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, 2010
 
 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)
 
 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   ̈
 
  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  No ̈
 
 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   ̈
              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   ̈ No  x
 
 The
number of shares outstanding of the registrant’s common stock, par value $0.018,
on September 30, 2010 was 26,545,092.
  
 HUIFENG
BIO-PHARMACEUTICAL TECHNOLOGY, INC.
 Quarterly
Period Ended September 30, 2010
 
 INDEX
  PART
      I.
                
                FINANCIAL
      INFORMATION
                
                2Item
      1.
                
                Financial
      Statements
                
                2Condensed
      Consolidated Balance Sheets as of September 30, 2010 (unaudited) and
      December 31, 2009 (audited)
                
                2Unaudited
      Condensed Consolidated Statements of Operations and Comprehensive Income
      for the Three and Nine Months ended September 30, 2010 and
      2009
                
                3Unaudited
      Condensed Consolidated Statements of Cash Flows for the Nine Months ended
      September 30, 2010 and 2009
                
                4Notes
      to Unaudited Condensed Consolidated Financial Statements as
      of September 30, 2010
                
                5Item
      2.
                
                Management's
      Discussion and Analysis of Financial Condition and Results of
      Operations
                
                12Item
      3.
                
                Quantitative
      and Qualitative Disclosures about Market Risk
                
                17Item
      4.
                
                Controls
      and Procedures
                
                17PART
      II.
                
                OTHER
      INFORMATION
                
                18Item
      1.
                
                Legal
      Proceedings
                
                18Item
      1A.
                
                Risk
      Factors
                
                18Item
      2.
                
                Unregistered
      Sales of Equity Securities and Use of Proceeds
                
                18Item
      3.
                
                Defaults
      on Senior Securities
                
                18Item
      4.
                
                (Removed
      and Reserved)
                
                18Item
      5.
                
                Other
      Information
                
                18Item
      6.
                
                Exhibits
                
                19SIGNATURES
                
                20
 
 1
 
 PART I.
FINANCIAL INFORMATION
 Item
1. Financial Statements
  HUIFENG
BIO-PHARMACEUTICAL TECHNOLOGY, INC
 AND
SUBSIDIARIES (“HFGB”)
 CONDENSED
CONSOLIDATED BALANCE SHEETS
 
 As
      ofSeptember 30,
                          2010(Unaudited)
                        
                        
                        As
      ofDecember 31,2009
                          (Audited)ASSETSCURRENT
      ASSETSCash
      and cash equivalents
                        
                        $
                        2,088,599
                        
                        
                        $
                        556,763Accounts
      receivable, net
                        
                        
                        6,317,148
                        
                        
                        
                        5,576,321Inventories,
      net
                        
                        
                        6,272,090
                        
                        
                        
                        5,656,420Other
      assets
                        
                        
                        3,124,777
                        
                        
                        
                        573,117Total
      Current Assets
                        
                        
                        17,802,614
                        
                        
                        
                        12,362,621PROPERTY
      AND EQUIPMENT, NET
                        
                        
                        7,072,494
                        
                        
                        
                        6,278,619LAND
      USE RIGHTS, NET
                        
                        
                        146,081
                        
                        
                        
                        145,605INTANGIBLE
      ASSETSGoodwill
                        
                        
                        1,514,398
                        
                        
                        
                        -TOTAL
      ASSETS
                        
                        $
                        26,535,587
                        
                        
                        $
                        18,786,845LIABILITIES
      AND STOCKHOLDERS' EQUITYCURRENT
      LIABILITIESAccounts
      payable
                        
                        $
                        143,335
                        
                        
                        $
                        397,292Other
      payables and accrued expenses
                        
                        
                        1,399,054
                        
                        
                        
                        422,902Income
      tax and other taxes payable
                        
                        
                        747,033
                        
                        
                        
                        692,532Notes
      payable
                        
                        
                        -
                        
                        
                        
                        838,062Convertible
      notes payable (net of unamortized discount of $395,066 and due on June 30,
      2011)
                        
                        
                        832,559
                        
                        
                        
                        -Total
      Current Liabilities
                        
                        
                        3,121,981
                        
                        
                        
                        2,350,788LONG-TERM
      LIABILITIESConvertible
      notes payable (net of unamortized discount of $1,120,447 and due on June
      30, 2011)
                        
                        
                        -
                        
                        
                        
                        679,553Notes
      payable
                        
                        
                        223,944
                        
                        
                        
                        -Total
      Long-term Liabilities
                        
                        
                        223,944
                        
                        
                        
                        679,553TOTAL
      LIABILITIES
                        
                        
                        3,345,925
                        
                        
                        
                        3,030,341COMMITMENTS
      AND CONTINGENCIES (NOTE 18)EQUITYHFGB
      Stockholders’ EquityPreferred
      stock ($0.001 par value, 5,000,000 shares authorized, none issued and
      outstanding)
                        
                        
                        -
                        
                        
                        
                        -Common
      stock ($0.018 par value, 100,000,000 shares authorized,
      26,545,092 shares issued and outstanding as of September 30, 2010 and
      22,991,169 shares issued and outstanding as of December 31,
      2009)
                        
                        
                        477,809
                        
                        
                        
                        413,838Additional
      paid-in capital
                        
                        
                        12,642,737
                        
                        
                        
