UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
D.C. 20549





FORM
10-Q





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





For
the quarterly period ended September 30, 2009





o
              TRANSITION
      REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE
  ACT





For the
transition period from ____________ to __________




Commission
file number:000-32253




HUIFENG
BIO-PHARMACEUTICAL TECHNOLOGY, INC.


(Exact
name of registrant as specified in its charter)





Nevada
              87-0650264(State
      or Other Jurisdiction of
              (I.R.S.
      Employer ofIncorporation
      or Organization)
              Identification
      No.)




16B/F
Ruixin Bldg., No. 25 Gaoxin Road


Xi’an
710075 Shaanxi Province, China


(Address
of Principal Executive Offices Including Zip Code)




86-29-8822
4682


(Registrant
's telephone number, including area code)





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 Exchange Act during the past 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days.


Yes  x No  o





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).  Yeso  Noo





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
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act. (Check one):





Large
      accelerated filer  o
              Accelerated
      filer  oNon-accelerated
      filer  o
              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





Number of
shares of Common Stock outstanding as of September 30, 2009, was 22,341,169
shares of common stock, par value $0.018.








HUIFENG
BIO-PHARMACEUTICAL TECHNOLOGY, INC.





INDEX




PART
      I.
                  FINANCIAL
      INFORMATION
                  
                  2Item
      1.
                  Financial
      Statements
                  
                  2Condensed
      Consolidated Balance Sheets as of September 30, 2009 (unaudited) and
      December 31, 2008 (audited)
                  
                  2Unaudited
      Condensed Consolidated Statements of Operations and Other Comprehensive
      Income for the Three and Nine Months Ended September 30, 2009 and
      2008
                  
                  3Unaudited
      Condensed Consolidated Statements of Cash Flows for the Nine Months Ended
      September 30, 2009 and 2008
                  
                  4Notes
      to Unaudited Condensed Consolidated Financial Statements as of September
      30, 2009
                  
                  5Item
      2.
                  Management's
      Discussion and Analysis of Financial Condition and Results of
      Operations
                  
                  12Item
      3.
                  Quantitative
      and Qualitative Disclosures About Market Risk
                  
                  15Item
      4T.
                  Controls
      and Procedures
                  
                  15PART
      II.
                  OTHER
      INFORMATION
                  
                  16Item
      1.
                  Legal
      Proceedings
                  
                  16Item
      1A.
                  Risk
      Factors
                  
                  16Item
      2.
                  Unregistered
      Sales of Equity Securities and Use of Proceeds
                  
                  16Item
      3.
                  Defaults
      Upon Senior Securities
                  
                  16Item
      4.
                  Submission
      of Matters to a Vote of Security Holders
                  
                  16Item
      5.
                  Other
      Information
                  
                  16Item
      6.
                  Exhibits
                  
                  16SIGNATURES
                  
                  17










SPECIAL
NOTE REGARDING FORWARD—LOOKING STATEMENTS




On one or
more occasions, we may make forward-looking statements in this Quarterly Report
on Form 10-Q regarding our assumptions, projections, expectations, targets,
intentions or beliefs about future events. Words or phrases such as
“anticipates,” “may,” “will,” “should,” “believes,” “estimates,” “expects,”
“intends,” “plans,” “predicts,” “projects,” “targets,” “will likely result,”
“will continue” or similar expressions identify forward-looking statements.
Readers are cautioned that these forward-looking statements are only predictions
and are subject to risks, uncertainties, and assumptions that are difficult to
predict, including those identified below, under “Part II—Other Information, Item 1A. Risk
Factors  ” and elsewhere herein. Therefore, actual results may
differ materially and adversely from those expressed in any forward-looking
statements. We undertake no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise. However, your attention is directed to any further
disclosures made on related subjects in our subsequent annual and periodic
reports filed with the Securities and Exchange Commission on Forms 10-K, 10-Q
and 8-K and Proxy Statements on Schedule 14A.




Unless
the context requires otherwise, references to “we,” “us,” “our,” the “Company”
and “the Company” refer specifically to Huifeng Bio-Pharmaceutical Technology,
Inc. and our subsidiaries.


1


PART
I. FINANCIAL INFORMATION


Item
1. Financial Statements




HUIFENG
BIO-PHARMACEUTICAL TECHNOLOGY, INC


AND
SUBSIDIARIES (“HFGB”)


CONDENSED
CONSOLIDATED BALANCE SHEETS





September 30, 2009
                  (Unaudited)
                
                
                December 31,
                  2008 (Audited)ASSETSCURRENT
      ASSETSCash
      and cash equivalents
                
                $
                284,886
                
                
                $
                44,898Accounts
      receivable, net
                
                
                3,818,236
                
                
                
                2,877,868Inventories,
      net
                
                
                6,224,705
                
                
                
                4,740,230Other
      assets
                
                
                436,379
                
                
                
                328,996Assets
      related to discontinued operations, held for sale
                
                
                -
                
                
                
                114,577Total
      Current Assets
                
                
                10,764,206
                
                
                
                8,106,569PROPERTY
      AND EQUIPMENT, NET
                
                
                6,015,017
                
                
                
                5,833,557LAND
      USE RIGHTS, NET
                
                
                146,429
                
                
                
                148,564TOTAL
      ASSETS
                
                $
                16,925,652
                
                
                $
                14,088,690LIABILITIES
      AND STOCKHOLDERS' EQUITYCURRENT
      LIABILITIESAccounts
      payable
                
                $
                377,868
                
                
                $
                520,280Other
      payables and accrued expenses
                
                
                767,869
                
                
                
                390,598Income
      tax and other taxes payable
                
                
                508,315
                
                
                
                538,483Notes
      payable
                
                
                545,513
                
                
                
                281,579Convertible
      notes payable (net of unamortized discount of $80,773 and due on
      December 31, 2009)
                
                
                1,919,227
                
                
                
                1,676,907Liabilities
      related to discontinued operations, held for sale
                
                
                -
                
                
                
                17,128Total
      Current Liabilities
                
                
                4,118,792
                
                
                
                3,424,975COMMITMENTS
      AND CONTINGENCIES
                
                
                -
                
                
                
                -EQUITYHFGB
      Stockholders’ EquityPreferred
      stock ($0.001 par value, 5,000,000 shares authorized, none issued and
      outstanding as of September 30, 2009 and December 31,
2008)
                
                
                -
                
                
                
                -Common
      stock ($0.018 par value, 100,000,000 shares authorized, 22,341,169 shares
      issued and outstanding as of September 30, 2009 and 18,466,169 shares
      issued and outstanding as of December 31, 2008)
                
                
                402,138
                
                
                
                332,388Additional
      paid-in capital
                
                
                8,962,111
                
                
                
                8,355,863Retained
      earnings (deficit)Unappropriated
                
                
                1,008,767
                
                
                
                (403,795
                )Appropriated
                
                
                504,780
                
                
                
                504,780Accumulated
      other comprehensive income
                
                
                1,396,877
                
                
                
                1,366,800Total
      HFGB Stockholders' Equity
                
                
                12,274,673
                
                
                
                10,156,036Non-controlling
      Interests
                
                
                532,187
                
                
                
                507,679TOTAL
      EQUITY
                
                
                12,806,860
                
                
                
                10,663,715TOTAL
      LIABILITIES AND STOCKHOLDERS' EQUITY
                
                $
                16,925,652
                
                
                $
                14,088,690




The
accompanying notes are an integral part of these consolidated financial
statements.





