $637,299, respectively.

9

GFR PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2012

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

(Unaudited)

· Property, plant and equipment

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:

	Expected useful life (in years)			Residual value
Buildings		20		5%
Plant and equipment	5	–	13	5%
Motor vehicles	8	–	8	5%
Furniture, fixture and equipment		5		5%
Leasehold improvement		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.

Depreciation expense for the three months ended September 30, 2012 and 2011 were $398,905 and $210,343 respectively, of which $330,954 and $185,286 were included in cost of revenue.

Depreciation expense for the nine months ended September 30, 2012 and 2011 were $845,453 and $612,494 respectively, of which $641,163 and $451,796 were included in cost of revenue.

· Operating lease prepaid

All lands in the PRC are owned by the PRC government. The government in the PRC, according to the relevant PRC law, may grant the right to use the land for a specified period of time. Thus, all of the Company’s lands in the PRC are considered operating lease prepaid. Operating lease prepaid is amortized on a straight-line basis over the lease term of 50 years.

The lease expense on prepaid operating lease for the three months ended September 30, 2012 and 2011 was $1,957 and $1,930, respectively.

The lease expense on prepaid operating lease for the nine months ended September 30, 2012 and 2011 was $5,877 and $5,716, respectively.

As of September 30, 2012, the estimated amortization of the prepaid operating lease for the next five years and thereafter is as follows:

Year ending September 30:
2013	$	7,828
2014		7,828
2015		7,828
2016		7,828
2017		7,828
Thereafter		102,097
Total:	$	141,237

· Impairment of long-lived assets

In accordance with the provisions of the provision of ASC Topic 360-10-5, “Impairment or Disposal of Long-Lived Assets”, all long-lived assets such as property, plant and equipment and intangible assets 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 charge for the periods presented.

10

GFR PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2012

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

(Unaudited)

· Revenue recognition

In accordance with the ASC Topic 605, “Revenue Recognition”, the Company recognizes revenue when persuasive evidence of an arrangement exists, transfer of title has occurred or services have been rendered, the selling price is fixed or determinable and collectibility is reasonably assured.

(a) Service revenue

Pursuant to the agreements entered into between the Company and Tang Du Hospital (“the 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 center.

The Company records the revenue, net of business tax, from the customers through the Hospital, on a net basis in compliance with ASC Topic 605-45, “Principal Agent Considerations.”

(b) Sale of products

The Company recognizes revenue from the sale and trading of pharmaceutical products upon delivery to the customers, whereas the title and risk of loss are fully transferred to the customers. The Company records its revenues, net of value added taxes (“VAT”) under the PRC tax law which is levied on the majority of the products at the rate of 17% on the invoiced value of sales. The Company experienced no product returns and has recorded no reserve for sales returns for the three and nine months ended September 30, 2012 and 2011.

(c) Technical service income

The Company provides technical service based upon the customer’s specifications in a term of three years on the basis of a monthly fixed-rate. The Company recognizes its monthly service fee over the service period.

(d) Interest income

Interest income is recognized on a time apportionment basis, taking into account the principal amounts outstanding and the interest rates applicable.

· Income taxes

Income taxes is determined in accordance with the provisions of ASC Topic 740, “Income Taxes” (“ASC 740”). Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted income tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Any effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

ASC 740 prescribes a comprehensive model for how companies should recognize, measure, present, and disclose in their financial statements uncertain tax positions taken or expected to be taken on a tax return. Under ASC 740, tax positions must initially be recognized in the financial statements when it is more likely than not the position will be sustained upon examination by the tax authorities. Such tax positions must initially and subsequently be measured as the largest amount of tax benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with the tax authority assuming full knowledge of the position and relevant facts.

11

GFR PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2012

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

(Unaudited)

For the three and nine months ended September 30, 2012 and 2011, the Company did not have any interest and penalties associated with tax positions. As of September 30, 2012, the Company did not have any significant unrecognized uncertain tax positions.

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 ASC Topic 260, “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

ASC Topic 220, “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 a period from non-owner sources. Accumulated other comprehensive income, as presented in the accompanying condensed consolidated statement of stockholders’ equity, 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.

	Three months ended September 30,
	2012			2011
Net income	$	321,420		$	622,742
Other comprehensive (loss) income:
- Foreign currency translation (loss) gain		(18,183	)		49,158
Comprehensive income	$	303,237		$	671,900

	Nine months ended September 30,
	2012		2011
Net income	$	1,161,191	$	1,666,404
Other comprehensive income:
- Foreign currency translation gain		19,238		152,856
Comprehensive income	$	1,180,429	$	1,819,260

· Foreign currencies translation

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

12

GFR PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2012

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

(Unaudited)

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

In general, for consolidation purposes, assets and liabilities of its subsidiaries whose functional currency is not the US$ are translated into US$, in accordance with ASC Topic 830-30, “Translation of Financial Statement”, using the exchange rate on the balance sheet date. Revenues and expenses are translated at average rates prevailing during the period. The gains and losses resulting from translation of financial statements of foreign subsidiaries are recorded as a separate component of accumulated other comprehensive income within the statement of stockholders’ equity.

Translation of amounts from RMB into US$1 has been made at the following exchange rates for the respective period:

	September 30, 2012		September 30, 2011
Period-end RMB:US$1 exchange rate		6.3340		6.4018
Period-average RMB:US$1 exchange rate		6.3275		6.5060

· 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 operational decisions. Companies are also considered to be related if they are subject to common control or common significant influence.

· Segment reporting

ASC Topic 280, “Segment Reporting” 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 financial statements. For the three and nine months ended September 30, 2012 and 2011, the Company operates in two reportable segments: Medical Business and Extraction Business in PRC.

· Fair value of financial instruments

The carrying value of the Company’s financial instruments include cash and cash equivalents, accounts receivable, prepayments and other current assets, accounts payable, amount due to a related party, income tax payable, other payables and accrued liabilities. Fair values were assumed to approximate carrying values for these financial instruments because they are short term in nature and their carrying amounts approximate fair values.

The Company also follows the guidance of ASC Topic 820-10, “Fair Value Measurements and Disclosures ” ("ASC 820-10"), with respect to financial assets and liabilities that are measured at fair value. ASC 820-10 establishes a three-tier fair value hierarchy that prioritizes the inputs used in measuring fair value as follows:

o Level 1 : Inputs are based upon unadjusted quoted prices for identical instruments traded in active markets;

o Level 2 : Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and; and

o Level 3 : Inputs are generally unobservable and typically reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability. The fair values are therefore determined using model-based techniques, including option pricing models and discounted cash flow models.

13

GFR PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2012

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

(Unaudited)

Fair value estimates are made at a specific point in time based on relevant market information about the financial instrument. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. Changes in assumptions could significantly affect the estimates.

· Recent accounting pronouncements

The Company has reviewed all recently issued, but not yet effective, accounting pronouncements and does 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.

NOTE－4         AMOUNT DUE TO A RELATED PARTY

As of September 30, 2012, amount due to a stockholder, Mr. Lian Guo represented temporary advances to the Company, which was unsecured, interest-free and repayable on demand.

NOTE－5         OTHER PAYABLES AND ACCRUED LIABILITIES

Other payables and accrued liabilities consisted of the following:

	September 30, 2012		December 31, 2011
Business tax payable	$	17,842	$	22,076
Government levy payable		11,916		2,698
Value-added tax payable		13,432		6,568
Salaries and welfare payable		80,854		91,362
Advances from employees		6,301		21,268
Payable on equipment purchase		-		1,259,386
Advances from customers		553		38,726
Accrued operating expenses		29,349		67,251
	$	160,247	$	1,509,335

NOTE－6         INCOME TAXES

For the nine months ended September 30, 2012 and 2011, the local (“United States of America”) and foreign components of income before income taxes were comprised of the following:

	Nine months ended September 30,
	2012		2011
Tax jurisdiction from:
– Local	$	-	$	-
– Foreign		1,585,714		2,207,739
Income before income taxes	$	1,585,714	$	2,207,739

The provision for income taxes consisted of the following:

	Nine months ended September 30,
	2012		2011
Current:
– Local	$	-	$	-
– Foreign		363,614		468,457
Deferred:
– Local		-		-
– Foreign		-		-
Income tax expense	$	363,614	$	468,457

14

GFR PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2012

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

(Unaudited)

The effective tax rate in the years presented is the result of the mix of income earned in various tax jurisdictions that apply a broad range of income tax rates. The Company has a subsidiary and VIE that operate in various countries: United States and the PRC that are subject to tax in the jurisdictions in which they operate, as follows:

United States of America

GFRP is registered in the State of Nevada and is subject to the tax laws of the United States of America. The Company has no operation in the United States of America.

The PRC

Under the Corporate Income Tax Law of the People’s Republic of China, the Company’s subsidiaries in the PRC are subject to the unified statutory income tax rate of 25%. The reconciliation of income tax rate to the effective income tax rate for the nine months ended September 30, 2012 and 2011 is as follows:

	Nine months ended September 30,
	2012			2011
Income before income taxes from PRC operation	$	1,585,714		$	2,207,739
Statutory income tax rate		25	%		25	%
Income tax expense at statutory rate		396,429			551,934
Net operating loss not recognized as deferred tax assets		1,317			1,350
Non-deductible expenses		(19,671	)		(56,038	)
Recovery from doubtful accounts not recognized as deferred taxes		(14,461	)		(28,789	)
Income tax expense	$	363,614		$	468,457

The following table sets forth the significant components of the aggregate net deferred tax assets of the Company as of September 30, 2012 and December 31, 2011:

	September 30, 2012			December 31, 2011
Deferred tax assets:
Net operating loss carryforwards	$	371,089		$	376,258
Allowance for doubtful accounts		762,443			761,461
Total deferred tax assets		1,133,532			1,137,719
Less: valuation allowance		(1,133,532	)		(1,137,719	)
Deferred tax assets	$	-		$	-

As of September 30, 2012, the Company incurred $1,484,352 of aggregate cumulative operating losses carryforwards available to offset its taxable income for PRC income tax purposes. The Company has provided for a full valuation allowance against the deferred tax assets of $1,133,532 on the expected future tax benefits from the net operating loss carryforwards and allowance for doubtful accounts as the management believes it is more likely than not that these assets will not be realized in the future. For the nine months ended September 30, 2012, the valuation allowance decreased by $4,187, primarily relating to the recovery from allowance for doubtful accounts.

15

GFR PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2012

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

(Unaudited)

NOTE－7         SEGMENT INFORMATION

The Company’s business units have been aggregated into two reportable segments, as defined by ASC Topic 280:

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

● Extraction Business – provision of extraction service and distribution of extracted ingredients for medicine manufacturing uses.