                        10,315,847Deferred
      stock compensation
                        
                        
                        (204,770
                        )
                        
                        
                        -Retained
      earningsUnappropriated
                        
                        
                        6,741,813
                        
                        
                        
                        2,189,692Appropriated
                        
                        
                        888,185
                        
                        
                        
                        888,185Accumulated
      other comprehensive income
                        
                        
                        1,838,233
                        
                        
                        
                        1,398,147Total
      HFGB Stockholders' Equity
                        
                        
                        22,384,007
                        
                        
                        
                        15,205,709Non-controlling
      Interest
                        
                        
                        805,655
                        
                        
                        
                        550,795TOTAL
      EQUITY
                        
                        
                        23,189,662
                        
                        
                        
                        15,756,504TOTAL
      LIABILITIES AND STOCKHOLDERS' EQUITY
                        
                        $
                        26,535,587
                        
                        
                        $
                        18,786,845
  The
accompanying notes are an integral part of these condensed 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,
                    2010
                  
                  
                  September 30,
                    2009
                  
                  
                  September 30,
                    2010
                  
                  
                  September 30,
                    2009NET
      SALES
                  
                  $
                  7,422,334
                  
                  
                  $
                  4,465,770
                  
                  
                  $
                  18,273,172
                  
                  
                  $
                  8,883,190COST
      OF SALES
                  
                  
                  (3,515,796
                  )
                  
                  
                  (2,994,605
                  )
                  
                  
                  (10,276,838
                  )
                  
                  
                  (5,960,465
                  )GROSS
      PROFIT
                  
                  
                  3,906,538
                  
                  
                  
                  1,471,165
                  
                  
                  
                  7,996,334
                  
                  
                  
                  2,922,725OPERATING
      EXPENSESSelling
      and distribution expenses
                  
                  
                  56,821
                  
                  
                  
                  87,072
                  
                  
                  
                  117,213
                  
                  
                  
                  174,001General
      and administrative expenses(Reversal
      of) allowance for doubtful accounts – accounts receivable
                  
                  
                  (14,685
                  )
                  
                  
                  (96,906
                  )
                  
                  
                  (28,783
                  )
                  
                  
                  120,466Stock-based
      compensation expense
                  
                  
                  50,825
                  
                  
                  
                  -
                  
                  
                  
                  96,063
                  
                  
                  
                  -Professional
      fees
                  
                  
                  117,687
                  
                  
                  
                  71,940
                  
                  
                  
                  357,102
                  
                  
                  
                  155,022Foreign
      currency exchange loss
                  
                  
                  236,502
                  
                  
                  
                  49,734
                  
                  
                  
                  413,548
                  
                  
                  
                  104,683Other
      general and administrative expenses
                  
                  
                  101,910
                  
                  
                  
                  43,199
                  
                  
                  
                  229,460
                  
                  
                  
                  129,202Depreciation
      and amortization
                  
                  
                  5,576
                  
                  
                  
                  6,334
                  
                  
                  
                  16,834
                  
                  
                  
                  19,178Total
      Operating Expenses
                  
                  
                  554,636
                  
                  
                  
                  161,373
                  
                  
                  
                  1,201,437
                  
                  
                  
                  702,552INCOME
      FROM CONTINUING OPERATIONS
                  
                  
                  3,351,902
                  
                  
                  
                  1,309,792
                  
                  
                  
                  6,794,897
                  
                  
                  
                  2,220,173OTHER
      INCOME (EXPENSES)Interest
      income
                  
                  
                  1,993
                  
                  
                  
                  1,080
                  
                  
                  
                  5,025
                  
                  
                  
                  2,440Interest
      expensesAmortization
      of discount on convertible notes
                  
                  
                  (227,106
                  )
                  
                  
                  (38,335
                  )
                  
                  
                  (725,381
                  )
                  
                  
                  (115,007
                  )Amortization
      of deferred financing costs
                  
                  
                  -
                  
                  
                  
                  (42,438
                  )
                  
                  
                  -
                  
                  
                  
                  (127,313
                  )Other
      interest expenses
                  
                  
                  (69,419
                  )
                  
                  
                  (65,977
                  )
                  
                  
                  (159,438
                  )
                  
                  
                  (194,235
                  )Other
      expenses
                  
                  
                  (159,000
                  )
                  
                  
                  -
                  
                  
                  
                  (159,000
                  )
                  
                  
                  -Other
      income
                  
                  
                  5,680
                  
                  
                  
                  88,383
                  
                  
                  
                  286,159
                  
                  
                  
                  139,860Total
      Expenses, net
                  
                  
                  (447,852
                  )
                  
                  
                  (57,287
                  )
                  
                  (752,635
                  )
                  
                  
                  (294,255
                  )INCOME
      FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
                  
                  
                  2,904,050
                  
                  
                  
                  1,252,505
                  
                  
                  
                  6,042,262
                  
                  
                  
                  1,925,918INCOME
      TAX EXPENSE
                  
                  
                  (628,721
                  )
                  
                  
                  (229,988
                  )
                  
                  
                  (1,267,006
                  )
                  
                  
                  (414,559
                  )NET
      INCOME FROM CONTINUING OPERATIONS
                  
                  
                  2,275,329
                  
                  
                  
                  1,022,517
                  
                  
                  
                  4,775,256
                  
                  
                  