2




HUIFENG
BIO-PHARMACEUTICAL TECHNOLOGY, INC


AND
SUBSIDIARIES


UNAUDITED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS


AND
COMPREHENSIVE INCOME





For the Three
                
                
                For the Three
                
                
                For the Nine
                
                
                For the NineMonths Ended
                
                
                Months Ended
                
                
                Months Ended
                
                
                Months EndedSeptember 30,
                  2009
                
                
                September 30,
                  2008
                
                
                September 30,
                  2009
                
                
                September 30,
                  2008NET
      SALES
                
                $
                4,465,770
                
                
                $
                3,534,623
                
                
                $
                8,883,190
                
                
                $
                8,886,065COST
      OF SALES
                
                
                (2,994,605
                )
                
                
                (2,203,839
                )
                
                
                (5,960,465
                )
                
                
                (5,716,154
                )GROSS
      PROFIT
                
                
                1,471,165
                
                
                
                1,330,784
                
                
                
                2,922,725
                
                
                
                3,169,911OPERATING
      EXPENSESSelling
      expenses and distribution expenses
                
                
                87,072
                
                
                
                56,705
                
                
                
                174,001
                
                
                
                148,603General
      and administrative expenses
                
                
                67,967
                
                
                
                261,727
                
                
                
                509,373
                
                
                
                891,488Depreciation
      and amortization
                
                
                6,334
                
                
                
                5,971
                
                
                
                19,178
                
                
                
                15,652Total
      Operating Expenses
                
                
                161,373
                
                
                
                324,403
                
                
                
                702,552
                
                
                
                1,055,743INCOME
      FROM CONTINUING OPERATIONS
                
                
                1,309,792
                
                
                
                1,006,381
                
                
                
                2,220,173
                
                
                
                2,114,168OTHER
      INCOME (EXPENSE)Interest
      income
                
                
                1,080
                
                
                
                12,026
                
                
                
                2,440
                
                
                
                16,397Interest
      expenses
                
                
                (146,750
                )
                
                
                (152,508
                )
                
                
                (436,555
                )
                
                
                (438,483
                )Other
      income
                
                
                88,383
                
                
                
                98,058
                
                
                
                139,860
                
                
                
                262,623Total
      Expenses, net
                
                
                (57,287
                )
                
                
                (42,424
                )
                
                
                (294,255
                )
                
                
                (159,463
                )INCOME
      FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
                
                
                1,252,505
                
                
                
                963,957
                
                
                
                1,925,918
                
                
                
                1,954,705INCOME
      TAX EXPENSE
                
                
                (229,988
                )
                
                
                (187,730
                )
                
                
                (414,559
                )
                
                
                (450,498
                )NET
      INCOME FROM CONTINUING OPERATIONS
                
                
                1,022,517
                
                
                
                776,227
                
                
                
                1,511,359
                
                
                
                1,504,207DISCONTINUED
      OPERATIONSLoss
      from discontinued operations, net of income taxes
                
                
                -
                
                
                
                (8,361
                )
                
                
                (16,961
                )
                
                
                (24,623
                )Loss
      from disposal of discontinued operations
                
                
                -
                
                
                
                -
                
                
                
                (34,446
                )
                
                
                -NET
      LOSS FROM DISCONTINUED OPERATIONS
                
                
                -
                
                
                
                (8,361
                )
                
                
                (51,407
                )
                
                
                (24,623
                )NET
      INCOME
                
                
                1,022,517
                
                
                
                767,866
                
                
                
                1,459,952
                
                
                
                1,479,584Less:
      net income (loss) attributable to non-controlling
interests
                
                
                (20,512
                )
                
                
                340
                
                
                
                (47,390
                )
                
                
                (13,305
                )NET
      INCOME ATTRIBUTABLE TO HFGB COMMON STOCKHOLDERS
                
                
                1,002,005
                
                
                
                768,206
                
                
                
                1,412,562
                
                
                
                1,466,279OTHER
      COMPREHENSIVE INCOMETotal
      other comprehensive income
                
                
                13,826
                
                
                
                155,136
                
                
                
                30,077
                
                
                
                729,968Less:
      foreign currency translation gain attributable to non-controlling
      interests
                
                
                (847
                )
                
                
                (1,957
                )
                
                
                (1,918
                )
                
                
                (53,994
                )Foreign
      currency translation gain attributable to HFGB common
      stockholders
                
                
                12,979
                
                
                
                153,179
                
                
                
                28,159
                
                
                
                675,974COMPREHENSIVE
      INCOME ATTRIBUTABLE TO HFGB COMMON STOCKHOLDERS
                
                $
                1,014,984
                
                
                $
                921,385
                
                
                $
                1,440,721
                
                
                $
                2,142,253Income
      per share – basicContinuing
      operations
                
                $
                0.05
                
                
                $
                0.04
                
                
                $
                0.08
                
                
                $
                0.08Discontinued
      operations
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -Net
      income per share - basic
                
                $
                0.05
                
                
                $
                0.04
                
                
                $
                0.08
                
                
                $
                0.08Income per share -
      dilutedContinuing
      operations
                
                $
                0.05
                
                
                $
                0.04
                
                
                $
                0.07
                
                
                $
                0.07Discontinued
      operations
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -Net
      income per share - diluted
                
                $
                0.05
                
                
                $
                0.04
                
                
                $
                0.07
                
                
                $
                0.07Weighted
      average number of shares outstanding during the period -
    basic
                
                
                20,354,212
                
                
                
                18,466,169
                
                
                
                19,102,432
                
                
                
                18,466,169Weighted
      average number of shares outstanding during the period -
      diluted
                
                
                22,354,212
                
                
                
                20,466,169
                
                
                
                21,102,432
                
                
                
                20,466,169





The
accompanying notes are an integral part of these consolidated financial
statements.


3





HUIFENG
BIO-PHARMACEUTICAL TECHNOLOGY INC.


AND
SUBSIDIARIES


CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS


(UNAUDITED)




For the Nine
                    Months Ended
                    September 30,
                    2009
                  
                  
                  For the
      Nine
                    Months Ended
                    September 30,
                    2008CASH
      FLOWS FROM OPERATING ACTIVITIESNet
      income continuing operations
                  
                  $
                  1,429,523
                  
                  
                  $
                  1,490,902Net
      loss from discontinued operations
                  
                  
                  (16,961
                  )
                  
                  
                  (24,623
                  )Net
      income
                  
                  
                  1,412,562
                  
                  
                  
                  1,466,279Adjusted
      to reconcile net income to cash provided by (used in)operating
      activities, including discontinued operations:Allowance
      for doubtful accounts - accounts receivable
                  
                  
                  120,466
                  
                  
                  
                  (5,713)Depreciation
      and amortization - cost of sales
                  
                  
                  447,031
                  
                  
                  
                  319,552Depreciation
      and amortization
                  
                  
                  19,178
                  
                  
                  
                  15,652Amortization
      of discount on convertible notes
                  
                  
                  115,007
                  
                  
                  
                  115,007Amortization
      of deferred financing costs
                  
                  
                  127,313
                  
                  
                  
                  127,313Stock
      option issued to a legal counsel
                  
                  
                  32,748
                  
                  
                  
                  18,195Stock
      issued to a legal counsel
                  
                  
                  37,500
                  
                  
                  
                  -Non-controlling
      interests
                  
                  
                  47,390
                  
                  
                  
                  13,305Loss
      from disposal of discontinued operations
                  
                  
                  34,446
                  
                  
                  
                  -Changes
      in operating assets and liabilities(Increase)
      decrease in:Accounts
      receivable
                  
                  
                  (1,592,376
                  )
                  
                  
                  (1,012,893
                  )Inventories
                  
                  
                  (932,711
                  )
                  
                  
                  (1,963,774
                  )Other
      assets
                  
                  
                  (106,508
                  )
                  
                  
                  774,957Increase
      (decrease) in:Accounts
      payable
                  
                  
                  40,571
                  
                  
                  
                  166,021Other
      payables and accrued expenses
                  
                  
                  381,868
                  
                  
                  
                  264,368Income
      tax and other taxes payable
                  
                  
                  (31,453
                  )
                  
                  
                  (69,883)Due
      to stockholders
                  
                  
                  -
                  
                  
                  
                  (293,137
                  )Net
      cash provided by (used in) operating activities – continuing
      operations
                  
                  
                  153,032
                  
                  
                  
                  (64.751
                  )Net
      cash provided by operating activities – discontinued
      operations
                  