The accounting policies of the segments are the same as those described in the summary of significant accounting policies (see Note 3). The Company had no inter-segment sales for the three and nine months ended September 30, 2012 and 2011. The Company’s reportable segments are strategic business units that offer different products and services. They are managed separately based on the different technology and marketing strategies of each business unit for making internal operating decisions.

Summary of financial information concerning the Company’s reportable segments is shown in the following table for the three and nine months ended September 30, 2012 and 2011:

	Three months ended September 30, 2012
	Medical Business			Extraction Business			Total
Operating revenue	$	815,566		$	250,563		$	1,066,129
Cost of revenue		(312,231	)		(81,756	)		(393,987	)
Gross profit	$	503,335		$	168,807		$	672,142
Depreciation and amortization	$	331,491		$	69,371		$	400,862
Net income		310,770			27,130			337,900
Expenditure for long-lived assets	$	-		$	-		$	-

	Nine months ended September 30, 2012
	Medical Business			Extraction Business			Total
Operating revenue	$	2,465,957		$	712,966		$	3,178,923
Cost of revenue		(584,928	)		(202,434	)		(787,362	)
Gross profit	$	1,881,029		$	510,532		$	2,391,561
Depreciation and amortization	$	642,741		$	208,589		$	851,330
Net income		1,201,418			20,682			1,222,100
Expenditure for long-lived assets	$	21,342		$	1,489		$	22,831

16

GFR PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2012

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

(Unaudited)

	Three months ended September 30, 2011
	Medical Business			Extraction Business			Total
Operating revenue, net	$	989,854		$	182,269		$	1,172,123
Cost of revenue		(158,580	)		(29,868	)		(188,448	)
Gross profit	$	831,274		$	152,401		$	983,675
Depreciation and amortization	$	153,605		$	58,668		$	212,273
Net income		577,255			74,349			651,604
Expenditure for long-lived assets	$	1,564,983		$	274,427		$	1,839,410

	Nine months ended September 30, 2011
	Medical Business			Extraction Business			Total
Operating revenue, net	$	2,652,218		$	675,760		$	3,327,978
Cost of revenue		(474,498	)		(120,591	)		(595,089	)
Gross profit	$	2,177,720		$	555,169		$	2,732,889
Depreciation and amortization	$	453,822		$	164,388		$	618,210
Net income		1,457,570			281,712			1,739,282
Expenditure for long-lived assets	$	1,564,983		$	274,427		$	1,839,410

All long-lived assets are located in the PRC.

NOTE－8         CONCENTRATIONS OF RISK

The Company is exposed to the following concentrations of risk:

(a)  Major customers

For the three and nine months ended September 30, 2012 and 2011, the customer who accounted for 10% or more of revenues of the Company is presented as follows:

	Three months ended September 30, 2012				September 30, 2012
	Revenues		Percentage of revenues		Trade accounts receivable
Customer A	$	815,566		68%	$	573,766
Customer B		229,316		19%		63,151
Total:	$	1,044,882		87%	$	636,917

	Nine months ended September 30, 2012			September 30, 2012
	Revenues		Percentage of revenues	Trade accounts receivable
Customer A	$	2,465,958	77%	$	573,766
Customer B		537,202	17%		63,151
Total:	$	3,003,160	94%	$	636,917

17

GFR PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2012

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

(Unaudited)

	Three months ended September 30, 2011			September 30, 2011
	Revenues		Percentage of revenues	Trade accounts receivable
Customer A	$	989,854	84%	$	1,108,345
Customer B		177,818	15%		62,482
Total:	$	1,167,672	99%	$	1,170,827

	Nine months ended September 30, 2011			September 30, 2011
	Revenues		Percentage of revenues	Trade accounts receivable
Customer A	$	2,652,218	80%	$	1,108,345
Customer B		618,187	19%		62,482
Total:	$	3,270,405	99%	$	1,170,827

All customers are located in the PRC.

(b) Major vendors

For the three months ended September 30, 2012, there was one vendor who represented more than 10% of the Company’s purchases amounting to $1,326.

For the nine months ended September 30, 2012, the vendors who accounted for 10% or more of purchases of the Company are presented as follows:

	Nine months ended September 30, 2012			September 30, 2012
	Purchase		Percentage of purchases	Trade accounts payable
Vendor A	$	24,958	56%	$	-
Vendor B		6,669	15%		-
Vendor C		5,462	12%		-
Total:	$	37,089	83%	$	-

For the three and nine months ended September 30, 2011, there were no single vendors who represented more than 10% of the Company’s purchases.

All venders are located in the PRC.

(c) Credit risk

Financial instruments that are potentially subject to credit risk consist principally of trade accounts receivables. The Company believes the concentration of credit risk in its trade receivables is substantially mitigated by its ongoing credit evaluation process and relatively short collection terms. The Company does not generally require collateral from customers. The Company evaluates the need for an allowance for doubtful accounts based upon factors surrounding the credit risk of specific customers, historical trends and other information.

18

GFR PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2012

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

(Unaudited)

(d) Exchange rate risk

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

(e) Economic and political risks

The Company's operations are conducted in the PRC. Accordingly, the Company's business, financial condition and results of operations may be influenced by the political, economic and legal environment in the PRC, and by the general state of the PRC economy.

The Company's operations in the PRC are subject to special considerations and significant risks not typically associated with companies in North America and Western Europe. These include risks associated with, among others, the political, economic and legal environment and foreign currency exchange. The Company's results may be adversely affected by changes in the political and social conditions in the PRC, and by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion, remittances abroad, and rates and methods of taxation.

NOTE－9         COMMITMENTS AND CONTINGENCIES

The Company is committed to office space under a non-cancelable operating lease agreement with a term of 2 years with fixed monthly rentals, expiring in September 2013. Total rent expenses for the nine months ended September 30, 2012 and 2011 were $1,707 and $1,660, respectively.

As of September 30, 2012, the Company has $1,635 of future minimum rental payments due under non-cancelable operating lease agreement in the next twelve months.

NOTE－10       SUBSEQUENT EVENTS

The Company evaluated subsequent events through the date the financial statements were issued and filed with this Form 10-Q. There were no subsequent events that required recognition or disclosure.

19

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

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

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 Quarterly Report on Form 10- Q. Certain statements in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” are forward-looking.

FORWARD LOOKING STATEMENTS

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

20

Overview

GFR Pharmaceuticals, Inc. was incorporated under the laws of the State of Nevada on December 18, 1996 under the name Laredo Investment Corp.  (“Laredo”). Its subsidiary companies currently are involved in bio-extraction, researching and inventing, manufacturing and sales of biological separation medium products, radiology and oncology equipment and cancer treatment equipment. The Company’s principal place of business and all of its assets are located in the People’s Republic of China.

On October 15, 2006, we executed an acquisition agreement with Xi'an Hua Long Yu Tian Ke Ji Shi Ye Co., Ltd. whereby we acquired a 100% equity interest of Hua Long.

On December 11, 2006, pursuant to the Plan of Exchange Agreement, New Century became our 95% owned indirect subsidiary.

On January 1, 2008, New Century entered into a stock purchase agreement whereby we acquired 96.6% of the capital stock of Xi’an Jiaoda Bao Sai Bio-technology Co., Ltd (“Bao Sai”). 

As a result of the consolidation, GFR Pharmaceuticals, Inc. is a holding company with two business segments. The Company is involved in bio-extraction, researching and inventing, manufacturing and sales of biological separation medium products operated by Xi’an Jiaoda Bao Sai Bio-technology Co., Ltd (“Bao Sai”). The Company also operates a Cancer Diagnosis and Treatment Center with a professional team of doctors operated by Shaan Xi New Century Scientific Investment Development Ltd. (“New Century”) in the PRC.

New Century

New Century is a medical equipment investment management company, which mainly engages in investment and management of cancer treatment equipment and provides comprehensive services for customers with advanced radiology and oncology equipment. New Century owns four different devices used for radiological imaging for the brain and body and cancer treatment. The Company’s medical equipment is used in Tangdu Hospital’s Gamma Knife Therapeutic Center (the “Center”).

The cases processed in the Center averaged 298 cases per month in the third quarter of 2012 as compared to 295 cases per month in the same period of 2011.   During the nine months ended September 30, 2012, the Center attributed $2,465,957 or 77.57% of the Company’s revenues.

21

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 seventy percent (70%) 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 Agreement, New Century has the power to appoint the Director of the Center. Upon the termination of the Tangdu Agreement, Tangdu Hospital has an option to purchase the equipment for fifty percent of its residual value.  

The Center runs at full capacity and the existing equipment capacity cannot meet the requirements of patients. In order to take advantage of the improved technology in this market and meet the need for additional capacity at the Center, the Company purchased a set of PET-CT cancer examination equipment on June 21, 2012, which is amongst the most advanced cancer examination equipment in the world. The purchase price of this medical equipment was approximately $4,447,876 (equal to RMB 28,135,040 Yuan). New Century entered into a supplementary agreement to the Tangdu Agreement with Tangdu Hospital in order for both parties to cooperate in exploiting the business opportunities arising from the introduction of the PET-CT equipment (“Supplementary Agreement”). Pursuant to the Supplementary Agreement, the Company agreed to jointly operate this equipment at the existing medical center. It has a cooperation term of 6 years, commencing from January 2012. The profit sharing ratio during the PET-CT cooperation period will be 7:3, with New Century receiving 70% of the profits. At the end of the six year period, Tangdu Hospital will be entitled to 100% of the profits,and the Hospital has an option to purchase the medical equipment used in the center at 50% of its residual values. The PET-CT equipment operates well since the initial operation of January 2012.

With our competitive facilities, services, and the reputation of Tangdu Hospital in Northwest China including Shaan Xi province and four other adjacent provinces, our medical center business has good growth potential.  

22

Bao Sai

Bao Sai is a high-tech company in China, chartered and authorized by the Chinese government for researching, inventing, manufacturing and sales of biological separation medium products. It has the technology and facilities for the separation and purification of biological products and natural medicines and manufactures the agarose products of separation media. 

Biological separation medium refers to the separation and purification of biological products and natural medicines, which is the core technology of the biotechnology Industry. Such technology has been widely used in the producing of antibiotic products, Genetic Recombinant Medicine, the Gene Chip, bacteria production, diagnoses reagent and biochemical products. In addition to the biotechnology industry, the technology also has the wide applications and can be used for environmental protection industry, chemical and pharmaceutical industry and modernization of Chinese medicine. 