                  1,511,359DISCONTINUED
      OPERATIONSLoss
      from discontinued operations, net of income taxes
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (16,961
                  )Loss
      from disposal of discontinued operations
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (34,446
                  )NET
      LOSS FROM DISCONTINUED OPERATIONS
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (51,407
                  )NET
      INCOME
                  
                  
                  2,275,329
                  
                  
                  
                  1,022,517
                  
                  
                  
                  4,775,256
                  
                  
                  
                  1,459,952Less:
      net income attributable to non-controlling interests
                  
                  
                  (119,399
                  )
                  
                  
                  (20,512
                  )
                  
                  
                  (223,135
                  )
                  
                  
                  (47,390
                  )NET
      INCOME ATTRIBUTABLE TO HFGB COMMON STOCKHOLDERS
                  
                  
                  2,155,930
                  
                  
                  
                  1,002,005
                  
                  
                  
                  4,552,121
                  
                  
                  
                  1,412,562OTHER
      COMPREHENSIVE INCOMETotal
      other comprehensive income
                  
                  
                  392,789
                  
                  
                  
                  13,826
                  
                  
                  
                  471,811
                  
                  
                  
                  30,077Less:
      foreign currency translation gain attributable to non-controlling
      interests
                  
                  
                  (29,013
                  )
                  
                  
                  (847)
                  
                  
                  
                  (31,725
                  )
                  
                  
                  (1,918
                  )Foreign
      currency translation gain attributable to HFGB common
      stockholders
                  
                  
                  363,776
                  
                  
                  
                  12,979
                  
                  
                  
                  440,086
                  
                  
                  
                  28,159COMPREHENSIVE
      INCOME ATTRIBUTABLE TO HFGB COMMON STOCKHOLDERS
                  
                  $
                  2,519,706
                  
                  
                  $
                  1,014,984
                  
                  
                  $
                  4,992,207
                  
                  
                  $
                  1,440,721Income
      per share – basicContinuing
      operations
                  
                  $
                  0.09
                  
                  
                  $
                  0.05
                  
                  
                  $
                  0.19
                  
                  
                  $
                  0.08Discontinued
      operations
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Net
      income per share - basic
                  
                  $
                  0.09
                  
                  
                  $
                  0.05
                  
                  
                  $
                  0.19
                  
                  
                  $
                  0.08Income
      per share - dilutedContinuing
      operations
                  
                  $
                  0.08
                  
                  
                  $
                  0.05
                  
                  
                  $
                  0.18
                  
                  
                  $
                  0.07Discontinued
      operations
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Net
      income per share - diluted
                  
                  $
                  0.08
                  
                  
                  $
                  0.05
                  
                  
                  $
                  0.18
                  
                  
                  $
                  0.07Weighted
      average number of shares outstanding during the period -
    basic
                  
                  
                  24,373,896
                  
                  
                  
                  20,354,212
                  
                  
                  
                  23,709,253
                  
                  
                  
                  19,102,432Weighted
      average number of shares outstanding during the period -
      diluted
                  
                  
                  25,908,427
                  
                  
                  
                  22,354,212
                  
                  
                  
                  25,243,784
                  
                  
                  
                  21,102,432
  The
accompanying notes are an integral part of these condensed consolidated
financial statements.
  3
  HUIFENG
BIO-PHARMACEUTICAL TECHNOLOGY INC.
 AND
SUBSIDIARIES
 CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
 (UNAUDITED)
 
 For the Nine
                      Months Ended
                      September 30,2010
                    
                    
                    For the Nine
                      Months Ended
                      September 30,2009CASH
      FLOWS FROM OPERATING ACTIVITIESNet
      income continuing operations
                    
                    $
                    4,552,121
                    
                    
                    $
                    1,429,523Net
      loss from discontinued operations
                    
                    
                    -
                    
                    
                    
                    (16,961
                    )Net
      income
                    
                    
                    4,552,121
                    
                    
                    
                    1,412,562Adjusted
      to reconcile net income to cash provided by (used in) operating
      activities, including discontinued operations:(Reversal
      of ) allowance for doubtful accounts - accounts receivable
                    
                    
                    (28,783
                    )
                    
                    
                    120,466Depreciation
      and amortization - cost of sales
                    
                    
                    466,641
                    
                    
                    
                    447,031Depreciation
      and amortization
                    
                    
                    16,834
                    
                    
                    
                    19,178Amortization
      of discount on convertible notes
                    
                    
                    725,381
                    
                    
                    
                    115,007Amortization
      of deferred financing costs
                    
                    
                    -
                    
                    
                    
                    127,313Stock
      option issued to a legal counsel
                    
                    
                    -
                    
                    
                    
                    32,748Stock-based
      compensation expense
                    
                    
                    96,063
                    
                    
                    
                    37,500Stocks
      issued for services
                    
                    
                    216,027
                    
                    
                    
                    -Stocks
      issued to settle a litigation
                    
                    
                    104,000
                    
                    
                    
                    -Non-controlling
      interests
                    
                    
                    207,073
                    
                    
                    
                    47,390Loss
      from disposal of discontinued operations
                    
                    
                    -
                    
                    
                    
                    34,446Changes
      in operating assets and liabilities(Increase)
      decrease in:Accounts
      receivable
                    
                    
                    (320,150
                    )
                    
                    
                    (1,592,376
                    )Inventories
                    
                    
                    (130,128
                    )
                    