                  
                  16,753
                  
                  
                  
                  24,570Net
      cash provided by (used in) operating activities
                  
                  
                  169,785
                  
                  
                  
                  (40,181
                  )CASH
      FLOWS FROM INVESTING ACTIVITIESPurchase
      of property and equipment
                  
                  
                  (209,850
                  )
                  
                  
                  (1,438,289
                  )Net
      cash inflow from acquisition of subsidiary
                  
                  
                  -
                  
                  
                  
                  127,691Net
      cash inflow on disposal of discontinued operations
                  
                  
                  15,612
                  
                  
                  
                  -Net
      cash used in investing activities – continuing operations
                  
                  
                  (194,238
                  )
                  
                  
                  (1,310,598
                  )Net
      cash provided by investing activities – discontinued
      operations
                  
                  
                  -
                  
                  
                  
                  -Net
      cash used in investing activities
                  
                  
                  (194,238
                  )
                  
                  
                  (1,310,598
                  )CASH
      FLOWS FROM FINANCING ACTIVITIESProceeds
      from note payable
                  
                  
                  263,062
                  
                  
                  
                  252,898Net
      cash provided by financing activities – continuing
    operations
                  
                  
                  263,062
                  
                  
                  
                  252,898Net
      cash provided by financing activities – discontinued
      operations
                  
                  
                  -
                  
                  
                  
                  -Net
      cash provided by financing activities
                  
                  
                  263,062
                  
                  
                  
                  252,898EFFECT
      OF EXCHANGE RATES ON CASH
                  
                  
                  703
                  
                  
                  
                  70,335NET
      INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
                  
                  
                  239,312
                  
                  
                  
                  (1,027,546
                  )CASH
      AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
                  
                  
                  45,574
                  
                  
                  
                  2,219,694CASH
      AND CASH EQUIVALENTS AT END OF PERIOD
                  
                  $
                  284,886
                  
                  
                  $
                  1,192,148SUPPLEMENTAL
      DISCLOSURE OF CASH FLOW INFORMATIONCash
      paid during the period for:Income
      taxes
                  
                  $
                  546,287
                  
                  
                  $
                  397,931Interest
      expenses
                  
                  $
                  42,013
                  
                  
                  $
                  179,497





SUPPLEMENTAL
DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:





On August
17, 2009, the Company issued 1,200,000 shares of restricted common stock
having a fair value of $184,359 to a third party for the settlement of
outstanding accounts payable.





On August
17, 2009, the Company issued 2,600,000 shares of restricted common stock having
a fair value of $421,391 to a third party for the payment of construction costs
for an office building located at Changwu County, PRC.




The
accompanying notes are an integral part of these consolidated financial
statements.


4





HUIFENG
BIO-PHARMACEUTICAL TECHNOLOGY INC. AND SUBSIDIARIES


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


AS
OF SEPTEMBER 30, 2009 (UNAUDITED)





NOTE
1 ORGANIZATION AND BASIS OF PRESENTATION





Huifeng
Bio-Pharmaceutical Technology Inc. and all of its subsidiaries (collectively
“Huifeng Bio-Pharmaceutical”) or (the “Company”) are principally engaged in the
manufacture of plant extracts and bio-chemical products in the People’s Republic
of China (“PRC”), for sale in the PRC market, Japan and some European
countries.





Huifeng
Bio-Pharmaceutical was incorporated in Nevada on March 16, 2000 under the name
Enternet, Inc. with headquarters in Xi’an City, PRC.





Details
of the Company’s principal subsidiaries as of September 30, 2009 are described
in Note 4 – Subsidiaries.





The
accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States of America for interim financial information and pursuant to the
rules and regulations of the Securities and Exchange Commission. Accordingly,
they do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements.





It the
opinion of management, the unaudited condensed consolidated financial statements
contain all adjustments consisting only of normal recurring accruals considered
necessary to present fairly the Company's consolidated financial position at
September 30, 2009 and December 31, 2008, the consolidated results of operations
for the three and nine months ended September 30, 2009 and 2008, and
consolidated cash flows for the nine months ended September 30, 2009 and 2008.
The consolidated results for the nine months ended September 30, 2009
are not necessarily indicative of the results to be expected for the entire
fiscal year ending December 31, 2009. These consolidated financial statements
should be read in conjunction with the consolidated financial statements and
notes for the year ended December 31, 2008 appearing in the Company's annual
report on Form 10-K as filed with the Securities and Exchange Commission on
March 31, 2009.


5





HUIFENG
BIO-PHARMACEUTICAL TECHNOLOGY INC. AND SUBSIDIARIES


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


AS
OF SEPTEMBER 30, 2009 (UNAUDITED)





NOTE
2 USE OF ESTIMATES





In
preparing financial statements to conform with generally accepted accounting
principles, management is required to make estimates and assumptions that affect
the reported amounts of assets and liabilities and the disclosure of contingent
assets and liabilities at the date of the financial statements and revenues and
expenses during the reported period. Actual results could differ from those
estimates.





NOTE
3 PRINCIPLES OF CONSOLIDATION





The
accompanying unaudited condensed consolidated financial statements as of
September 30, 2009 include the financial statements of Huifeng
Bio-Pharmaceutical and its 100% owned subsidiary Northwest, 100% owned
subsidiary Huifeng Bio-Technic and 80.2% owned subsidiary Huifeng
Pharmaceutical.





The
accompanying unaudited condensed consolidated financial statements as of
September 30, 2008 include the financial statements of Huifeng
Bio-Pharmaceutical and its 100% owned subsidiary Northwest, 100% owned
subsidiary Huifeng Bio-Technic, 70% subsidiary Huifeng Engineering and 80.2%
owned subsidiary Huifeng Pharmaceutical.





The
results of discontinued operations have been reported separately in the
unaudited condensed consolidated financial statements and the previously
reported financial statements have been reclassified.





All
significant inter-company balances and transactions have been eliminated in
consolidation.





NOTE
4 SUBSIDIARIES





Details
of the Company’s principal consolidated subsidiaries as of September 30, 2009
were as follows:





Name
                    
                    Place of Incorporation
                    
                    Ownershipinterest
                      attributable to the
                      Company
                    
                    Principal activitiesNorthwest
      Bio-Technic Inc.
                    
                    British
      Virgin Islands
                    
                    100%
                    
                    Investment
      holdingXi’an
      Huifeng Bio-Technic Inc.
                    
                    The
      PRC
                    
                    100%
                    
                    Manufacturing
      and sale of pharmaceutical raw materialsXi’an
      Huifeng Pharmaceutical Company Limited
                    
                    The
      PRC
                    
                    80.2%
                    
                    Manufacturing
      and sale of pharmaceutical raw materials





The
Company disposed its 70% owned subsidiary – Xi’an Huifeng Biochemistry
Engineering Company Limited (“Huifeng Engineering”) in June 2009. See Note 16 –
Discontinued Operations for further details.





NOTE
5 CASH AND CASH EQUIVALENTS





For
purposes of the cash flow statements, the Company considers all highly liquid
investments with original maturities of three months or less at the time of
purchase to be cash equivalents.





NOTE
6 STOCK-BASED COMPENSATION





In
December 2004, the Financial Accounting Standards Board (“FASB”) issued
Statement of Financial Accounting Standards (“SFAS”) No. 123R, “Share-Based
Payment”, a revision to SFAS No. 123, “Accounting for Stock-Based Compensation”,
and superseding APB Opinion No. 25, “Accounting for Stock Issued to Employees”
and its related implementation guidance. In April 2008, the Company adopted SFAS
123R, using a modified prospective application transition method, which
establishes accounting for stock-based awards in exchange for consultancy
services. Under this application, the Company is required to record stock-based
compensation expense for all awards granted after the date of adoption and
unvested awards that were outstanding as of the date of adoption. SFAS 123R
requires that stock-based compensation cost is measured at grant date, based on
the fair value of the award, and recognized in expense over the vesting
period.