The operations of Bao Sai are in the development stage and most of its efforts are focused on the research and development of new pharmaceutical and biological medium products, and we intend to market these products when the development is complete and all required certifications are received.  In 2011, the Company has successfully developed several new products using the separation technology, a Functional Medium Cigarette Holder and two Water Purifiers (including Multimedia Water Purifier and Reverse Osmosis Water Purifier).  In the nine months ended September 30, 2012, Bao Sai spent approximately $100,905 in research and development of biological separation medium products and new medicine.   

RESULTS OF OPERATIONS FOR NINE MONTHS AND THREE MONTHS ENDED SEPTEMBER 30, 2012

Revenues

Our overall revenues for the three months ended September 30, 2012 decreased to $1,066,129, compared to $1,172,123 during the same period of 2011, a decrease of $105,994 or 9%. In the third quarter of 2012, the cancer treatment business accounted for $815,566 or 76.5% of our total revenues; and Bao Sai accounted for $250,563 or 23.5% among which the product sales from Bao Sai generated $71,606 and technology service $178,957. Our overall revenues during the nine months ended September 30, 2012 decreased to $3,178,923, compared to $ 3,327,978 during the same period of 2011, a decrease of $149,055 or 4.48 %. During the nine months ended September 30, 2012, the cancer treatment business accounted for $2,465,957, or 77.57%; and Bao Sai’s revenue accounted for $712,966, or 22.43% among which the product sales generated $175,763 and technology service $537,203. The decrease was attributed primarily to the decreased revenue of cancer treatment business leading by the decrease of profit sharing ratio of New Century.

23

Expenses

Operating expenses during the third quarter of 2012 were $240,149, an increase of $89,450 compared to $150,699 during the same period of 2011,. During the nine months ended September 30, 2012, our operating expenses were $807,131 as compared to $526,205 for the same period of 2011, an increase of $280,926 or 53.38%. This increase was attributable to the increased general and administrative costs during the nine months ended September 30, 2012.

Net Income

Our net income during the three and nine months ended September 30, 2012 was $337,900 and $1,222,100, respectively, compared to $651,604 and $1,739,282, respectively, during the three and nine months ended September 30, 2011. This decrease was primarily due to the reduction of profit sharing ratio of cancer treatment business from New Century.

Impact of Inflation

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

LIQUIDITY AND CAPITAL RESOURCES

	September 30, 2012		December 31, 2011
Working Capital	$	855,019	$	(1,184,773	)
Stockholders’ Equity	$	9,697,719	$	8,517,290
Total Liabilities	$	1,672,942	$	3,122,677

Our working capital as of September 30, 2012 increased to $855,019, from $(1,184,773) as of December 31, 2011, which was mainly attributable to the increase in cash and cash equivalents and the increase in accounts receivable during the periods under review.

Stockholders’ equity increased from $8,517,290 as of December 31, 2011 to $9,697,719 as of September 30, 2012, an increase of $1,180,429 or 13.86%.

Total liabilities decreased from $3,122,677 as of December 31, 2011 to $1,672,942 as of September 30, 2012, a decrease of $1,449,735 or 46.43%. In addition, our principal shareholder, Mr. Guo Li’an, made a loan to fund our operations during the first quarter of 2008. As of September 30, 2012, the balance of the loan was $532,423, which was unsecured, interest-free and repayable on demand.

24

As of September 30, 2012, cash and cash equivalents increased to $853,694 from $460,883 as of December 31, 2011, an increase of $392,811 or 85.23%. The increase of cash and cash equivalents was mainly due to additional cash flow generated from operation activities of $303,436 during the nine months ended September 30, 2012. Management believes that the Company’s profitability and increases in available cash and cash equivalents will help ensure our continued operations for the next three months, but there can be no assurance that our profitability will continue.

ITEM 3         QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS

Foreign Exchange Risk

While our reporting currency is the US dollar, almost all of our consolidated revenues and consolidated costs and expenses are denominated in RMB. All of our assets are denominated in RMB except for some cash and cash equivalents and accounts receivables. As a result, we are exposed to foreign exchange risk as our revenues and results of operations may be affected by fluctuations in the exchange rate between US dollar and RMB. If the RMB depreciates against the US dollar, the value of our RMB revenues, earnings and assets as expressed in our US dollar financial statements will decline. We have not entered into any hedging transactions in an effort to reduce our exposure to foreign exchange risk.

Inflation

Inflationary factors such as increases in the costs of our products and overhead costs may adversely affect our operating results. Although we do not believe that inflation has had a material impact on our financial position or results of operations to date, a high rate of inflation in the future may have an adverse effect on our ability to maintain current levels of gross margin and selling and distribution, general and administrative expenses as a percentage of net revenues if the selling prices of our products do not increase to cope with these increased costs.

ITEM 4         CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures.

Under the supervision and with the participation of our management, including our Chief Executive Officer, Zhao Yan Ding, and Principal Financial Officer, Zhong Ya Li, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the "Exchange Act")) as of the end of the period covered by this report.

25

Under Rule 13a-15(e) and 15d-15(e), the term “disclosure controls and procedures” means controls and other procedures of an issuer that are designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Exchange Act (15 U.S.C. 78a et seq.) is recorded, processed, summarized and reported, within the time periods specified in the Commission's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Act is accumulated and communicated to the issuer's management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

Based upon that evaluation, our Chief Executive Officer and Principal Financial Officer concluded that our disclosure controls and procedures as of the end of the period covered by this report were effective such that the information required to be disclosed by us in reports filed under the Securities Exchange Act of 1934 is (i) recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms and (ii) accumulated and communicated to our management to allow timely decisions regarding disclosure. A controls system cannot provide absolute assurance, however, that the objectives of the controls system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.

  Changes in Internal Controls over Financial Reporting.

During the six months ended  September 30, 2012, there has been no change in our internal controls over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act) that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.

Under Rule 13a-15(e) and 15d-15(e), the term “internal control over financial reporting” is defined as a process designed by, or under the supervision of, the issuer's principal executive and principal financial officers, or persons performing similar functions, and effected by the issuer's board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:

● Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the issuer;

● Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the issuer are being made only in accordance with authorizations of management and directors of the issuer; and

● Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the issuer's assets that could have a material effect on the financial statements.

26

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

None.

Item 1A.  Risk Factors

A smaller reporting company is not required to provide the information required by this Item.

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

None.

Item 3. Defaults Upon Senior Securities.

None.

Item 4.   Mine Safety Disclosures

None

Item 5. Other Information

None.

Item 6. Exhibits

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

27

XBRL Exhibit

101.INS†	XBRL Instance Document.
101.SCH†	XBRL Taxonomy Extension Schema Document.
101.CAL†	XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF†	XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB†	XBRL Taxonomy Extension Label Linkbase Document.
101.PRE†	XBRL Taxonomy Extension Presentation Linkbase Document.

28

SIGNATURE

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

	GFR PHARMACEUTICALS, INC.
DATE:  November 14, 2012	By:	/s/ Zhao Yan Ding
		Zhao Yan Ding, Chief Executive Officer
		(Principal executive officer)
DATE:  November 14, 2012	By:	/s/ Zhong Ya Li
		Zhong Ya Li, Chief Financial Officer
		(Principal financial officer)

29

EX-31.1

EXHIBIT 31.1

Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) and Rule 15d-14(a) under the Securities Exchange Act of 1934, as amended

I,  Zhao Yan Ding, certify that:

1. I have reviewed this quarterly report on Form 10-Q of GFR Pharmaceuticals, Inc.;

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the periods covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4. The Company’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Company and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the Company’s internal control over financial reporting that occurred during the Company’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting; and

5. The Company’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company’s auditors and the audit committee of the Company’s board of directors (or persons performing the equivalent function):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal control over financial reporting.

November  14, 2012  

By:	/s/ Zhao Yan Ding
	Zhao Yan Ding, Chief Executive Officer

EX-31.2

EXHIBIT 31.2

Certification of Principal Financial Officer Pursuant to Rule 13a-14(a) and Rule 15d-14(a) under the Securities Exchange Act of 1934, as amended

I, Zhong Ya Li, certify that:

1. I have reviewed this quarterly report on Form 10-Q of GFR Pharmaceuticals, Inc.;

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the periods covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this quarterly report;

4. The Company’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Company and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the Company’s internal control over financial reporting that occurred during the Company’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting; and

5. The Company’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company’s auditors and the audit committee of the Company’s board of directors (or persons performing the equivalent function):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal control over financial reporting.

November  14, 2012  

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

EX-32.1

EXHIBIT 32.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER UNDER SECTION 906 OF THE SARBANES OXLEY ACT OF 2002

(Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code)

In connection with the quarterly report on Form 10-Q of GFR Pharmaceuticals, Inc. (the “Company”) for the period ended September 30, 2012 as filed with the Securities and Exchange Commission as of the date hereof (the "Report"), I, Zhao Yan Ding, the chief executive officer of us, hereby certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

Date: November 14, 2012

By:	/s/ Zhao Yan Ding
	Zhao Yan Ding, CEO

EX-32.2

EXHIBIT 32.2

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER UNDER SECTION 906 OF THE SARBANES OXLEY ACT OF 2002

(Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code)

In connection with the quarterly report on Form 10-Q of GFR Pharmaceuticals, Inc. (the “Company”) for the period ended September 30, 2012 as filed with the Securities and Exchange Commission as of the date hereof (the "Report"), I, Zhong Ya Li, Chief financial officer of us, hereby certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

Date: November 14, 2012

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

XML

Note 9 - Commitments and Contingencies (Detail) (USD $)	9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011
Operating Lease Agreement Term	2 years
Operating Leases, Rent Expense	$ 1,707	$ 1,660
Operating Leases, Future Minimum Payments Due	$ 1,635

XML

Note 6 - Income Taxes (Detail) - Components of net deferred tax assets (USD $)	Sep. 30, 2012	Dec. 31, 2011
Net operating loss carryforwards	$ 371,089	$ 376,258
Allowance for doubtful accounts	762,443	761,461
Total deferred tax assets	1,133,532	1,137,719
Less: valuation allowance	$ (1,133,532)	$ (1,137,719)

XML

Note 3 - Summary of Significant Accounting Policies (Detail) - Estimated amortization of prepaid operating lease (USD $)	Sep. 30, 2012
Estimated amortization of prepaid operating lease	$ 141,237
Year Ending Sep 30, 2013 [Member]
Estimated amortization of prepaid operating lease	7,828
Year Ending Sep 30, 2014 [Member]
Estimated amortization of prepaid operating lease	7,828
Year Ending Sep 30, 2015 [Member]
Estimated amortization of prepaid operating lease	7,828
Year Ending Sep 30, 2016 [Member]
Estimated amortization of prepaid operating lease	7,828
Year Ending Sep 30, 2017 [Member]
Estimated amortization of prepaid operating lease	7,828
Thereafter [Member]
Estimated amortization of prepaid operating lease	$ 102,097