                    
                    (932,711
                    )Other
      assets
                    
                    
                    (2,489,812
                    )
                    
                    
                    (106,508
                    )Increase
      (decrease) in:Accounts
      payable
                    
                    
                    (257,657
                    )
                    
                    
                    40,571
                    )Other
      payables and accrued expenses
                    
                    
                    (243,717
                    )
                    
                    
                    381,868Income
      tax and other taxes payable
                    
                    
                    17,253
                    
                    
                    
                    (31,453
                    )Net
      cash provided by (used in) operating activities – continuing
      operations
                    
                    
                    2,931,146
                    
                    
                    
                    (153,032
                    )Net
      cash provided by operating activities – discontinued
      operations
                    
                    
                    -
                    
                    
                    
                    16,753Net
      cash provided by (used in) operating activities
                    
                    
                    2,931,146
                    
                    
                    
                    (169,785
                    )CASH
      FLOWS FROM INVESTING ACTIVITIESPurchase
      of property and equipment
                    
                    
                    (555,562
                    )
                    
                    
                    (209,850
                    )Net
      cash inflow on disposal of discontinued operations
                    
                    
                    -
                    
                    
                    
                    15,612Net
      cash inflow from acquisition of a subsidiary
                    
                    
                    9,565
                    
                    
                    
                    -Net
      cash used in investing activities – continuing operations
                    
                    
                    (545,997
                    )
                    
                    
                    (194,238
                    )Net
      cash provided by investing activities – discontinued
      operations
                    
                    
                    -
                    
                    
                    
                    -Net
      cash used in investing activities
                    
                    
                    (545,997
                    )
                    
                    
                    (194,238
                    )CASH
      FLOWS FROM FINANCING ACTIVITIES(Repayment
      of) proceeds from notes payable
                    
                    
                    (620,562
                    )
                    
                    
                    263,062Repayment
      of convertible notes
                    
                    
                    (234,375
                    )
                    
                    
                    -Net
      cash (used in) provided by financing activities – continuing
      operations
                    
                    
                    (854,937
                    )
                    
                    
                    263,062Net
      cash provided by financing activities – discontinued
      operations
                    
                    
                    -
                    
                    
                    
                    -Net
      cash (used in) provided by financing activities
                    
                    
                    (854,937
                    )
                    
                    
                    263,062EFFECT
      OF EXCHANGE RATES ON CASH
                    
                    
                    1,624
                    
                    
                    
                    703NET
      INCREASE IN CASH AND CASH EQUIVALENTS
                    
                    
                    1,531,836
                    
                    
                    
                    239,312CASH
      AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
                    
                    
                    556,763
                    
                    
                    
                    45,574CASH
      AND CASH EQUIVALENTS AT END OF PERIOD
                    
                    $
                    2,088,599
                    
                    
                    $
                    284,886SUPPLEMENTAL
      DISCLOSURE OF CASH FLOW INFORMATIONCash
      paid during the period for:Income
      taxes
                    
                    $
                    975,254
                    
                    
                    $
                    546,287Interest
      expenses
                    
                    $
                    142,625
                    
                    
                    $
                    42,013
 
 SUPPLEMENTAL
DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
 
 In
January 2010, a legal counsel exercised a stock option to purchase 100,000
shares of common stock at the exercise price of $1.50 which was granted by the
Company in April 2008, pursuant to a cashless exercise. The Company issued
60,000 shares of common stock in connection with this exercise.
 
 In April
2010, four holders of the Company’s outstanding promissory notes converted
$275,000 in outstanding principal under those notes into 343,750 shares of
common stock of the Company at a conversion price of $0.80 per
share.
 
 On September
9, 2010, the Company issued 2,300,000 shares of restricted common stock at a per
share price of $0.65, having a fair value of $1,495,000 as a part of
consideration to acquire 90% equity interest of Shangqiu Kexin Rutin Processing
Limited.(“Kexin”).
  The
accompanying notes are an integral part of these condensed consolidated
financial statements.
  4
 
 HUIFENG
BIO-PHARMACEUTICAL TECHNOLOGY INC. AND SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 AS
OF SEPTEMBER 30, 2010 (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, Japan and certain 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, 2010 are described
inNote 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.
 
 In 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, 2010 and December 31, 2009, the consolidated results of operations
for the three and nine months ended September 30, 2010 and 2009, and
consolidated cash flows for the nine months ended September 30, 2010 and
2009. The consolidated results for the nine months ended September 30, 2010
are not necessarily indicative of the results to be expected for the entire
fiscal year ending December 31, 2010. These consolidated financial statements
should be read in conjunction with the consolidated financial statements and
notes for the year ended December 31, 2009 appearing in the Company's annual
report on Form 10-K as filed with the Securities and Exchange
Commission.
 
 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 audited condensed consolidated financial statements as of September
30, 2010 include the financial statements of Huifeng Bio-Pharmaceutical and its
100% owned subsidiary Northwest BioTechnic Inc. (“Northwest”), 100% owned
subsidiary Xi’an Huifeng Bio-Technic, 80.2% owned subsidiary Shaanxi Huifeng
Pharmaceutical and 90% owned subsidiary Shangqiu Kexin Rutin Processing Limited
(“Kexin”).
 