Common
stock, a stock option and warrants issued to other than employees or directors
in exchange for services are recorded on the basis of their fair value, as
required by SFAS No. 123R, which is measured as of the date required by EITF
Issue 96-18, “Accounting for Equity Instruments That Are Issued to Other Than
Employees for Acquiring, or in Conjunction with Selling, Goods or
Services”. In accordance with EITF 96-18, the non-employee stock options or
warrants are measured at their fair value by using the Black-Scholes option
pricing model as of the earlier of the date at which a commitment for
performance to earn the equity instruments is reached (“performance commitment
date”) or the date at which performance is complete (“performance completion
date”). Accounting for non-employee stock options or warrants which involve only
performance conditions when no performance commitment date or performance
completion date has occurred as of reporting date requires measurement a the
equity instruments then-current fair value. Any subsequent changes in the market
value of the underlying common stock are reflected in the expense recorded in
the subsequent period in which that change occurs.


6





HUIFENG
BIO-PHARMACEUTICAL TECHNOLOGY INC. AND SUBSIDIARIES


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


AS
OF SEPTEMBER 30, 2009 (UNAUDITED)





NOTE
7 INCOME TAXES





The
Company accounts for income taxes under the Statement of Financial Accounting
Standards No. 109, “Accounting for Income Taxes” (“Statement 109”). Under
Statement 109, 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
bases. Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. Under Statement 109, the
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.





On
January 1, 2008, the Company adopted the provisions of FASB Interpretation No.
48, “Accounting for Uncertainty in Income Taxes” (“FIN 48”). FIN 48 prescribes a
more-likely-than-not threshold for financial statements recognition and
measurement of a tax position taken (or expected to be taken) in a tax
return. This Interpretation also provides guidance on derecognition of income
tax assets and liabilities, classification of current and deferred income tax
assets and liabilities, accounting for interest and penalties associated with
tax positions, accounting for interest and penalties associated with tax
positions, accounting for income taxes in interim periods and income tax
disclosures. The adoption of FIN 48 has not resulted in any material impact on
the Company’s financial position or results.





Huifeng
Bio-Pharmaceutical was incorporated in the United States.





Northwest,
a wholly owned subsidiary of the Company, was incorporated in the British Virgin
Islands and, under current laws of the British Virgin Islands, is not subject to
tax on income or on capital gains.





Huifeng
Bio-Technic, a wholly-owned subsidiary of Northwest, was incorporated in the PRC
being registered as a new and high technology enterprise is entitled to an
income tax reduction. According to the document of reductions approved by the
local tax bureau, the income tax rate was reduced from 33% to 15% on a permanent
basis. Provision for income tax expenses for the three and nine months ended
September 30, 2009 and 2008 were $187,578, $173,679, $311,603 and $393,497
respectively.





Huifeng
Engineering 70% owned subsidiary of Huifeng Bio-Technic, was incorporated in the
PRC and subject to PRC income tax which is computed according to the relevant
laws and regulations in the PRC. No provision for income tax expenses for the
three and nine months ended September 30, 2009 and 2008 as Huifeng
Engineering has incurred net operating loss and was disposed on June 28,
2009.





Huifeng
Pharmaceutical, 80.2% owned subsidiary of Huifeng Bio-Technic, was also
incorporated in the PRC and subject to PRC income tax which is computed
according to the relevant laws and regulations in the PRC. The applicable tax
rate for the nine months ended September 30, 2009 and 2008 was 25%. The
provision for income tax expenses for the three and nine months ended
September 30, 2009 and 2008 was $42,410, $14,051, $102,956 and $57,001
respectively.





NOTE
8 INCOME PER SHARE





Basic
income per share is computed by dividing income available to common stockholders
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 shares had been
issued and if the additional common shares were dilutive. Included in diluted
weighted average number of shares for the three and nine months ended September
30, 2009 and 2008 is the Company’s 10% secured convertible notes (the “Notes”)
in a face amount of $2,000,000 which are due in 2 years from their issuance and
convertible into 2,000,000 shares of common stock of the Company at a conversion
price of $1 per share.





Warrants
to purchase 500,000 shares of common stock at prices $1.50 per share was
outstanding as of September 30, 2009 and 2008 and a stock option to purchase
100,000 shares of common stock at price $1.50 per share was outstanding as of
September 30, 2009 and 2008, but were excluded from the calculation of diluted
earnings per share because the effect of these warrants and stock option was
anti-dilutive.





NOTE
9 BUSINESS SEGMENTS





The
Company operates in only one segment, thereafter segment disclosure is not
presented.


7





HUIFENG BIO-PHARMACEUTICAL TECHNOLOGY
INC. AND SUBSIDIARIES


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


AS
OF SEPTEMBER 30, 2009 (UNAUDITED)





NOTE
10 RECENT ACCOUNTING PRONOUNCEMENTS





Effective
July 1, 2009, the Company adopted the Financial Accounting Standards Board
(FASB) Accounting Standards Codification (ASC or Codification), “Generally
Accepted Accounting Principles - Overall” (ASC Topic 105-10). The Codification
established one source for all U.S. GAAP. The Codification supersedes, but does
not change, all then-existing non-SEC accounting and reporting standards.
Throughout this report, references provided to applicable portions of the
Codification also include reference to the original FASB standard (SFAS), staff
position (FSP) or consensus of the Emerging Issues Task Force
(EITF).





In
December 2008, the FASB issued Staff Position No. FAS 132(R)-1 “Employers’
Disclosures about Postretirement Benefit Plan Assets” (“FSP FAS 132(R)-1”). FSP
FAS 132(R)-1 requires more detailed disclosures about employers’ plan assets in
a defined benefit pension or other postretirement plan, including employers’
investment strategies, major categories of plan assets, concentrations of risk
within plan assets, and inputs and valuation techniques used to measure the fair
value of plan assets. FSP FAS 132(R)-1 also requires, for fair value
measurements using significant unobservable inputs (Level 3), disclosure of the
effect of the measurements on changes in plan assets for the period. The
disclosures about plan assets required by FSP FAS 132(R)-1 must be provided for
fiscal years ending after December 15, 2009. As this pronouncement is only
disclosure-related, it will not have an impact on the financial position and
results of operations.





In June
2009, the FASB issued SFAS No. 166 “Accounting for Transfers of Financial
Assets—an amendment of FASB Statement No. 140” (“SFAS 166”). SFAS 166
amends various provisions of SFAS No. 140 “Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities—a replacement
of FASB Statement No. 125” by removing the concept of a qualifying
special-purpose entity and removes the exception from applying FIN 46(R) to
variable interest entities that are qualifying special-purpose entities; limits
the circumstances in which a transferor derecognizes a portion or component of a
financial asset; defines a participating interest; requires a transferor to
recognize and initially measure at fair value all assets obtained and
liabilities incurred as a result of a transfer accounted for as a sale; and
requires enhanced disclosure; among others. SFAS 166 will be effective as of the
beginning of each reporting entity's first annual reporting period that begins
after November 15, 2009, for interim periods within that first annual reporting
period and for interim and annual reporting periods thereafter. The Company does
not expect the standard to have any impact on the Company’s financial
position.




In June
2009, the FASB issued SFAS No. 167 “Amendments to FASB Interpretation
No. 46(R)” (“SFAS 167”). SFAS 167 amends FASB Interpretation No. 46
(Revised December 2003) “Consolidation of Variable Interest Entities—an
interpretation of ARB No. 51” (FIN 46(R)) to require an enterprise to
perform an analysis to determine whether the enterprise’s variable interest or
interests give it a controlling financial interest in a variable interest
entity; to require ongoing reassessments of whether an enterprise is the primary
beneficiary of a variable interest entity; to eliminate the quantitative
approach previously required for determining the primary beneficiary of a
variable interest entity; to add an additional reconsideration event for
determining whether an entity is a variable interest entity when any changes in
facts and circumstances occur such that holders of the equity investment
at risk, as a group, lose the power from voting rights or similar rights of
those investments to direct the activities of the entity that most significantly
impact the entity’s economic performance; and to require enhanced disclosures
that will provide users of financial statements with more transparent
information about an enterprise’s involvement in a variable interest entity.
SFAS 167 will be effective as of the beginning of each reporting entity's first
annual reporting period that begins after November 15, 2009, for interim periods
within that first annual reporting period, and for interim and annual reporting
periods thereafter. The Company does not expect the standard to have any impact
on the Company’s financial position.