XML

Note 8 - Concentrations of Risk (Detail) - Major customers (USD $)			3 Months Ended		9 Months Ended		3 Months Ended		9 Months Ended		3 Months Ended		9 Months Ended
	Sep. 30, 2012	Dec. 31, 2011	Sep. 30, 2012 Customer A [Member]	Sep. 30, 2011 Customer A [Member]	Sep. 30, 2012 Customer A [Member]	Sep. 30, 2011 Customer A [Member]	Sep. 30, 2012 Customer B [Member]	Sep. 30, 2011 Customer B [Member]	Sep. 30, 2012 Customer B [Member]	Sep. 30, 2011 Customer B [Member]	Sep. 30, 2012 Total Major Customers [Member]	Sep. 30, 2011 Total Major Customers [Member]	Sep. 30, 2012 Total Major Customers [Member]	Sep. 30, 2011 Total Major Customers [Member]
Revenues			$ 815,566	$ 989,854	$ 2,465,958	$ 2,652,218	$ 229,316	$ 177,818	$ 537,202	$ 618,187	$ 1,044,882	$ 1,167,672	$ 3,003,160	$ 3,270,405
Percentage of revenues			68.00%	84.00%	77.00%	80.00%	19.00%	15.00%	17.00%	19.00%	87.00%	99.00%	94.00%	99.00%
Trade accounts receivable	$ 726,240	$ 532,167	$ 573,766	$ 1,108,345	$ 573,766	$ 1,108,345	$ 63,151	$ 62,482	$ 63,151	$ 62,482	$ 636,917	$ 1,170,827	$ 636,917	$ 1,170,827

XML

Note 3 - Summary of Significant Accounting Policies

9 Months Ended

Sep. 30, 2012

Significant Accounting Policies [Text Block]

NOTE－3         SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The accompanying condensed consolidated financial statements reflect the application of certain significant accounting policies as described in this note and elsewhere in the accompanying condensed consolidated financial statements and notes.

· Use of estimates

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

· Basis of consolidation

The condensed consolidated financial statements include the financial statements of GFRP and its subsidiaries. All significant inter-company balances and transactions within the Company have been eliminated upon consolidation.

· Equity method of accounting

Under Accounting Standards Codification (“ASC”) Topic 810 “Consolidation” (“ASC 810”), consolidation of a majority-owned subsidiary is precluded where control does not rest with the majority owner. From May 1, 2007, GFRP’s subsidiary Medicine ceased business and leased out its business license. Accordingly, GFRP deconsolidated Medicine and accounted Medicine for under the equity method of accounting.

Generally accepted accounting principles require that the investment in the investee be reported using the equity method under the provision of ASC Topic 323 “Investments - Equity Method and Joint Ventures” (“ASC 323”) when an investor corporation can exercise significant influence over the operations and financial policies of an investee corporation. When the equity method of accounting is used, the investor initially records the investment in the stock of an investee at cost. The investment account is then adjusted to recognize the investor’s share of the income or losses of the investee when it is earned by the investee. Such amounts are included when determining the net income of the investor in the period they are reported by the investee.

As a result of deconsolidation under ASC 810 and the application of the equity method under ASC 323, GFRP had a negative basis in its investment in Medicine, the Equity Investee, because the subsidiary generated significant losses and intercompany liabilities in excess of its asset balances. This negative investment, “Loss in excess of investment in Equity Investee,” is reflected as a single amount on the Company’s condensed consolidated balance sheet as $844,101 and $844,709 liability as of September 30, 2012 and December 31, 2011.

Since Medicine’s results are no longer consolidated and GFRP believes that it is not obligated to fund future operating losses at Medicine, any adjustments reflected in Medicine’s financial statements subsequent to May 1, 2007 are not expected to affect the results of operations of GFRP.

· 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 and allowance for doubtful accounts

Accounts receivable are recorded at the invoiced amount and do not bear interest. Management reviews the adequacy of the allowance for doubtful accounts on an ongoing basis, using historical collection trends and aging of receivables. Management also periodically evaluates individual customer’s financial condition, credit history, and the current economic conditions to make adjustments in the allowance when it is considered necessary. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. The Company does not have any off-balance-sheet credit exposure related to its customers. As of September 30, 2012 and December 31, 2011, the allowance for doubtful accounts was $494,342 and $497,292, respectively.

· Inventories

Inventories are stated at the lower of cost or market value (net realizable value), cost being determined on a weighted average method. Costs include material, labor and manufacturing overhead costs. The Company quarterly reviews historical sales activity to determine excess, slow moving items and potentially obsolete items and also evaluates the impact of any anticipated changes in future demand. The Company provides inventory allowances based on excess and obsolete inventories determined principally by customer demand. As of September 30, 2012 and December 31, 2011, the inventory allowance was $584,331 and $637,299, respectively.

· Property, plant and equipment

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:

	Expected useful life (in years)			Residual value
Buildings		20		5%
Plant and equipment	5	–	13	5%
Motor vehicles	8	–	8	5%
Furniture, fixture and equipment		5		5%
Leasehold improvement		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.

Depreciation expense for the three months ended September 30, 2012 and 2011 were $398,905 and $210,343 respectively, of which $330,954 and $185,286 were included in cost of revenue.

Depreciation expense for the nine months ended September 30, 2012 and 2011 were $845,453 and $612,494 respectively, of which $641,163 and $451,796 were included in cost of revenue.

· Operating lease prepaid

All lands in the PRC are owned by the PRC government. The government in the PRC, according to the relevant PRC law, may grant the right to use the land for a specified period of time. Thus, all of the Company’s lands in the PRC are considered operating lease prepaid. Operating lease prepaid is amortized on a straight-line basis over the lease term of 50 years.

The lease expense on prepaid operating lease for the three months ended September 30, 2012 and 2011 was $1,957 and $1,930, respectively.

The lease expense on prepaid operating lease for the nine months ended September 30, 2012 and 2011 was $5,877 and $5,716, respectively.

As of September 30, 2012, the estimated amortization of the prepaid operating lease for the next five years and thereafter is as follows:

Year ending September 30:
2013	$	7,828
2014		7,828
2015		7,828
2016		7,828
2017		7,828
Thereafter		102,097
Total:	$	141,237

· Impairment of long-lived assets

In accordance with the provisions of the provision of ASC Topic 360-10-5, “Impairment or Disposal of Long-Lived Assets”, all long-lived assets such as property, plant and equipment and intangible assets 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 charge for the periods presented.

· Revenue recognition

In accordance with the ASC Topic 605, “Revenue Recognition”, the Company recognizes revenue when persuasive evidence of an arrangement exists, transfer of title has occurred or services have been rendered, the selling price is fixed or determinable and collectibility is reasonably assured.

(a) Service revenue

Pursuant to the agreements entered into between the Company and Tang Du Hospital (“the 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 center.

The Company records the revenue, net of business tax, from the customers through the Hospital, on a net basis in compliance with ASC Topic 605-45, “Principal Agent Considerations.”

(b) Sale of products

The Company recognizes revenue from the sale and trading of pharmaceutical products upon delivery to the customers, whereas the title and risk of loss are fully transferred to the customers. The Company records its revenues, net of value added taxes (“VAT”) under the PRC tax law which is levied on the majority of the products at the rate of 17% on the invoiced value of sales. The Company experienced no product returns and has recorded no reserve for sales returns for the three and nine months ended September 30, 2012 and 2011.

(c) Technical service income

The Company provides technical service based upon the customer’s specifications in a term of three years on the basis of a monthly fixed-rate. The Company recognizes its monthly service fee over the service period.

(d) Interest income

Interest income is recognized on a time apportionment basis, taking into account the principal amounts outstanding and the interest rates applicable.

· Income taxes

Income taxes is determined in accordance with the provisions of ASC Topic 740, “Income Taxes” (“ASC 740”). Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted income tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Any effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

ASC 740 prescribes a comprehensive model for how companies should recognize, measure, present, and disclose in their financial statements uncertain tax positions taken or expected to be taken on a tax return. Under ASC 740, tax positions must initially be recognized in the financial statements when it is more likely than not the position will be sustained upon examination by the tax authorities. Such tax positions must initially and subsequently be measured as the largest amount of tax benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with the tax authority assuming full knowledge of the position and relevant facts.

For the three and nine months ended September 30, 2012 and 2011, the Company did not have any interest and penalties associated with tax positions. As of September 30, 2012, the Company did not have any significant unrecognized uncertain tax positions.

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 ASC Topic 260, “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

ASC Topic 220, “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 a period from non-owner sources. Accumulated other comprehensive income, as presented in the accompanying condensed consolidated statement of stockholders’ equity, 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.

	Three months ended September 30,
	2012			2011
Net income	$	321,420		$	622,742
Other comprehensive (loss) income:
- Foreign currency translation (loss) gain		(18,183	)		49,158
Comprehensive income	$	303,237		$	671,900

	Nine months ended September 30,
	2012		2011
Net income	$	1,161,191	$	1,666,404
Other comprehensive income:
- Foreign currency translation gain		19,238		152,856
Comprehensive income	$	1,180,429	$	1,819,260

· Foreign currencies translation

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

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

In general, for consolidation purposes, assets and liabilities of its subsidiaries whose functional currency is not the US$ are translated into US$, in accordance with ASC Topic 830-30, “Translation of Financial Statement”, using the exchange rate on the balance sheet date. Revenues and expenses are translated at average rates prevailing during the period. The gains and losses resulting from translation of financial statements of foreign subsidiaries are recorded as a separate component of accumulated other comprehensive income within the statement of stockholders’ equity.

Translation of amounts from RMB into US$1 has been made at the following exchange rates for the respective period:

	September 30, 2012		September 30, 2011
Period-end RMB:US$1 exchange rate		6.3340		6.4018
Period-average RMB:US$1 exchange rate		6.3275		6.5060

· 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 operational decisions. Companies are also considered to be related if they are subject to common control or common significant influence.

· Segment reporting

ASC Topic 280, “Segment Reporting” 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 financial statements. For the three and nine months ended September 30, 2012 and 2011, the Company operates in two reportable segments: Medical Business and Extraction Business in PRC.

· Fair value of financial instruments

The carrying value of the Company’s financial instruments include cash and cash equivalents, accounts receivable, prepayments and other current assets, accounts payable, amount due to a related party, income tax payable, other payables and accrued liabilities. Fair values were assumed to approximate carrying values for these financial instruments because they are short term in nature and their carrying amounts approximate fair values.