 The
accompanying unaudited condensed consolidated balance sheet as of December
31, 2009, consolidated statements of operations for the three and nine months
ended September 30, 2009 and consolidated statement of cash flows for the nine
months ended September 30, 2009 include the financial statements of Huifeng
Bio-Pharmaceutical and its 100% owned subsidiary Northwest BioTechnic Inc.
(“Northwest”), 100% owned subsidiary Huifeng Bio-Technic 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 subsidiaries as of September 30, 2010 were as
follows:
 
 Name
                
                Place of Incorporation
                
                Ownership interest
                  attributable to the
                  Company
                
                Principal activitiesNorthwest
      Bio-Technic Inc.
                
                British
      Virgin Islands
                
                100%
                
                Investment
      holdingXi’an
      Huifeng Bio-Technic Inc.
                
                The
      PRC
                
                100%
                
                Manufacture
      and sale of pharmaceutical raw materialsShaanxi
      Huifeng Pharmaceutical Limited
                
                The
      PRC
                
                80.2%
                
                Manufacture
      and sale of pharmaceutical raw materialsShangqiu
      Kexin Rutin Processing Limited
                
                The
      PRC
                
                90.0%
                
                Manufacture
      and sale of pharmaceutical raw
materials
 5
 
 HUIFENG
BIO-PHARMACEUTICAL TECHNOLOGY INC. AND SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 AS
OF SEPTEMBER 30, 2010 (UNAUDITED)
 In June
2009, the Company disposed of its 70% owned subsidiary, Xi’an Huifeng
Biochemistry Engineering Company Limited (“Huifeng Engineering”).
 
 On
September 9, 2010, the Company acquired 90% of the equity interests of
Kexin. See Note 11. Business Combinations.
 
 NOTE
5.  CASH AND CASH EQUIVALENTS
 
 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 (now ASC Topic 718 “Compensation-Stock
Compensation”) (“ASC 718”). The Company adopted ASC 718, 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. ASC 718 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, stock options 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 ASC 718, which is measured as of the date required by ASC Topic 505-50
“Equity-Based Payment to Non-Employees” (formerly 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 ASC Topic
505-50, 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 at the equity instruments then-current
fair value. Any subsequent changes in the market value of the underlying common
stock are expensed as incurred.
 
 NOTE
7.  INCOME TAXES
 
 The
Company accounts for income taxes under the ASC Topic 740 “Income Taxes” (“ASC
740”) (formerly SFAS No. 109, “Accounting for Income Taxes”). Under this ASC,
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 this ASC,
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.
 
 The
Company adopted the provisions of FASB Interpretation No. 48, “Accounting for
Uncertainty in Income Taxes” (“FIN 48”) (now FASB ASC Topic 740-10) (“ASC
740-10). ASC 740-10 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 ASC 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 ASC 740-10 has not resulted in any material impact
on the Company’s financial position or results.
 6
 
 HUIFENG
BIO-PHARMACEUTICAL TECHNOLOGY INC. AND SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 AS
OF SEPTEMBER 30, 2010 (UNAUDITED)
 Huifeng
Bio-Pharmaceutical is incorporated in the United States and has incurred net
operating losses for income tax purposes for the three and nine months ended
September 30, 2010 and 2009.
 
 Northwest,
a wholly owned subsidiary of the Company, is 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, is a company formed under
the laws of the PRC and is registered as a new and high technology enterprise
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, 2010 and 2009 was $404,266,
$187,578, $896,856 and $311,603, respectively.
 
 Huifeng
Pharmaceutical, the 80.2% owned subsidiary of Huifeng Bio-Technic, is a company
formed under the laws of the PRC and is 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, 2010 and 2009
was 25%. The provision for income tax expenses for the three and nine months
ended September 30, 2010 and 2009 was $202,763, $42,410, $348,458 and $102,956,
respectively.
 
 Kexin,
the 90% owned subsidiary of Huifeng Bio-Technic, is a company formed under the
laws of the PRC and is 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, 2010 was 25%. The provision for the income tax
expense for the three and nine months ended September 30, 2010 was $21,692 and
$21,692, 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 similarly 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. Diluted income
per share for the three and nine months ended September 30, 2010 and 2009
includes the Company’s 10% secured convertible notes (the “Notes”) in the
aggregate face amount of $1,227,625 (with a conversion price of $0.80 which
will generate dilutive shares of 1,534,531) as of September 30, 2010 and
$2,000,000 (with a conversion price of $1.00 which will generate dilutive shares
of 2,000,000) as of September 30, 2009, which are due and payable in full 2
years from the date of issuance.
  Warrants
to purchase 500,000 shares of common stock at $1.50 per share outstanding as of
September 30, 2009 (amended to purchase 450,000 shares of common stock at
$1.00 per share as of September 30, 2010) and a stock option to purchase 100,000
shares of common stock at price $1.50 per share outstanding as of September 30,
2009, were excluded from the calculation of diluted earnings per share because
the effect of the warrants and stock options is anti-dilutive.
 