In August
2009, the FASB issued ASU No. 2009-05 “Measuring Liabilities at Fair Value”
(amendments to  ASC Topic 820, Fair Value Measurements and
Disclosures)” (“ASU 2009-05”)which amends Fair Value Measurements and
Disclosures – Overall (ASC Topic 820-10) to provide guidance on the fair value
measurement of liabilities. This update requires clarification for circumstances
in which a quoted price in an active market for the identical liability is not
available, a reporting entity is required to measure fair value using one or
more of the following techniques: 1) a valuation technique that uses either the
quoted price of the identical liability when traded as an asset or quoted prices
for similar liabilities or similar liabilities when traded as an asset; or 2)
another valuation technique that is consistent with the principles in ASC Topic
820 such as the income and market approach to valuation. The amendments in this
update also clarify that when estimating the fair value of a liability, a
reporting entity is not required to include a separate input or adjustment to
other inputs relating to the existence of a restriction that prevents the
transfer of the liability. This update further clarifies that if the fair value
of a liability is determined by reference to a quoted price in an active market
for an identical liability, that price would be considered a Level 1 measurement
in the fair value hierarchy. Similarly, if the identical liability has a quoted
price when traded as an asset in an active market, it is also a Level 1 fair
value measurement if no adjustments to the quoted price of the asset are
required. This update is effective for this quarter. The Company does not expect
the standard to have material impact on the Company's financial
position.





In
October 2009, the FASB issued ASU 2009-13, “Multiple-Deliverable Revenue
Arrangements, (amendments to ASC Topic 605, Revenue Recognition)” (“ASU
2009-13”). ASU 2009-13 requires entities to allocate revenue in an arrangement
using estimated selling prices of the delivered goods and services based on a
selling price hierarchy. The amendments eliminate the residual method of revenue
allocation and require revenue to be allocated using the relative selling price
method. ASU 2009-13 should be applied on a prospective basis for revenue
arrangements entered into or materially modified in fiscal years beginning on or
after June 15, 2010, with early adoption permitted. Management is currently
evaluating the potential impact of ASU2009-13 on our financial
statements.





In
October 2009, the FASB issued ASU 2009-14, “Certain Arrangements That
Include Software Elements, (amendments to ASC Topic 985, Software)” (“ASU
2009-14”). ASU 2009-14 removes tangible products from the scope of software
revenue guidance and provides guidance on determining whether software
deliverables in an arrangement that includes a tangible product are covered by
the scope of the software revenue guidance. ASU 2009-14 should be applied on a
prospective basis for revenue arrangements entered into or materially modified
in fiscal years beginning on or after June 15, 2010, with early adoption
permitted. Management is currently evaluating the potential impact of ASU
2009-14 on our financial statements.





In
October, 2009, the FASB issued ASU 2009-15, “Accounting for Own-Share Lending
Arrangements in Contemplation of Convertible Debt Issuance or Other Financing”(
amendments to ASC Topic 470, Debt)” (“ASU 2009-15”), and provides guidance for
accounting and reporting for own-share lending arrangements issued in
contemplation of a convertible debt issuance.  At the date of
issuance, a share-lending arrangement entered into on an entity’s own shares
should be measured at fair value in accordance with Topic 820 and recognized as
an issuance cost, with an offset to additional paid-in
capital.  Loaned shares are excluded from basic and diluted earnings
per share unless default of the share-lending arrangement occurs.  The
amendments also require several disclosures including a description and the
terms of the arrangement and the reason for entering into the
arrangement.  The effective dates of the amendments are dependent upon
the date the share-lending arrangement was entered into and include
retrospective application for arrangements outstanding as of the beginning of
fiscal years beginning on or after December 15,
2009.   Management is currently evaluating the potential impact
of ASU 2009-15 on our financial statements.


8





HUIFENG
BIO-PHARMACEUTICAL TECHNOLOGY INC. AND SUBSIDIARIES


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


AS
OF SEPTEMBER 30, 2009 (UNAUDITED)





NOTE
11 NOTES PAYABLE





Notes
payable as of September 30, 2009 (unaudited) and December 31, 2008 (audited)
consisted of the following:





September 30,
                          2009
                        
                        
                        December 31,
                          2008Notes
      payable to a financial institution, interest rate of10.188%
      per annum, secured by directors’ properties andthe
      company's fixed assets, guaranteed by a third party,due
      July 2009, was extended to June 2010
                        
                        $
                        253,013
                        
                        
                        $
                        281,579Note
      payable to a bank, interest rate of 6.372% per annum,guaranteed
      by a director and a third party, due May 2010
                        
                        
                        292,500
                        
                        
                        
                        -Current
      maturities
                        
                        $
                        545,513
                        
                        
                        $
                        281,579




The
interest expenses for the three and nine months ended September 30, 2009 and
2008 were $12,023, $16,961, $34,662 and $38,485 respectively.




NOTE
12 CONVERTIBLE NOTES PAYABLE





On
December 31, 2007, the Company consummated a private placement of $2,000,000
principal amount of 10% secured convertible notes (the “Notes”) with a two-year
common stock warrants to seven accredited investors. Financing cost of $339,500
was paid out of the gross proceeds. Financing cost is amortized over the life of
the Notes to interest expense using the effective interest method. For the three
and nine months ended September 30, 2009 and 2008, the Company amortized
$42,437, $42,437, $127,313 and $127,313 of financing costs in interest expenses
respectively. The Notes are due December 31, 2009 and are convertible into
2,000,000 shares of common stock of the Company at a conversion price of $1.00
per share.





The
holders of the Notes may convert the unpaid principal amount of the Notes into
common stock of the Company at any time prior to maturity, at the applicable
conversion price. After the occurrence of an Event of Default, 150% of the
principal amount then outstanding plus all interest occurred to the date of the
prepayment is payable within three days.





In
accordance with EITF 98-5, no beneficial conversion feature has been recorded on
the issuance of the Notes as the conversion price of the Notes of $1 is higher
than the fair market value per share of $0.75 at December 31,
2007.


9


HUIFENG
BIO-PHARMACEUTICAL TECHNOLOGY INC. AND SUBSIDIARIES


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


AS
OF SEPTEMBER 30, 2009 (UNAUDITED)





NOTE
12 CONVERTIBLE NOTES PAYABLE (CONTINUED)





The
Company issued warrants to the note holders in the note financing, for the
purchase of up to a total 500,000 shares of common stock at an exercise price of
$1.50. The warrants are exercisable for a period that extends three years
beginning from the date that a registration statement covering the underlying
warrant shares is declared effective.





The Notes
are secured by 300,000 shares of Northwest’s share capital pursuant to a pledge
agreement, the Company’s performance of the Notes and other obligations in
connection with the financing is also secured by a pledge of 5,272,860 shares of
common stock personally held by the current Chief Executive Officer and two
other stockholders pursuant to another pledge agreement. Upon any event of
default (as defined in the Notes and pledge agreements), the investors will be
entitled to exercise their respective rights under the pledge
agreements.





As of
September 30, 2009, the Note holders have not converted the principal amount of
their notes into shares of common stock of the Company.





The
Company recorded a discount on the Notes in accordance with EITF 98-5 of
$306,686 for the fair value of the warrants issued. The fair value of warrants
was calculated using the Black-Scholes model with the following assumptions: (i)
risk-free interest rate of 3.07%; (ii) expected life (in years) of 3; (iii)
expected volatility of 172%; (iv) expected dividend yield of 0.00%; and (v)
stock market price of $0.75. The discount on Notes is amortized using effective
interest method over 2 years. For the three and nine months ended September 30,
2009 and 2008, the Company recorded amortization of $38,337, $38,337, $115,007
and $115,007 respectively as interest expenses in the statement of
operations.