The Company also follows the guidance of ASC Topic 820-10, “Fair Value Measurements and Disclosures ” ("ASC 820-10"), with respect to financial assets and liabilities that are measured at fair value. ASC 820-10 establishes a three-tier fair value hierarchy that prioritizes the inputs used in measuring fair value as follows:

o Level 1 : Inputs are based upon unadjusted quoted prices for identical instruments traded in active markets;

o Level 2 : Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and; and

o Level 3 : Inputs are generally unobservable and typically reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability. The fair values are therefore determined using model-based techniques, including option pricing models and discounted cash flow models.

Fair value estimates are made at a specific point in time based on relevant market information about the financial instrument. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. Changes in assumptions could significantly affect the estimates.

· Recent accounting pronouncements

The Company has reviewed all recently issued, but not yet effective, accounting pronouncements and does 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.

XML

Note 6 - Income Taxes (Detail) (USD $)	9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Dec. 31, 2011
PRC Unified Statutory Income Tax Rate	25.00%	25.00%
Operating Loss Carryforwards	$ 1,484,352
Deferred Tax Assets, Gross	1,133,532		1,137,719
Valuation Allowance, Deferred Tax Asset, Change in Amount	$ (4,187)

XML

Note 5 - Other Payables and Accrued Liabilities (Detail) - Other payables and accrued liabilities (USD $)	Sep. 30, 2012	Dec. 31, 2011
Business tax payable	$ 17,842	$ 22,076
Government levy payable	11,916	2,698
Value-added tax payable	13,432	6,568
Salaries and welfare payable	80,854	91,362
Advances from employees	6,301	21,268
Payable on equipment purchase		1,259,386
Advances from customers	553	38,726
Accrued operating expenses	29,349	67,251
	$ 160,247	$ 1,509,335

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Note 6 - Income Taxes (Detail) - US and foreign components of income before income taxes (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
– Foreign			$ 1,585,714	$ 2,207,739
Income before income taxes	$ 432,487	$ 833,313	$ 1,585,714	$ 2,207,739

XML

Note 6 - Income Taxes (Detail) - Provision for income taxes (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
– Foreign			$ 363,614	$ 468,457
Income tax expense	$ 94,587	$ 181,709	$ 363,614	$ 468,457

XML

Note 2 - Organization and Business Background

9 Months Ended

Sep. 30, 2012

Business Description and Basis of Presentation [Text Block]

NOTE－2         ORGANIZATION AND BUSINESS BACKGROUND

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

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

GFRP and its subsidiaries are hereinafter referred to as (the “Company”).

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Note 6 - Income Taxes (Detail) - Reconciliation of income tax rate to effective income tax rate (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Income before income taxes from PRC operation			$ 1,585,714	$ 2,207,739
Statutory income tax rate			25.00%	25.00%
Income tax expense at statutory rate			396,429	551,934
Net operating loss not recognized as deferred tax assets			1,317	1,350
Non-deductible expenses			(19,671)	(56,038)
Recovery from doubtful accounts not recognized as deferred taxes			(14,461)	(28,789)
Income tax expense	$ 94,587	$ 181,709	$ 363,614	$ 468,457

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Condensed Consolidated Balance Sheets (Current Period Unaudited) (USD $)	Sep. 30, 2012	Dec. 31, 2011
Current assets:
Cash and cash equivalents	$ 853,694	$ 460,883
Accounts receivable, net	726,240	532,167
Inventories, net	17,318	31,067
Prepayments and other current assets	78,780	61,272
Operating lease prepaid, current portion	7,828	7,806
Total current assets	1,683,860	1,093,195
Property, plant and equipment, net	10,303,798	11,097,390
Operating lease prepaid, non-current portion	133,409	138,879
TOTAL ASSETS	12,121,067	12,329,464
Current liabilities:
Accounts payable	44,603	44,370
Amount due to stockholders	532,423	521,790
Income tax payable	91,568	202,473
Other payables and accrued liabilities	160,247	1,509,335
Total current liabilities	828,841	2,277,968
Long-term liabilities:
Loss in excess of investment in an unconsolidated affiliate	844,101	844,709
TOTAL LIABILITIES	1,672,942	3,122,677
Commitments and contingencies
GFR Pharmaceuticals, Inc. stockholders’ equity:
Common stock, $0.001 par value; 100,000,000 shares authorized; 42,079,940 shares issued and outstanding as of September 30, 2012 and December 31, 2011	42,080	42,080
Additional paid-in capital	3,712,120	3,712,120
Accumulated other comprehensive income	521,104	501,866
Statutory reserve	1,002,635	1,002,635
Retained earnings	4,419,780	3,258,589
Total GFR Pharmaceuticals, Inc. stockholders’ equity	9,697,719	8,517,290
Non-controlling interest	750,406	689,497
Total equity	10,448,125	9,206,787
TOTAL LIABILITIES AND EQUITY	$ 12,121,067	$ 12,329,464

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Condensed Consolidated Statement of Stockholders' Equity (Unaudited) (USD $)	Common Stock [Member]	Additional Paid-in Capital [Member]	Accumulated Other Comprehensive Income (Loss) [Member]	Retained Earnings, Appropriated [Member]	Retained Earnings, Unappropriated [Member]	Noncontrolling Interest [Member]	Total
Balance at Dec. 31, 2011	$ 42,080	$ 3,712,120	$ 501,866	$ 1,002,635	$ 3,258,589	$ 689,497	$ 9,206,787
Balance (in Shares) at Dec. 31, 2011	42,079,940						42,079,940
Foreign currency translation adjustment			19,238				19,238
Net income for the period					1,161,191	60,909	1,222,100
Balance at Sep. 30, 2012	$ 42,080	$ 3,712,120	$ 521,104	$ 1,002,635	$ 4,419,780	$ 750,406	$ 10,448,125
Balance (in Shares) at Sep. 30, 2012	42,079,940						42,079,940

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Note 7 - Segment Information (Detail) - Summary of financial information on reportable segments (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Operating revenue	$ 1,066,129	$ 1,172,123	$ 3,178,923	$ 3,327,978
Cost of revenue	(393,987)	(188,448)	(787,362)	(595,089)
Gross profit	672,142	983,675	2,391,561	2,732,889
Depreciation and amortization	400,862	212,273	851,330	618,210
Net income	337,900	651,604	1,222,100	1,739,282
Expenditure for long-lived assets		1,839,410	22,831	1,839,410
Medical Business [Member]
Operating revenue	815,566	989,854	2,465,957	2,652,218
Cost of revenue	(312,231)	(158,580)	(584,928)	(474,498)
Gross profit	503,335	831,274	1,881,029	2,177,720
Depreciation and amortization	331,491	153,605	642,741	453,822
Net income	310,770	577,255	1,201,418	1,457,570
Expenditure for long-lived assets		1,564,983	21,342	1,564,983
Extraction Business [Member]
Operating revenue	250,563	182,269	712,966	675,760
Cost of revenue	(81,756)	(29,868)	(202,434)	(120,591)
Gross profit	168,807	152,401	510,532	555,169
Depreciation and amortization	69,371	58,668	208,589	164,388
Net income	27,130	74,349	20,682	281,712
Expenditure for long-lived assets		$ 274,427	$ 1,489	$ 274,427

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Note 8 - Concentrations of Risk (Tables)

9 Months Ended

Sep. 30, 2012

Schedule of Revenue by Major Customers by Reporting Segments [Table Text Block]

	Three months ended September 30, 2012				September 30, 2012
	Revenues		Percentage of revenues		Trade accounts receivable
Customer A	$	815,566		68%	$	573,766
Customer B		229,316		19%		63,151
Total:	$	1,044,882		87%	$	636,917

	Nine months ended September 30, 2012			September 30, 2012
	Revenues		Percentage of revenues	Trade accounts receivable
Customer A	$	2,465,958	77%	$	573,766
Customer B		537,202	17%		63,151
Total:	$	3,003,160	94%	$	636,917

	Three months ended September 30, 2011			September 30, 2011
	Revenues		Percentage of revenues	Trade accounts receivable
Customer A	$	989,854	84%	$	1,108,345
Customer B		177,818	15%		62,482
Total:	$	1,167,672	99%	$	1,170,827

	Nine months ended September 30, 2011			September 30, 2011
	Revenues		Percentage of revenues	Trade accounts receivable
Customer A	$	2,652,218	80%	$	1,108,345
Customer B		618,187	19%		62,482
Total:	$	3,270,405	99%	$	1,170,827

Schedule of Major Vendors [Table Text Block]

	Nine months ended September 30, 2012			September 30, 2012
	Purchase		Percentage of purchases	Trade accounts payable
Vendor A	$	24,958	56%	$	-
Vendor B		6,669	15%		-
Vendor C		5,462	12%		-
Total:	$	37,089	83%	$	-

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Note 8 - Concentrations of Risk (Detail) (USD $)	3 Months Ended	9 Months Ended
	Sep. 30, 2012	Sep. 30, 2012
Number of Major Vendors	1
Purchases (in Dollars)	$ 1,326	$ 37,089

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Note 3 - Summary of Significant Accounting Policies (Detail) - Property, plant and equipment	9 Months Ended
	Sep. 30, 2012
Building [Member]
Expected useful life	20 years
Residual value	5.00%
Plant and Equipment [Member] | Minimum [Member]
Expected useful life	5 years
Plant and Equipment [Member] | Maximum [Member]
Expected useful life	13 years
Plant and Equipment [Member]
Residual value	5.00%
Vehicles [Member] | Minimum [Member]
Expected useful life	8 years
Vehicles [Member] | Maximum [Member]
Expected useful life	8 years
Vehicles [Member]
Residual value	5.00%
Furniture and Fixtures [Member]
Expected useful life	5 years
Residual value	5.00%
Leasehold Improvements [Member]
Expected useful life	5 years

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Note 1 - Basis of Presentation

9 Months Ended

Sep. 30, 2012

Organization, Consolidation and Presentation of Financial Statements Disclosure [Text Block]

NOTE－1         BASIS OF PRESENTATION

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

In the opinion of management, the consolidated balance sheet as of December 31, 2011 which has been derived from audited financial statements and these unaudited condensed consolidated financial statements reflect all normal and recurring adjustments considered necessary to state fairly the results for the periods presented. The results for the period ended September 30, 2012 are not necessarily indicative of the results to be expected for the entire fiscal year ending December 31, 2012 or for any future periods.

These unaudited condensed consolidated financial statements and notes thereto should be read in conjunction with the Management’s Discussion and the audited financial statements and notes thereto included in the Annual Report on Form 10-K for the year ended December 31, 2011.