 NOTE
9.  BUSINESS SEGMENTS
 
 The
Company operates in only one segment; therefore segment disclosure is not
presented.
  NOTE
10.  RECENT ACCOUNTING PRONOUNCEMENTS
 
 In
January 2010, FASB issued ASU 2010-2, “Accounting and Reporting for Decreases in
Ownership of a Subsidiary- a Scope Clarification”. ASU 2010-2 addresses
implementation issues related to the changes in ownership provisions in the
Consolidation—Overall Subtopic (Subtopic 810-10) of the FASB ASC, originally
issued as SFAS 160, “Noncontrolling Interests in Consolidated Financial
Statements”. Subtopic 810-10 establishes the accounting and reporting guidance
for noncontrolling interests and changes in ownership interests of a subsidiary.
An entity is required to deconsolidate a subsidiary when the entity ceases to
have a controlling financial interest in the subsidiary. Upon deconsolidation of
a subsidiary, an entity recognizes a gain or loss on the transaction and
measures any retained investment in the subsidiary at fair value. The gain or
loss includes any gain or loss associated with the difference between the fair
value of the retained investment in the subsidiary and its carrying amount at
the date the subsidiary is deconsolidated. In contrast, an entity is required to
account for a decrease in ownership interest of a subsidiary that does not
result in a change of control of the subsidiary as an equity transaction.
ASU 2010-2 is effective for the Company starting January 3, 2010. The
Company expects the adoption of ASU 2010-2 will not have a material impact on
the Company's results of operations or financial position.
 
 In
January 2010, FASB issued ASU 2010-6, “Improving Disclosures about Fair
Measurements". ASU 2010-6 provides amendments to subtopic 820-10 that require
separate disclosure of significant transfers into and out of Level 1 and
Level 2 fair value measurements and the presentation of separate
information regarding purchases, sales, issuances and settlements on a gross
basis in the reconciliation of Level 3 fair value measurements.
Additionally, ASU 2010-6 provides amendments to subtopic 820-10 that clarify
existing disclosures about the level of disaggregation and inputs and valuation
techniques. ASU 2010-6 is effective for financial statements issued for annual
reporting periods beginning after December 15, 2009, except for Level 3
reconciliation disclosures which are effective for annual periods beginning
after December 15, 2010. The Company expects the adoption of ASU 2010-6
will not have a material impact on the Company’s results of operations or
financial position.
 7
 
 HUIFENG
BIO-PHARMACEUTICAL TECHNOLOGY INC. AND SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 AS
OF SEPTEMBER 30, 2010 (UNAUDITED)
 In
February 2010, FASB issued ASU 2010-9 “Subsequent Events (Topic 855) Amendments
to Certain Recognition and Disclosure Requirements”. ASU 2010-9 amends
disclosure requirements within Subtopic 855-10. An entity that is an SEC filer
is not required to disclose the date through which subsequent events have been
evaluated. This change alleviates potential conflicts between Subtopic 855-10
and the SEC's requirements. ASU 2010-9 is effective for interim and annual
periods ending after June 15, 2010. The Company expects the adoption of ASU
2010-09 will not have a material impact on the Company’s results of
operations or financial position.
 
 In March
2010, FASB issued ASU 2010-11 “Derivatives and Hedging (Topic 815) Scope
Exception Related to Embedded Credit Derivatives”. ASU 2010-11 clarifies the
type of embedded credit derivative that is exempt from embedded derivative
bifurcation requirements. Only one form of embedded credit derivative qualifies
for the exemption—one that is related only to the subordination of one financial
instrument to another. As a result, entities that have contracts containing an
embedded credit derivative feature in a form other than such subordination may
need to separately account for the embedded credit derivative feature.
The amendments in this Update are effective for each reporting entity at
the beginning of its first fiscal quarter beginning after June 15, 2010. Early
adoption is permitted at the beginning of each entity’s first fiscal quarter
beginning after issuance of this Update. The Company expects the adoption of ASU
2010-11 will not have a material impact on the Company’s results of operations
or financial position.
 
 In April
2010, FASB issued ASU 2010-13 “Compensation-Stock Compensation (Topic 718)
Effect of Denominating the Exercise Price of a Share-Based Payment Award in the
Currency of the Market in Which the Underlying Equity Security Trades”. ASU
2010-13 addresses the classification of a share-based payment award with an
exercise price denominated in the currency of a market in which the underlying
equity security trades. Topic 718 is amended to clarify that a share-based
payment award with an exercise price denominated in the currency of a market in
which a substantial portion of the entity’s equity securities trades shall not
be considered to contain a market, performance, or service condition. Therefore,
such an award is not to be classified as a liability if it otherwise qualifies
as equity classification. The amendments in this Update should be effective for
fiscal years, and interim periods within those fiscal years, beginning on or
after December 15, 2010. The guidance should be applied by recording a
cumulative-effect adjustment to the opening balance of retained earnings for all
outstanding awards as of the beginning of the fiscal year in which the
amendments are initially applied. The Company expects the adoption of ASU
2010-13 will not have a material impact on the Company’s results of operations
or financial position.
 
 In April
2010, FASB issued ASU 2010-18“Effect of a Loan Modification When the Loan Is Part of a Pool That Is
Accounted for as a Single Asset (A consensus of the FASB Emerging Issues
Task)”.  ASU
2010-18 clarifies that modifications of loans that are accounted for within a
pool under Subtopic 310-30, which provides guidance on accounting for acquired
loans that have evidence of credit deterioration upon acquisition, do not result
in the removal of those loans from the pool even if the modification would
otherwise be considered a troubled debt restructuring. An entity will continue
to be required to consider whether the pool of assets in which the loan is
included is impaired if expected cash flows for the pool change. The amendments
do not affect the accounting for loans under the scope of Subtopic 310-30 that
are not accounted for within pools. Loans accounted for individually under
Subtopic 310-30 continue to be subject to the troubled debt restructuring
accounting provisions within Subtopic 310-40. The amendments in this Update are
effective for modifications of loans accounted for within pools under Subtopic
310-30 occurring in the first interim or annual period ending on or after July
15, 2010. The Company expects the adoption of ASU 2010-18 will not have a
material impact on the Company’s results of operations or financial
position.
 