The Notes
bear a 10% annual interest rate payable in arrears with a first payment due
March 1, 2008, and thereafter on each June 1, September 1 and December 1 while
the Notes are outstanding, with a final payment of interest due on the maturity
date. For the three and nine months ended September 30, 2009 and 2008, $51,111,
$51,111, $152,222 and $152,778 respectively were recorded as interest
expenses.





NOTE
13 COMMITMENTS AND CONTINGENCIES





Operating
lease commitments





The
Company occupies an office and warehouses from third parties under operating
leases which expires on September 30, 2010 and on July 23, 2011 at a quarterly
rental of $2,850 and at an annually rental of $4,969 respectively. Accordingly,
for the three and nine months ended September 30, 2009 and 2008, the Company
recognized rental expenses for this space in the amount of $4,093, $2,214,
$12,276 and $8,010 respectively.





As of
September 30, 2009, the Company has outstanding commitments with respect to the
non-cancelable operating leases which are due as follows:





2009
                
                $
                4,0922010
                
                
                13,5182011
                
                
                2,898$
                20,508





NOTE
14 STOCKHOLDERS’ EQUITY





(A) Stock
issuances





On August
17, 2009, the Board of Directors approved the issuance of 1,200,000 shares
of restricted common stock having a fair value of $184,359 to a third party for
the settlement of outstanding accounts payable of $184,359. The value of the
common stock issued was determined based on the outstanding balance of
payable, which below the aggregated amount of $420,000 calculated by the closing
market price of $0.35 per share on August 17, 2009.





On August
17, 2009, the Company also issued 2,600,000 shares of restricted common stock
having a fair value of $421,391 to a third party for the payment of construction
costs for an office building located at Changwu County, PRC of $421,391. The
value of the common stock issued was determined based on the outstanding
balance of payable, which below the aggregated amount of $910,000 calculated by
the closing market price of $0.35 per share on August 17, 2009.





On August
26, 2009, the Company issued 75,000 shares of restricted common stock having a
fair value of $37,500 to a legal counsel for legal advisory services provided
during the year. The value of the common stock issued was determined based on
the closing market price of $0.5 per share on August 26, 2009.





Stock
options





On April
28, 2008, the Company issued options to its legal counsel to purchase up to
100,000 shares of common stock at an exercise price of $1.50 per share. The
options shall be exercisable in whole or in part, according to the vesting
schedule, shall be fully vested upon execution of the agreement and shall be
exercisable at any time pursuant to the terms of the Agreement until April 28,
2010. The fair value of the options was estimated on the grant date using the
Black-Scholes option pricing model as required by SFAS 123R with the following
assumptions and estimates: expected dividend 0%, volatility 189%, a risk-free
rate of 2.36% and an expected like of two years. The value of options recognized
during the three and nine months ended September 30, 2009 and 2008 was $10,916,
$10,916, $32,748 and $18,194 respectively.


10




HUIFENG
BIO-PHARMACEUTICAL TECHNOLOGY INC. AND SUBSIDIARIES


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


AS
OF SEPTEMBER 30, 2009 (UNAUDITED)





NOTE
15 RELATED PARTY TRANSACTIONS





The
current Chief Executive Officer and two other stockholders pledged a total of
5,272,860 shares of common stock held by them to secure the Company’s
performance of the $2,000,000 Convertible Notes issued on December 31,
2007.





NOTE
16 DISCONTINUED OPERATIONS





On June
28, 2009, Huifeng Bio-Technic entered into an agreement with a third party to
sell its 70% interest in Huifeng Engineering for a consideration of $21,919 in
cash. The operations of Huifeng Engineering have been reclassified as
discontinued operations in the accompanying consolidated statements of
operations for the three and nine months ended September 30, 2009 and 2008 and
are summarized as follows:





For the Three
                
                
                For the Three
                
                
                For the Nine
                
                
                For the NineMonths Ended
                
                
                Months Ended
                
                
                Months Ended
                
                
                Months EndedSeptember 30,
                  2009
                
                
                September 30,
                  2008
                
                
                September 30,
                  2009
                
                
                September 30,
                  2008General
      and administrative expenses
                
                $
                -
                
                
                $
                (1
                )
                
                $
                (208
                )
                
                $
                (56
                )Depreciation
                
                
                -
                
                
                
                (8,361
                )
                
                
                (16,753
                )
                
                
                (24,570
                )Operating
      expenses
                
                $
                -
                
                
                $
                (8,362
                )
                
                $
                (16,961
                )
                
                $
                (24,626
                )Interest
      income
                
                
                -
                
                
                
                1
                
                
                
                -
                
                
                
                3Loss
      from discontinued operations
                
                $
                -
                
                
                $
                (8,361
                )
                
                $
                (16,961
                )
                
                $
                (24,623
                )





The
assets and liabilities of discontinued operations as of September 30, 2009 and
December 31, 2008 are summarized as follows:





September 30,
                  2009
                
                
                December 31, 2008(Unaudited)
                
                
                (Audited)ASSETSCash
      and cash equivalents
                
                $
                -
                
                
                $
                676Equipment,
      net
                
                
                -
                
                
                
                113,901Total
      assets related to discontinued operations
                
                $
                -
                
                
                $
                114,577LIABILITIESOther
      payables
                
                $
                -
                
                
                $
                17,128Total
      liabilities related to discontinued operations
                
                $
                -
                
                
                $
                17,128





The
detailed information on the loss on disposal of Huifeng Engineering is as
follows:





Cash
      and cash equivalents
                
                $
                6,307Fixed
      assets, net
                
                
                97,188Other
      payables
                
                
                (22,973
                )Non-controlling
      interests
                
                
                (24,157
                )Book
      value of net assets disposed
                
                
                56,365Less:
      Consideration for disposition
                
                
                (21,919
                )Loss
      on disposal of discontinued operations
                
                $
                34,446





The
detailed information on net cash inflow on disposal of discontinued operations
is as follows:





Proceeds
      from disposal
                
                $
                21,919Less:
      cash and cash equivalent disposed
                
                
                (6,307
                )Net
      cash inflow
                
                $
                15,612





NOTE
17 CONCENTRATIONS AND RISKS





During
the nine months ended September 30, 2009 and 2008, 100% of the Company’s assets
were located in China and Hong Kong.





During
the nine months ended September 30, 2009 and 2008, 57% and 47% of the Company's
revenues were derived from companies located in China respectively.





The
Company relied on two customers for approximately $609,092 and $410,076
representing in aggregate 11% of sales for the nine months ended September 30,
2009. At September 30, 2009, accounts receivable from those two customers
totaled $652,796.





NOTE
18 SUBSEQUENT EVENTS





The
Company evaluated subsequent events through the time of filing this Quarterly
Report on Form 10-Q on November 13 2009. No significant events occurred
subsequent to the balance sheet date but prior to the filing of this report that
would have a material impact on our Condensed Consolidated Financial
Statements.


11





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




The
following discussion should be read in conjunction with the Huifend
Bio-Pharmaceutical Techonology, Inc. consolidated financial statements and
accompanying notes included elsewhere in this report. The following discussion
contains forward-looking statements that reflect the plans, estimates and
beliefs of Huifeng Bio-Pharmaceutical Technology, Inc. The actual results could
differ materially from those discussed in the forward-looking statements.
Factors that could cause or contribute to these differences include those
discussed below and elsewhere in this Report and the Annual Report
10-K, particularly in “Risk Factors” section in the Annual Report on
10-K.   All references to years relate to the calendar year ended
December 31 of the particular year.