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Condensed Consolidated Balance Sheets (Current Period Unaudited) (Parentheticals) (USD $)	Sep. 30, 2012	Dec. 31, 2011
Common stock, par value (in Dollars per share)	$ 0.001	$ 0.001
Common stock, shares authorized	100,000,000	100,000,000
Common stock, shares issued	42,079,940	42,079,940
Common stock, shares outstanding	42,079,940	42,079,940

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Accounting Policies, by Policy (Policies)

9 Months Ended

Sep. 30, 2012

Use of Estimates, Policy [Policy Text Block]

Use of estimates

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

Consolidation, Policy [Policy Text Block]

Basis of consolidation

The condensed consolidated financial statements include the financial statements of GFRP and its subsidiaries. All significant inter-company balances and transactions within the Company have been eliminated upon consolidation.

Equity Method Investments, Policy [Policy Text Block]

Equity method of accounting

Under Accounting Standards Codification (“ASC”) Topic 810 “Consolidation” (“ASC 810”), consolidation of a majority-owned subsidiary is precluded where control does not rest with the majority owner. From May 1, 2007, GFRP’s subsidiary Medicine ceased business and leased out its business license. Accordingly, GFRP deconsolidated Medicine and accounted Medicine for under the equity method of accounting.

Generally accepted accounting principles require that the investment in the investee be reported using the equity method under the provision of ASC Topic 323 “Investments - Equity Method and Joint Ventures” (“ASC 323”) when an investor corporation can exercise significant influence over the operations and financial policies of an investee corporation. When the equity method of accounting is used, the investor initially records the investment in the stock of an investee at cost. The investment account is then adjusted to recognize the investor’s share of the income or losses of the investee when it is earned by the investee. Such amounts are included when determining the net income of the investor in the period they are reported by the investee.

As a result of deconsolidation under ASC 810 and the application of the equity method under ASC 323, GFRP had a negative basis in its investment in Medicine, the Equity Investee, because the subsidiary generated significant losses and intercompany liabilities in excess of its asset balances. This negative investment, “Loss in excess of investment in Equity Investee,” is reflected as a single amount on the Company’s condensed consolidated balance sheet as $844,101 and $844,709 liability as of September 30, 2012 and December 31, 2011.

Since Medicine’s results are no longer consolidated and GFRP believes that it is not obligated to fund future operating losses at Medicine, any adjustments reflected in Medicine’s financial statements subsequent to May 1, 2007 are not expected to affect the results of operations of GFRP.

Cash and Cash Equivalents, Policy [Policy Text Block]

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.

Receivables, Policy [Policy Text Block]

Accounts receivable and allowance for doubtful accounts

Accounts receivable are recorded at the invoiced amount and do not bear interest. Management reviews the adequacy of the allowance for doubtful accounts on an ongoing basis, using historical collection trends and aging of receivables. Management also periodically evaluates individual customer’s financial condition, credit history, and the current economic conditions to make adjustments in the allowance when it is considered necessary. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. The Company does not have any off-balance-sheet credit exposure related to its customers. As of September 30, 2012 and December 31, 2011, the allowance for doubtful accounts was $494,342 and $497,292, respectively.

Inventory, Policy [Policy Text Block]

Inventories

Inventories are stated at the lower of cost or market value (net realizable value), cost being determined on a weighted average method. Costs include material, labor and manufacturing overhead costs. The Company quarterly reviews historical sales activity to determine excess, slow moving items and potentially obsolete items and also evaluates the impact of any anticipated changes in future demand. The Company provides inventory allowances based on excess and obsolete inventories determined principally by customer demand. As of September 30, 2012 and December 31, 2011, the inventory allowance was $584,331 and $637,299, respectively.

Property, Plant and Equipment, Policy [Policy Text Block]

Property, plant and equipment

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

Lease, Policy [Policy Text Block]

Operating lease prepaid

All lands in the PRC are owned by the PRC government. The government in the PRC, according to the relevant PRC law, may grant the right to use the land for a specified period of time. Thus, all of the Company’s lands in the PRC are considered operating lease prepaid. Operating lease prepaid is amortized on a straight-line basis over the lease term of 50 years.

The lease expense on prepaid operating lease for the three months ended September 30, 2012 and 2011 was $1,957 and $1,930, respectively.

The lease expense on prepaid operating lease for the nine months ended September 30, 2012 and 2011 was $5,877 and $5,716, respectively.

Impairment or Disposal of Long-Lived Assets, Including Intangible Assets, Policy [Policy Text Block]

Impairment of long-lived assets

In accordance with the provisions of the provision of ASC Topic 360-10-5, “Impairment or Disposal of Long-Lived Assets”, all long-lived assets such as property, plant and equipment and intangible assets 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 charge for the periods presented.

Revenue Recognition, Policy [Policy Text Block]

Revenue recognition

In accordance with the ASC Topic 605, “Revenue Recognition”, the Company recognizes revenue when persuasive evidence of an arrangement exists, transfer of title has occurred or services have been rendered, the selling price is fixed or determinable and collectibility is reasonably assured.

Revenue Recognition, Sales of Services [Policy Text Block]

Service revenue

Pursuant to the agreements entered into between the Company and Tang Du Hospital (“the 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 center.

The Company records the revenue, net of business tax, from the customers through the Hospital, on a net basis in compliance with ASC Topic 605-45, “Principal Agent Considerations.”

Revenue Recognition, Sales of Goods [Policy Text Block]

Sale of products

The Company recognizes revenue from the sale and trading of pharmaceutical products upon delivery to the customers, whereas the title and risk of loss are fully transferred to the customers. The Company records its revenues, net of value added taxes (“VAT”) under the PRC tax law which is levied on the majority of the products at the rate of 17% on the invoiced value of sales. The Company experienced no product returns and has recorded no reserve for sales returns for the three and nine months ended September 30, 2012 and 2011.

Revenue Recognition, Interest [Policy Text Block]

Interest income

Interest income is recognized on a time apportionment basis, taking into account the principal amounts outstanding and the interest rates applicable.

Income Tax, Policy [Policy Text Block]

Income taxes

Income taxes is determined in accordance with the provisions of ASC Topic 740, “Income Taxes” (“ASC 740”). Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted income tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Any effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

ASC 740 prescribes a comprehensive model for how companies should recognize, measure, present, and disclose in their financial statements uncertain tax positions taken or expected to be taken on a tax return. Under ASC 740, tax positions must initially be recognized in the financial statements when it is more likely than not the position will be sustained upon examination by the tax authorities. Such tax positions must initially and subsequently be measured as the largest amount of tax benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with the tax authority assuming full knowledge of the position and relevant facts.

For the three and nine months ended September 30, 2012 and 2011, the Company did not have any interest and penalties associated with tax positions. As of September 30, 2012, the Company did not have any significant unrecognized uncertain tax positions.

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.

Earnings Per Share, Policy [Policy Text Block]

Net income per share

The Company calculates net income per share in accordance with ASC Topic 260, “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, Policy [Policy Text Block]

Comprehensive income

ASC Topic 220, “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 a period from non-owner sources. Accumulated other comprehensive income, as presented in the accompanying condensed consolidated statement of stockholders’ equity, consists of changes in unrealized gains and losses on foreign currency translation. This comprehensive income is not included in the computation of income tax expense or benefit.

Foreign Currency Transactions and Translations Policy [Policy Text Block]

Foreign currencies translation

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

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

In general, for consolidation purposes, assets and liabilities of its subsidiaries whose functional currency is not the US$ are translated into US$, in accordance with ASC Topic 830-30, “Translation of Financial Statement”, 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.

Segment Reporting, Policy [Policy Text Block]

Segment reporting

ASC Topic 280, “Segment Reporting” 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 financial statements. For the three and nine months ended September 30, 2012 and 2011, the Company operates in two reportable segments: Medical Business and Extraction Business in PRC.

Fair Value of Financial Instruments, Policy [Policy Text Block]

Fair value of financial instruments

The carrying value of the Company’s financial instruments include cash and cash equivalents, accounts receivable, prepayments and other current assets, accounts payable, amount due to a related party, income tax payable, other payables and accrued liabilities. Fair values were assumed to approximate carrying values for these financial instruments because they are short term in nature and their carrying amounts approximate fair values.

The Company also follows the guidance of ASC Topic 820-10, “Fair Value Measurements and Disclosures ” ("ASC 820-10"), with respect to financial assets and liabilities that are measured at fair value. ASC 820-10 establishes a three-tier fair value hierarchy that prioritizes the inputs used in measuring fair value as follows:

o Level 1 : Inputs are based upon unadjusted quoted prices for identical instruments traded in active markets;

o Level 2 : Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and; and

o Level 3 : Inputs are generally unobservable and typically reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability. The fair values are therefore determined using model-based techniques, including option pricing models and discounted cash flow models.

Fair value estimates are made at a specific point in time based on relevant market information about the financial instrument. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. Changes in assumptions could significantly affect the estimates.

New Accounting Pronouncements, Policy [Policy Text Block]

Recent accounting pronouncements

The Company has reviewed all recently issued, but not yet effective, accounting pronouncements and does 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.

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Document And Entity Information	9 Months Ended
	Sep. 30, 2012	Nov. 13, 2012
Document and Entity Information [Abstract]
Entity Registrant Name	GFR PHARMACEUTICALS INC
Document Type	10-Q
Current Fiscal Year End Date	--12-31
Entity Common Stock, Shares Outstanding		42,079,940
Amendment Flag	false
Entity Central Index Key	0001096294
Entity Current Reporting Status	Yes
Entity Voluntary Filers	No
Entity Filer Category	Smaller Reporting Company
Entity Well-known Seasoned Issuer	No
Document Period End Date	Sep. 30, 2012
Document Fiscal Year Focus	2012
Document Fiscal Period Focus	Q3

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Note 3 - Summary of Significant Accounting Policies (Tables)

9 Months Ended

Sep. 30, 2012

Property, Plant and Equipment [Table Text Block]

	Expected useful life (in years)			Residual value
Buildings		20		5%
Plant and equipment	5	–	13	5%
Motor vehicles	8	–	8	5%
Furniture, fixture and equipment		5		5%
Leasehold improvement		5		-

Schedule of Prepaid Lease Payments for Operating Leases [Table Text Block]

Year ending September 30:
2013	$	7,828
2014		7,828
2015		7,828
2016		7,828
2017		7,828
Thereafter		102,097
Total:	$	141,237

Schedule of Comprehensive Income (Loss) [Table Text Block]

	Three months ended September 30,
	2012			2011
Net income	$	321,420		$	622,742
Other comprehensive (loss) income:
- Foreign currency translation (loss) gain		(18,183	)		49,158
Comprehensive income	$	303,237		$	671,900

	Nine months ended September 30,
	2012		2011
Net income	$	1,161,191	$	1,666,404
Other comprehensive income:
- Foreign currency translation gain		19,238		152,856
Comprehensive income	$	1,180,429	$	1,819,260