 In July
2010, FASB issued ASU 2010-20 “Receivables (Topic 310): Disclosures about the
Credit Quality of Financing Receivables and the Allowance for Credit
Losses”.ASU 2010-20
improves the disclosures that an entity provides about the credit quality of its
financing receivables and the related allowance for credit losses. As a result
of these amendments, an entity is required to disaggregate by portfolio segment
or class certain existing disclosures and provide certain new disclosures about
its financing receivables and related allowance for credit losses. For public
entities, the disclosures as of the end of a reporting period are effective for
interim and annual reporting period ending on or after December 15, 2010. The
disclosures about activity that occurs during a reporting period are effective
for interim and annual reporting periods beginning on or after December 15,
2010. The Company expects the adoption of ASU 2010-20 will not have a material
impact on the Company’s results of operations or financial
statements.
 8
 
 HUIFENG
BIO-PHARMACEUTICAL TECHNOLOGY INC. AND SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 AS
OF SEPTEMBER 30, 2010 (UNAUDITED)
  In August
2010, FASB issued ASU 2010-21 “Accounting for Technical Amendments to Various
SEC Rules and Schedules. Amendments to SEC Paragraphs Pursuant to Release No.
33-9026: Technical Amendments to Rules, Forms, Schedules and Codification of
Financial Reporting Policies”. ASU 2010-21 amends various SEC paragraphs
pursuant to the issuance of Release No. 33-9026: Technical Amendments to Rules,
Forms, Schedules and Codification of Financial Reporting Policies. The Company
expects the adoption of ASU 2010-21 will not have a material impact on the
Company’s results of operations or financial
statements.
 
 In August
2010, FASB issued ASU 2010-22 “Accounting for Various Topics-Technical
Corrections to SEC paragraphs (SEC Update)”. ASU 2010-22 amends various SEC
paragraphs based on external comments received and the issuance of SAB 112,
which amends or rescinds portions of certain SAB topics. The Company expects the
adoption of ASU 2010-22 will not have a material impact on the Company’s results
of operations or financial statements.
 
 NOTE
11. BUSINESS COMBINATIONS
 
 On
September 9, 2010, the Company through its subsidiary Huifeng Bio-Technic,
entered into an acquisition agreement with Kexin, and its registered equity
owners, pursuant to which the Company agreed to issue 2,300,000 shares of
restricted common stock, having a fair value of $1,495,000, plus cash
consideration of $140,000 to acquire 90% of the equity interests of
Kexin. The fair value of 2,300,000 shares of restricted common stock was
determined based on the closing market price of $0.65 on September 9, 2010, the
date the acquisition was completed. In addition, the Company, through its
subsidiary Huifeng Bio-Technic, agreed to lend Kexin $1,000,000, for three years
at a 10% annual interest rate, to help Kexin reach its projected annual net
income of $650,000 for the next three years. However, if Kexin cannot achieve an
average projected annual net income of $650,000 in the next two years, the
annual interest rate shall be adjusted to 20%.
 
 As a
result of the foregoing, on September 9, 2010 Kexin became a 90% subsidiary of
Huifeng Bio-Technic.
 
 As of
September 9, 2010, the fair value of net assets of Kexin was as
follows:
 
 Cash
      and cash equivalents
                  
                  $
                  9,565Accounts
      receivable
                  
                  
                  265,621Inventories
                  
                  
                  359,940Other
      assets
                  
                  
                  5,877Fixed
      assets, net
                  
                  
                  597,846Other
      payables and accrued liabilities
                  
                  
                  (1,055,798
                  )Income
      tax and other taxes payable
                  
                  
                  (22,202
                  )Non-controlling
      interests
                  
                  
                  (16,085
                  )Net
      assets acquired
                  
                  
                  144,764Consideration
      paid
                  
                  
                  1,635,000Goodwill
                  
                  $
                  1,490,236
 Analysis
of the net cash inflow in respect of the acquisition is as
follows:
 
 Total
      cash consideration
                      
                      $
                      140,000Add:
      Cash and cash equivalents acquired
                      
                      
                      9,565Less:
      Cash consideration not yet settled as of September 30,
2010
                      
                      
                      (140,000
                      )Net
      cash inflow
                      
                      $
                      9,565
 
 The
following table reflects the unaudited pro forma combined results of operations
for the three and nine months ended September 30, 2010 and 2009, assuming the
acquisition had occurred at the beginning of 2010 and 2009.
 9
 
 HUIFENG
BIO-PHARMACEUTICAL TECHNOLOGY INC. AND SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 AS
OF SEPTEMBER 30, 2010 (UNAUDITED)
 For the Three
                  