OVERVIEW





History





On
December 20, 2004, pursuant to the Malone Agreement, Art Malone, Jr. sold
7,229,601 shares of the common stock of the Company, or 56% of the Company’s
outstanding common stock, for $300,000 (the "Sale") to Zhi Lan Wang and Jun Lin
on December 20, 2004.  Immediately thereafter, on December 20, 2004
the Company completed a Northwest Agreement, pursuant to which the Company
initially purchased 30% of the common shares of Northwest BioTechnic, Inc.
(“NBTI”) in exchange for 80,735,590 shares of the Company's common stock
("Acquisition"). The purchase price for the remaining 70% of NBTI's common
shares was $1,900,000 payable by the Company's issuance of a promissory note
("Promissory Note") on December 20, 2004. The Promissory Note was subsequently
converted into 10,465,725 (post a one for eighteen reverse split) shares of the
Company's common stock. At the closing of the transaction,
  80,735,590 shares of the common stock of the Company sold
represented approximately 86.3% of the total outstanding stock of the
Company.





NBTI was
incorporated in the British Virgin Islands on June 25, 2004. NBTI operates
through its wholly owned subsidiary, Huifeng Biochemistry Joint Stock Company,
which is a joint venture company established under the laws of China and is
engaged in the production and sales of plant extracts, biochemical products and
pharmaceutical raw products in the PRC. On February 22, 2006, Huifeng
Biochemistry Joint Stock Company changed its name to Xi’an Huifeng Biotechnic,
Inc. ("Huifeng").





The
exchange was treated as a reverse acquisition for accounting purposes. As such,
the financial information reflects activity subsequent to the acquisition for
the Company and its subsidiaries and financial activity of NBTI prior to the
acquisition.





Business





The
Company, through its wholly owned subsidiary NBTI, owns 100% of Huifeng which
produces and sells plant extracts, biochemical products and pharmaceutical raw
products in the PRC. Huifeng was founded on January 18, 2000. With its
proprietary technology of “Producing Rutin by Eliminating Enzyme and Mucus”
together with abundant resources of high quality pagoda rice in the
Northwest region of China as raw material, Huifeng developed and specialized
itself as one of the major technology based Rutin company in Xian city within
two years after establishment. Huifeng possesses one of the most advanced and
patented Rutin-refining technologies in China and is a major Rutin supplier for
the world market.


12


CRITICAL
ACCOUNTING POLICIES AND ESTIMATES





We have
identified one policy area as critical to the understanding of our consolidated
financial statements. The preparation of our consolidated financial statements
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the consolidated financial statements and the
reported amounts of sales and expenses during the reporting periods. With
respect to net realizable value of the Company's accounts receivable and
inventories, significant estimation judgments are made and actual results could
differ materially from these estimates.





The
Company does not have any reserves against its accounts receivable or
inventories at September 30, 2009 and 2008. Management's estimation that there
are no reserves is based on the current facts that there are no significant aged
accounts receivable and the current inventory turnover is sufficient to realize
the current carrying value of the inventories. In making their judgment,
management has assumed that there will be continued demand for their products in
the future, thereby maintaining adequate turnover of the inventories.
Additionally, management has assumed that customers will continue to pay their
outstanding invoices timely, and that their customers' financial positions will
not deteriorate significantly in the future, which would result in their
inability to pay their debts to the Company. While the Company's management
currently believes that there is little likelihood that the actual results of
their current estimates will differ materially from its current estimates, if
customer demand for its products decreases significantly in the near future, or
if the financial position of its customers deteriorates in the near future, the
Company could realize significant write downs for slow moving inventories or
uncollectible accounts receivable.





We
believe the following is among the most critical accounting policies that impact
our consolidated financial statements. We suggest that our significant
accounting policies, as described in our consolidated financial statements in
the Summary of Significant Accounting Policies, be read in conjunction with this
Management's Discussion and Analysis of Financial Condition and Results of
Operations.





We
recognize revenue in accordance with Staff Accounting Bulletin ("SAB") No. 104.
All of the following criteria must exist in order for us to recognize
revenue:





1. Persuasive
evidence of an arrangement exists;





2. Delivery
has occurred or services have been rendered;





3. The
seller's price to the buyer is fixed or determinable; and





4. Collectability
is reasonably assured.





The
majority of the Company's revenue results from sales contracts with distributors
and revenue is generated upon the shipment of goods. The Company's pricing
structure is fixed and there are no rebate or discount programs. Management
conducts credit background checks for new customers as a means to reduce the
subjectivity of assuring collectability. Based on these factors, the Company
believes that it can apply the provisions of SAB 104 with minimal
subjectivity.





RESULTS
OF OPERATIONS





THREE MONTHS ENDED SEPTEMBER
30, 2009 COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 2008





Revenues, Cost of Revenues
and Gross Margin





Revenues
for the quarter ended September 30, 2009 were $4,465,770, an increase of
$931,147, or 26%, from $3,534,623 for the same quarter in 2008. Our increase in
revenues for the third quarter of 2009 was mainly due to the increase in our
sales of pharmaceutical raw-material and Plant Extractive and others products,
which include our products of Rutin, Quercetin, Troxerutin (injection) and
Diosmin as set forth in the table below. Our increase in revenue is mainly as a
result of a gain in new customers and an increase in the number of orders from
the Company’s existing customers:




For
      the quarter ended
                          September
      30,
                        
                        
                        Increase
      /Product
                        
                        2009
                        
                        
                        2008
                        
                        
                        (Decrease)Pharmaceutical
      intermediates
                        
                        $
                        1,104,279
                        
                        
                        $
                        1,327,502
                        
                        
                        $
                        (223,223
                        )Pharmaceutical
      raw-material
                        
                        
                        2,696,843
                        
                        
                        
                        1,839,977
                        
                        
                        
                        856,866Plant
      Extractive and others
                        
                        
                        664,648
                        
                        
                        
                        367,144
                        
                        
                        
                        297,504TOTAL
                        
                        $
                        4,465,770
                        
                        
                        $
                        3,534,623
                        
                        
                        $
                        931,147




Cost of
revenues for the quarter ended September 30, 2009 were $2,994,605, an increase
of $790,766, or 36%, from $2,203,839 for the quarter ended September 30, 2008.
Compared to the quarter ended September 30, 2008, the increase in the cost of
revenues for the third quarter of 2009 was caused by the significant increase in
sales of our pharmaceutical raw-material and Plant Extractive and others as
follows:


13





For
      the quarter ended
                  September
      30,
                
                
                Increase
      /Product
                
                2009
                
                
                2008
                
                
                (Decrease)Pharmaceutical
      intermediates
                
                $
                697,933
                
                
                $
                680,202
                
                
                $
                17,731Pharmaceutical
      raw-material
                
                
                1,863,999
                
                
                
                1,229,747
                
                
                
                634,252Plant
      Extractive and others
                
                
                432,673
                
                
                
                293,890
                
                
                
                138,783TOTAL
                
                $
                2,994,605
                
                
                $
                2,203,839
                
                
                $
                790,766




Gross
margin for the quarter ended September 30, 2009 was $1,471,165, an increase of
$140,381, or 10.5%, from $1,330,784 for the same period ended September 30, 2008
as a result of the increase in product sales.





Our gross
profit margin for 2009 was decreased from 38% of the third quarter of 2008 to
33% of the third quarter ended September 30, 2009. The decrease was a result of
the higher unit cost of our products over the three-month period despite
increase in cost of raw material during the third quarter of 2009





General and Administrative
Expenses





General
and Administrative expenses totaled $67,967 for the three months ended September
30, 2009, a decrease of $193,760, or 74%, from $261,727 for the three months
ended September 30, 2008. The decrease in general and administrative expenses
was mainly due to a decrease in legal and professional fees of $6,710, decrease
in allowance for doubtful accounts of $69,819 and decrease in exchange losses
from foreign currency fluctuations of $106,366.





Selling and Distribution
Expenses





Selling
and distribution expenses totaled $87,072 for the three months ended September
30, 2009, an increase of $30,367, or 53%, from $56,705 for the three months
ended September 30, 2008. The increase in selling and distribution expenses was
mainly due to the increase of freight charge of $50,932.