Schedule of Foreign Currency Translation Rate [Table Text Block]

	September 30, 2012		September 30, 2011
Period-end RMB:US$1 exchange rate		6.3340		6.4018
Period-average RMB:US$1 exchange rate		6.3275		6.5060

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Condensed Consolidated Statements of Operations and Comprehensive Income (Unaudited) (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Revenue, net:
Service revenue	$ 994,523	$ 1,167,673	$ 3,003,160	$ 3,270,406
Product sales	71,606	4,450	175,763	57,572
Total revenues, net	1,066,129	1,172,123	3,178,923	3,327,978
Cost of revenue: (inclusive of depreciation)
Cost of service	(337,546)	(183,930)	(660,602)	(547,886)
Cost of products	(56,441)	(4,518)	(126,760)	(47,203)
Total cost of revenue	(393,987)	(188,448)	(787,362)	(595,089)
Gross profit	672,142	983,675	2,391,561	2,732,889
Operating expenses:
Depreciation and amortization	(62,596)	(59,630)	(202,854)	(166,412)
Recovery from uncollectible accounts	98	42,947	4,878	161,881
General and administrative	(177,651)	(134,016)	(609,155)	(521,674)
Total operating expenses	(240,149)	(150,699)	(807,131)	(526,205)
Income from operations	431,993	832,976	1,584,430	2,206,684
Other income:
Interest income	494	337	1,284	1,055
Total other income	494	337	1,284	1,055
Income before income taxes	432,487	833,313	1,585,714	2,207,739
Income tax expense	(94,587)	(181,709)	(363,614)	(468,457)
Net income	337,900	651,604	1,222,100	1,739,282
Less: net income attributable to non-controlling interest	(16,480)	(28,862)	(60,909)	(72,878)
Net income attributable to GFR Pharmaceuticals, Inc.	$ 321,420	$ 622,742	$ 1,161,191	$ 1,666,404
Net income per share – Basic and diluted (in Dollars per share)	$ 0.01	$ 0.01	$ 0.03	$ 0.04
Weighted average common shares outstanding – Basic and diluted (in Shares)	42,079,940	42,079,940	42,079,940	42,079,940

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Note 6 - Income Taxes

9 Months Ended

Sep. 30, 2012

Income Tax Disclosure [Text Block]

NOTE－6         INCOME TAXES

For the nine months ended September 30, 2012 and 2011, the local (“United States of America”) and foreign components of income before income taxes were comprised of the following:

	Nine months ended September 30,
	2012		2011
Tax jurisdiction from:
– Local	$	-	$	-
– Foreign		1,585,714		2,207,739
Income before income taxes	$	1,585,714	$	2,207,739

The provision for income taxes consisted of the following:

	Nine months ended September 30,
	2012		2011
Current:
– Local	$	-	$	-
– Foreign		363,614		468,457
Deferred:
– Local		-		-
– Foreign		-		-
Income tax expense	$	363,614	$	468,457

The effective tax rate in the years presented is the result of the mix of income earned in various tax jurisdictions that apply a broad range of income tax rates. The Company has a subsidiary and VIE that operate in various countries: United States and the PRC that are subject to tax in the jurisdictions in which they operate, as follows:

United States of America

GFRP is registered in the State of Nevada and is subject to the tax laws of the United States of America. The Company has no operation in the United States of America.

The PRC

Under the Corporate Income Tax Law of the People’s Republic of China, the Company’s subsidiaries in the PRC are subject to the unified statutory income tax rate of 25%. The reconciliation of income tax rate to the effective income tax rate for the nine months ended September 30, 2012 and 2011 is as follows:

	Nine months ended September 30,
	2012			2011
Income before income taxes from PRC operation	$	1,585,714		$	2,207,739
Statutory income tax rate		25	%		25	%
Income tax expense at statutory rate		396,429			551,934
Net operating loss not recognized as deferred tax assets		1,317			1,350
Non-deductible expenses		(19,671	)		(56,038	)
Recovery from doubtful accounts not recognized as deferred taxes		(14,461	)		(28,789	)
Income tax expense	$	363,614		$	468,457

The following table sets forth the significant components of the aggregate net deferred tax assets of the Company as of September 30, 2012 and December 31, 2011:

	September 30, 2012			December 31, 2011
Deferred tax assets:
Net operating loss carryforwards	$	371,089		$	376,258
Allowance for doubtful accounts		762,443			761,461
Total deferred tax assets		1,133,532			1,137,719
Less: valuation allowance		(1,133,532	)		(1,137,719	)
Deferred tax assets	$	-		$	-

As of September 30, 2012, the Company incurred $1,484,352 of aggregate cumulative operating losses carryforwards available to offset its taxable income for PRC income tax purposes. The Company has provided for a full valuation allowance against the deferred tax assets of $1,133,532 on the expected future tax benefits from the net operating loss carryforwards and allowance for doubtful accounts as the management believes it is more likely than not that these assets will not be realized in the future. For the nine months ended September 30, 2012, the valuation allowance decreased by $4,187, primarily relating to the recovery from allowance for doubtful accounts.

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Note 5 - Other Payables and Accrued Liabilities

9 Months Ended

Sep. 30, 2012

Accounts Payable, Accrued Liabilities, and Other Liabilities Disclosure, Current [Text Block]

NOTE－5         OTHER PAYABLES AND ACCRUED LIABILITIES

Other payables and accrued liabilities consisted of the following:

	September 30, 2012		December 31, 2011
Business tax payable	$	17,842	$	22,076
Government levy payable		11,916		2,698
Value-added tax payable		13,432		6,568
Salaries and welfare payable		80,854		91,362
Advances from employees		6,301		21,268
Payable on equipment purchase		-		1,259,386
Advances from customers		553		38,726
Accrued operating expenses		29,349		67,251
	$	160,247	$	1,509,335

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Note 3 - Summary of Significant Accounting Policies (Detail) (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011	Dec. 31, 2011
Equity Method Investments (in Dollars)	$ (844,101)		$ (844,101)		$ (844,709)
Allowance for Doubtful Accounts Receivable, Current (in Dollars)	494,342		494,342		497,292
Inventory Valuation Reserves (in Dollars)	584,331		584,331		637,299
Cost of Goods Sold, Depreciation and Amortization (in Dollars)	330,954	185,286	641,163	451,796
Finite-Lived Intangible Asset, Useful Life			50 years
Operating Leases, Rent Expense (in Dollars)			1,707	1,660
Valued Added Taxes under PRC Tax Law			17.00%
Number of Reportable Segments	2	2	2	2
Total Depreciation Expense [Member]
Depreciation (in Dollars)	398,905	210,343	845,453	612,494
Prepaid Operating Lease [Member]
Operating Leases, Rent Expense (in Dollars)	$ 1,957	$ 1,930	$ 5,877	$ 5,716

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Note 5 - Other Payables and Accrued Liabilities (Tables)

9 Months Ended

Sep. 30, 2012

Schedule of Accounts Payable and Accrued Liabilities [Table Text Block]

	September 30, 2012		December 31, 2011
Business tax payable	$	17,842	$	22,076
Government levy payable		11,916		2,698
Value-added tax payable		13,432		6,568
Salaries and welfare payable		80,854		91,362
Advances from employees		6,301		21,268
Payable on equipment purchase		-		1,259,386
Advances from customers		553		38,726
Accrued operating expenses		29,349		67,251
	$	160,247	$	1,509,335

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Note 9 - Commitments and Contingencies

9 Months Ended

Sep. 30, 2012

Commitments and Contingencies Disclosure [Text Block]

NOTE－9         COMMITMENTS AND CONTINGENCIES

The Company is committed to office space under a non-cancelable operating lease agreement with a term of 2 years with fixed monthly rentals, expiring in September 2013. Total rent expenses for the nine months ended September 30, 2012 and 2011 were $1,707 and $1,660, respectively.

As of September 30, 2012, the Company has $1,635 of future minimum rental payments due under non-cancelable operating lease agreement in the next twelve months.

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Note 7 - Segment Information

9 Months Ended

Sep. 30, 2012

Segment Reporting Disclosure [Text Block]

NOTE－7         SEGMENT INFORMATION

The Company’s business units have been aggregated into two reportable segments, as defined by ASC Topic 280:

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

● Extraction Business – provision of extraction service and distribution of extracted ingredients for medicine manufacturing uses.

The accounting policies of the segments are the same as those described in the summary of significant accounting policies (see Note 3). The Company had no inter-segment sales for the three and nine months ended September 30, 2012 and 2011. The Company’s reportable segments are strategic business units that offer different products and services. They are managed separately based on the different technology and marketing strategies of each business unit for making internal operating decisions.

Summary of financial information concerning the Company’s reportable segments is shown in the following table for the three and nine months ended September 30, 2012 and 2011:

	Three months ended September 30, 2012
	Medical Business			Extraction Business			Total
Operating revenue	$	815,566		$	250,563		$	1,066,129
Cost of revenue		(312,231	)		(81,756	)		(393,987	)
Gross profit	$	503,335		$	168,807		$	672,142
Depreciation and amortization	$	331,491		$	69,371		$	400,862
Net income		310,770			27,130			337,900
Expenditure for long-lived assets	$	-		$	-		$	-

	Nine months ended September 30, 2012
	Medical Business			Extraction Business			Total
Operating revenue	$	2,465,957		$	712,966		$	3,178,923
Cost of revenue		(584,928	)		(202,434	)		(787,362	)
Gross profit	$	1,881,029		$	510,532		$	2,391,561
Depreciation and amortization	$	642,741		$	208,589		$	851,330
Net income		1,201,418			20,682			1,222,100
Expenditure for long-lived assets	$	21,342		$	1,489		$	22,831

	Three months ended September 30, 2011
	Medical Business			Extraction Business			Total
Operating revenue, net	$	989,854		$	182,269		$	1,172,123
Cost of revenue		(158,580	)		(29,868	)		(188,448	)
Gross profit	$	831,274		$	152,401		$	983,675
Depreciation and amortization	$	153,605		$	58,668		$	212,273
Net income		577,255			74,349			651,604
Expenditure for long-lived assets	$	1,564,983		$	274,427		$	1,839,410

	Nine months ended September 30, 2011
	Medical Business			Extraction Business			Total
Operating revenue, net	$	2,652,218		$	675,760		$	3,327,978
Cost of revenue		(474,498	)		(120,591	)		(595,089	)
Gross profit	$	2,177,720		$	555,169		$	2,732,889
Depreciation and amortization	$	453,822		$	164,388		$	618,210
Net income		1,457,570			281,712			1,739,282
Expenditure for long-lived assets	$	1,564,983		$	274,427		$	1,839,410

All long-lived assets are located in the PRC.

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Note 8 - Concentrations of Risk

9 Months Ended

Sep. 30, 2012

Concentration Risk Disclosure [Text Block]

NOTE－8         CONCENTRATIONS OF RISK

The Company is exposed to the following concentrations of risk:

(a)  Major customers

For the three and nine months ended September 30, 2012 and 2011, the customer who accounted for 10% or more of revenues of the Company is presented as follows:

	Three months ended September 30, 2012				September 30, 2012
	Revenues		Percentage of revenues		Trade accounts receivable
Customer A	$	815,566		68%	$	573,766
Customer B		229,316		19%		63,151
Total:	$	1,044,882		87%	$	636,917

	Nine months ended September 30, 2012			September 30, 2012
	Revenues		Percentage of revenues	Trade accounts receivable
Customer A	$	2,465,958	77%	$	573,766
Customer B		537,202	17%		63,151
Total:	$	3,003,160	94%	$	636,917

	Three months ended September 30, 2011			September 30, 2011
	Revenues		Percentage of revenues	Trade accounts receivable
Customer A	$	989,854	84%	$	1,108,345
Customer B		177,818	15%		62,482
Total:	$	1,167,672	99%	$	1,170,827

	Nine months ended September 30, 2011			September 30, 2011
	Revenues		Percentage of revenues	Trade accounts receivable
Customer A	$	2,652,218	80%	$	1,108,345
Customer B		618,187	19%		62,482
Total:	$	3,270,405	99%	$	1,170,827

All customers are located in the PRC.

(b) Major vendors

For the three months ended September 30, 2012, there was one vendor who represented more than 10% of the Company’s purchases amounting to $1,326.

For the nine months ended September 30, 2012, the vendors who accounted for 10% or more of purchases of the Company are presented as follows:

	Nine months ended September 30, 2012			September 30, 2012
	Purchase		Percentage of purchases	Trade accounts payable
Vendor A	$	24,958	56%	$	-
Vendor B		6,669	15%		-
Vendor C		5,462	12%		-
Total:	$	37,089	83%	$	-

For the three and nine months ended September 30, 2011, there were no single vendors who represented more than 10% of the Company’s purchases.

All venders are located in the PRC.

(c) Credit risk

Financial instruments that are potentially subject to credit risk consist principally of trade accounts receivables. The Company believes the concentration of credit risk in its trade receivables is substantially mitigated by its ongoing credit evaluation process and relatively short collection terms. The Company does not generally require collateral from customers. The Company evaluates the need for an allowance for doubtful accounts based upon factors surrounding the credit risk of specific customers, historical trends and other information.

(d) Exchange rate risk

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

(e) Economic and political risks

The Company's operations are conducted in the PRC. Accordingly, the Company's business, financial condition and results of operations may be influenced by the political, economic and legal environment in the PRC, and by the general state of the PRC economy.

The Company's operations in the PRC are subject to special considerations and significant risks not typically associated with companies in North America and Western Europe. These include risks associated with, among others, the political, economic and legal environment and foreign currency exchange. The Company's results may be adversely affected by changes in the political and social conditions in the PRC, and by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion, remittances abroad, and rates and methods of taxation.

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Note 10 - Subsequent Events

9 Months Ended

Sep. 30, 2012

Subsequent Events [Text Block]

NOTE－10       SUBSEQUENT EVENTS

The Company evaluated subsequent events through the date the financial statements were issued and filed with this Form 10-Q. There were no subsequent events that required recognition or disclosure.

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Note 7 - Segment Information (Detail)	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Number of Reportable Segments	2	2	2	2

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Note 7 - Segment Information (Tables)

9 Months Ended

Sep. 30, 2012

Schedule of Segment Reporting Information, by Segment [Table Text Block]

	Three months ended September 30, 2012
	Medical Business			Extraction Business			Total
Operating revenue	$	815,566		$	250,563		$	1,066,129
Cost of revenue		(312,231	)		(81,756	)		(393,987	)
Gross profit	$	503,335		$	168,807		$	672,142
Depreciation and amortization	$	331,491		$	69,371		$	400,862
Net income		310,770			27,130			337,900
Expenditure for long-lived assets	$	-		$	-		$	-

	Nine months ended September 30, 2012
	Medical Business			Extraction Business			Total
Operating revenue	$	2,465,957		$	712,966		$	3,178,923
Cost of revenue		(584,928	)		(202,434	)		(787,362	)
Gross profit	$	1,881,029		$	510,532		$	2,391,561
Depreciation and amortization	$	642,741		$	208,589		$	851,330
Net income		1,201,418			20,682			1,222,100
Expenditure for long-lived assets	$	21,342		$	1,489		$	22,831

	Three months ended September 30, 2011
	Medical Business			Extraction Business			Total
Operating revenue, net	$	989,854		$	182,269		$	1,172,123
Cost of revenue		(158,580	)		(29,868	)		(188,448	)
Gross profit	$	831,274		$	152,401		$	983,675
Depreciation and amortization	$	153,605		$	58,668		$	212,273
Net income		577,255			74,349			651,604
Expenditure for long-lived assets	$	1,564,983		$	274,427		$	1,839,410

	Nine months ended September 30, 2011
	Medical Business			Extraction Business			Total
Operating revenue, net	$	2,652,218		$	675,760		$	3,327,978
Cost of revenue		(474,498	)		(120,591	)		(595,089	)
Gross profit	$	2,177,720		$	555,169		$	2,732,889
Depreciation and amortization	$	453,822		$	164,388		$	618,210
Net income		1,457,570			281,712			1,739,282
Expenditure for long-lived assets	$	1,564,983		$	274,427		$	1,839,410

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Note 3 - Summary of Significant Accounting Policies (Detail) - Comprehensive Income (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Net income	$ 321,420	$ 622,742	$ 1,161,191	$ 1,666,404
- Foreign currency translation (loss) gain	(18,183)	49,158	19,238	152,856
Comprehensive income	$ 303,237	$ 671,900	$ 1,180,429	$ 1,819,260

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Condensed Consolidated Statements of Cash Flows (Unaudited) (USD $)	9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011
Cash flows from operating activities:
Net income attributable to GFR Pharmaceuticals, Inc.	$ 1,161,191	$ 1,666,404
Net income attributable to non-controlling interest	60,909	72,878
Consolidated net income	1,222,100	1,739,282
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization	851,330	618,210
Recovery from doubtful accounts	(317)	(161,881)
Recovery from allowance for obsolete stock	(52,968)	(7,039)
Loss on disposal of property, plant and equipment	2,306
Change in operating assets and liabilities:
Accounts receivable	(1,478,407)	(1,382,510)
Inventories	66,821	(44,329)
Prepayments and other current assets	(17,033)	(168,869)
Accounts payable	105	55,506
Income tax payable	(111,112)	(13,668)
Other payables and accrued liabilities	(91,010)	(163,206)
Net cash provided by operating activities	391,815	471,496
Cash flows from investing activities:
Purchase of plant and equipment	(1,489)	(302,370)
Proceeds from disposal of property, plant and equipment	1,581
Net cash provided by (used in) investing activities	92	(302,370)
Cash flows from financing activities:
Repayment to a related party		(33,685)
Net cash used in financing activities		(33,685)
Effect on exchange rate change on cash and cash equivalents	904	11,867
NET CHANGE IN CASH AND CASH EQUIVALENTS	392,811	147,308
CASH AND CASH EQUIVALENT, BEGINNING OF PERIOD	460,883	300,716
CASH AND CASH EQUIVALENT, END OF PERIOD	853,694	448,024
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for income taxes	268,944	286,528
Cash paid for interest	0	0
NON-CASH INVESTING AND FINANCING TRANSACTIONS:
Purchase of plant and equipment	21,342
Deposit on equipment purchase		$ 1,537,040

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Note 4 - Amount Due to a Related Party

9 Months Ended

Sep. 30, 2012

Related Party Transactions Disclosure [Text Block]

NOTE－4         AMOUNT DUE TO A RELATED PARTY

As of September 30, 2012, amount due to a stockholder, Mr. Lian Guo represented temporary advances to the Company, which was unsecured, interest-free and repayable on demand.

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Note 3 - Summary of Significant Accounting Policies (Detail) - Translation of amounts from RMB into US$1 has been made at the following exchange rates	Sep. 30, 2012	Sep. 30, 2011
Period-end [Member]
Currency exchange rate	6.3340	6.4018
Period-average [Member]
Currency exchange rate	6.3275	6.5060

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Note 8 - Concentrations of Risk (Detail) - Vendors who accounted for 10% or more of purchases (USD $)	3 Months Ended	9 Months Ended
	Sep. 30, 2012	Sep. 30, 2012
Purchase (in Dollars)	$ 1,326	$ 37,089
Percentage of purchases		83.00%
Vendor A [Member]
Purchase (in Dollars)		24,958
Percentage of purchases		56.00%
Vendor B [Member]
Purchase (in Dollars)		6,669
Percentage of purchases		15.00%
Vendor C [Member]
Purchase (in Dollars)		$ 5,462
Percentage of purchases		12.00%

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Note 6 - Income Taxes (Tables)

9 Months Ended

Sep. 30, 2012

Schedule of Income before Income Tax, Domestic and Foreign [Table Text Block]

	Nine months ended September 30,
	2012		2011
Tax jurisdiction from:
– Local	$	-	$	-
– Foreign		1,585,714		2,207,739
Income before income taxes	$	1,585,714	$	2,207,739

Schedule of Components of Income Tax Expense (Benefit) [Table Text Block]

	Nine months ended September 30,
	2012		2011
Current:
– Local	$	-	$	-
– Foreign		363,614		468,457
Deferred:
– Local		-		-
– Foreign		-		-
Income tax expense	$	363,614	$	468,457

Schedule of Effective Income Tax Rate Reconciliation [Table Text Block]

	Nine months ended September 30,
	2012			2011
Income before income taxes from PRC operation	$	1,585,714		$	2,207,739
Statutory income tax rate		25	%		25	%
Income tax expense at statutory rate		396,429			551,934
Net operating loss not recognized as deferred tax assets		1,317			1,350
Non-deductible expenses		(19,671	)		(56,038	)
Recovery from doubtful accounts not recognized as deferred taxes		(14,461	)		(28,789	)
Income tax expense	$	363,614		$	468,457

Schedule of Deferred Tax Assets and Liabilities [Table Text Block]

	September 30, 2012			December 31, 2011
Deferred tax assets:
Net operating loss carryforwards	$	371,089		$	376,258
Allowance for doubtful accounts		762,443			761,461
Total deferred tax assets		1,133,532			1,137,719
Less: valuation allowance		(1,133,532	)		(1,137,719	)
Deferred tax assets	$	-		$	-