NINE MONTHS ENDED SEPTEMBER
30, 2009 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 2008





Revenues, Cost of Revenues
and Gross Margin





Revenues
for the nine months ended September 30, 2009 were $8,883,190, a slightly
decrease of $2,875, or under 1%, from $8,886,065 for the same period in
2008.  An analysis of our results in sales of our products is as
follows:




Nine months ended
                  September 30,
                
                Increase /Product
                2009
                
                2008
                
                (Decrease)Pharmaceutical
      intermediates
                
                $
                2,002,165
                
                
                $
                3,516,232
                
                
                $
                (1,514,067)Pharmaceutical
      raw-material
                
                
                5,445,430
                
                
                
                4,431,680
                
                
                
                1,013,750Plant
      Extractive and others
                
                
                1,435,595
                
                
                
                938,153
                
                
                
                497,442TOTAL
                
                $
                8,883,190
                
                
                $
                8,886,065
                
                
                $
                (2,875)





Cost of
revenues for the nine months ended September 30, 2009 were $5,960,465, an
increase of $244,311, or 4%, from $5,716,154 for the nine months ended September
30, 2008, compared to the nine months ended September 30, 2008. An analysis of
our results in cost of revenues of our products is as follows:





Nine months ended
                  September 30,
                
                Increase /Product
                2009
                
                2008
                
                (Decrease)Pharmaceutical
      intermediates
                
                $
                1,247,493
                
                
                $
                1,915,740
                
                
                $
                (668,247)Pharmaceutical
      raw-material
                
                
                3,864,665
                
                
                
                3,105,808
                
                
                
                758,857Plant
      Extractive and others
                
                
                848,307
                
                
                
                694,606
                
                
                
                153,701TOTAL
                
                $
                5,960,465
                
                
                $
                5,716,154
                
                
                $
                244,311




The gross
margin for the nine months ended September 30, 2009 was $2,922,725, a decrease
of $247,186, or 8%, from $3,169,911 for the period ended September 30, 2008 as a
result of the increase in cost of revenues.





Our gross
profit margin for the nine months ended September 30, 2009 had a slightly
decrease from 36% to 33% compare to the same period in 2008. The decrease was a
result of the higher unit cost of our products over the nine-month period
despite increase in cost of raw material during the third quarter of
2009.





General and Administrative
Expenses





General
and Administrative expenses totaled $509,373 for the nine months ended September
30, 2009, a decrease of $382,115 or 43% from $891,488 for the nine months ended
September 30, 2008. The decrease in general and administrative expenses was
mainly due to a decrease in legal and professional fees of $242,381 and decrease
in exchange losses from foreign currency fluctuations of $247,735.





Selling and Distribution
Expenses





Selling
and distribution expenses totaled $174,001 for the nine months ended September
30, 2009, an increase of $25,398 or 17% from $148,603 for the nine months ended
September 30, 2008. The increase in selling and distribution expenses was mainly
due to the increase of freight expenses of $33,166.


14





LIQUIDITY AND CAPITAL
RESOURCES





Cash





Our cash
balance amounted to $284,886 at September 30, 2009.





In the
nine months ended September 30, 2009, our cash provided by operating activities
totaled $169,785, mainly due to our net income for the period of $1,429,523 and
increase in accounts receivable of $1,592,376. In the nine months ended
September 30, 2009, our cash used in investing activities totaled $194,238
mainly for our purchase of property and equipment. Our cash provided by
financing activities in the nine months ended September 30, 2009 of $263,062 was
a bank loan from a PRC bank.





Working
Capital




Our
working capital amounted to $6,645,414 at September 30, 2009.





INFLATION




Inflation
has had a small impact on our business. It increased the purchase cost of our
raw materials resulting in an increase in our production cost.




CURRENCY EXCHANGE
FLUCTUATIONS




All of
our revenues and majority of the expenses for the nine months ended September
30, 2009 were denominated primarily in Renminbi ("RMB"), the currency of China,
and were converted into US Dollars at the exchange rate of 6.83760 to 1. Since
July 22, 2005, the Renminbi has strengthened against the US dollars. As a result
of the appreciation of RMB we recognized a foreign currency translation gain of
$30,077 during the nine months ended September 30, 2009. There could be no
assurance that RMB-to-U.S. dollar exchange rates will remain stable. A
devaluation of RMB relative to the U.S. dollar would adversely affect our
business, financial condition and results of operations. We do not engage in
currency hedging.





Item
3. Quantitative and Qualitative Disclosures About Market Risk





Not
required




Item
4T. Controls and Procedures




Evaluation of
Disclosure Controls and Procedures.





Under the
supervision and with the participation of our management, including our Chief
Executive Officer and Chief Financial Officer, we conducted an evaluation of the
effectiveness of the design and operation of our disclosure controls and
procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934, as amended, as of the end of the period covered by
this Quarterly Report on Form 10-Q (the “Evaluation Date”). The purpose of this
evaluation is to determine if, as of the Evaluation Date, our disclosure
controls and procedures were operating effectively such that the
information, required to be disclosed in our Securities and Exchange Commission
(“SEC”) reports (i) was recorded, processed, summarized and reported within the
time periods specified in SEC rules and forms, and (ii) was accumulated and
communicated to our management, including our Chief Executive Officer and Chief
Financial Officer, as appropriate to allow timely decisions regarding required
disclosure.


15


Based on
this evaluation, our Chief Executive Officer and Chief Financial Officer
concluded that, as of the Evaluation Date, our disclosure controls and
procedures were operating effectively.




Changes in
Internal Control over Financial Reporting.





There
have been no significant changes in our internal controls over financial
reporting that occurred during the nine months ended September 30, 2009 that
have materially affected, or are reasonably likely to materially affect our
internal controls over financial reporting.




Limitations on the Effectiveness of
Disclosure Controls and
Procedures.




Disclosure
controls and procedures and other procedures that are designed to ensure that
information required to be disclosed in our reports filed or submitted under the
Exchange Act are recorded, processed, summarized and reported, within the time
period specified in the Securities and Exchange Commission's rules and forms.
Disclosure controls and procedures include, without limitation, controls and
procedures designed to ensure that information required to be disclosed in our
reports filed under the Exchange Act is accumulated and communicated to
management, including our Chief Executive Officer and Chief Financial Officer as
appropriate, to allow timely decisions regarding required
disclosure.





PART II. OTHER INFORMATION




Item1. Legal
Proceedings:





We are
currently not involved in any litigation that we believe could have a material
adverse effect on our financial condition or results of operations. There is no
action, suit, proceeding, inquiry or investigation before or by any court,
public board, government agency, self-regulatory organization or body pending
or, to the knowledge of the executive officers of our Company or any of our
subsidiaries, threatened against or affecting the Company, our common stock, any
of our subsidiaries or of our Company's or our Company's subsidiaries' officers
or directors in their capacities as such, in which an adverse decision could
have a material adverse effect.





Item
1 A. Risk Factors





Not
required.





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





None




Item 3. Defaults Upon Senior
Securities





None.




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





Not
applicable




Item 5. Other Information





None.




Item 6. Exhibits





(a) Exhibits





31.1
              Certification
      of the Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) of the
      Securities Exchange Act of 1934, as amended.31.2
              Certification
      of the Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) of the
      Securities Exchange Act of 1934, as amended32.1
              Certification
      of the Chief Executive Officer pursuant to Rule 13a-14(b) or Rule
      15d-14(b) of the Securities Exchange Act of 1934, as amended, and 18
      U.S.C. Section 1350.32.2
              Certification
      of the Chief Financial Officer pursuant to Rule 13a-14(b) or Rule
      15d-14(b) of the Securities Exchange Act of 1934, as amended, and 18
      U.S.C. Section 1350.


16





SIGNATURES





Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, as amended, the registrant has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized this 13th day of November
2009.





HUIFENG
      BIO-PHARMACEUTICAL TECHNOLOGY, INCBy:
              
              /s/
      Jing’an WangJing’an
      Wang
                Chief
      Executive Officer/s/
      Sanding TaoSanding
      TaoChief
      Financial Officer




17