                  
                  For the Three
                  
                  
                  For the
      Nine
                  
                  
                  For the NineMonths Ended
                  
                  
                  Months Ended
                  
                  
                  Months Ended
                  
                  
                  Months EndedSeptember 30,
                    2010
                  
                  
                  September 30,
                    2009
                  
                  
                  September 30,
                    2010
                  
                  
                  September 30,
                    2009Revenue
                  
                  $
                  7,800,307
                  
                  
                  $
                  4,465,770
                  
                  
                  $
                  19,461,610
                  
                  
                  $
                  8,883,190Net
      income attributable to HFGB common stockholders
                  
                  $
                  2,206,027
                  
                  
                  $
                  996,378
                  
                  
                  $
                  4,602,770
                  
                  
                  $
                  1,406,935Net
      income per share – basic
                  
                  $
                  0.09
                  
                  
                  $
                  0.05
                  
                  
                  $
                  0.19
                  
                  
                  $
                  0.07Net
      income per share - diluted
                  
                  $
                  0.09
                  
                  
                  $
                  0.04
                  
                  
                  $
                  0.18
                  
                  
                  $
                  0.07
 
 NOTE
12. ACCOUNTS RECEIVABLE, NET
 
 Accounts
receivable consisted of the following:
 
 September 30,2010
                  
                  December
      31,2009(Unaudited)
                  
                  (Audited)Accounts
      receivable
                  
                  $
                  6,393,367
                  
                  
                  $
                  5,679,685Less:
      allowance for doubtful accounts
                  
                  
                  (76,219
                  )
                  
                  
                  (103,364
                  )Accounts
      receivable, net
                  
                  $
                  6,317,148
                  
                  
                  $
                  5,576,321
 
 For the
three and nine months ended September 30, 2010 and 2009, the Company recorded
(reversal of) and allowance for doubtful accounts of ($14,685), ($96,906),
($28,783) and $120,466 respectively.
 
 NOTE
13.  INVENTORIES, NET
 
 Inventories
consisted of the following:
 
 September 30,2010
                  
                  
                  December
      31,2009(Unaudited)
                  
                  
                  (Audited)Raw
      materials
                  
                  $
                  2,458,363
                  
                  
                  $
                  1,369,673Work-in-progress
                  
                  
                  1,403,004
                  
                  
                  
                  2,369,709Finished
      goods
                  
                  
                  2,410,723
                  
                  
                  
                  1,917,0386,272,090
                  
                  
                  
                  5,656,420Less:
      provision of obsolescence
                  
                  
                  -
                  
                  
                  
                  -Inventories,
      net
                  
                  $
                  6,272,090
                  
                  
                  $
                  5,656,420
 
 For the
three and nine months ended September 30, 2010 and 2009, the Company did not
make any provision for inventories.
 
 NOTE
14.  OTHER ASSETS
 
 Other
assets consisted of the following:
 
 September 30, 2010
                  
                  
                  December
      31, 2009(Unaudited)
                  
                  
                  (Audited)Advances
      to staff
                  
                  $
                  20,509
                  
                  
                  $
                  11,067Other
      receivables and prepayments
                  
                  
                  53,638
                  
                  
                  
                  56,604Trade
      deposits paid
                  
                  
                  1,251,643
                  
                  
                  
                  417,193Deposits
      paid for acquisition of equipment
                  
                  
                  753,915
                  
                  
                  
                  88,253Deposits
      paid for acquisition of subsidiaries (note)
                  
                  
                  1,045,072
                  
                  
                  
                  -$
                  3,124,777
                  
                  
                  $
                  573,117
 10
 
 HUIFENG
BIO-PHARMACEUTICAL TECHNOLOGY INC. AND SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 AS
OF SEPTEMBER 30, 2010 (UNAUDITED)
 
 Note:
              In
      June 2010, the Company entered into provisional sale and purchase
      agreements with independent third parties to acquire certain equity
      interests in two PRC companies engaged in the development, manufacture and
      sale of pharmaceutical raw materials. Upon signing the agreements, the
      Company paid $2,090,144 as deposits and partial payments of the
      consideration for the acquisitions. The total consideration will be
      settled by cash and common stock of the Company, and will be determined
      later. On September 9, 2010, the Company completed the acquisition of
      Kexin and the deposit of $1,045,072 was treated as interest bearing loan
      to Kexin. At September 30, 2010, the other acquisition
      was still at the negotiation
stage.
 
 NOTE
15. OTHER PAYABLES AND ACCRUED EXPENSES
 
 Other
payables and accrued expenses consisted of the following:
 
 September 30,2010
                        
                        
                        December
      31,2009(Unaudited)
                        
                        
                        (Audited)Other
      payables
                        
                        $
                        275,236
                        
                        
                        $
                        23,211Equipment
      and machinery payables
                        
                        
                        181,980
                        
                        
                        
                        60,254Short-term
      loan (note)
                        
                        
                        513,969
                        
                        
                        
                        -Accrued
      expenses
                        
                        
                        379,654
                        
                        
                        
                        159,773Deposits
      received from customers
                        
                        
                        48,215
                        
                        
                        
                        179,664$
                        1,399,054
                        
                        
                        $
                        422,902
 Note:
                As
      of September 30, 2010, the Company owed a third party $513,969 for a
      short-term loan made on an unsecured basis and which is repayable on
      October 30, 2010. Interest is charged at the rate of 7.2% per annum.
      Interest expense for the three and nine months ended September 30, 2010
      was $14,970 and $14,970
  respectively.
  NOTE
16. NOTES PAYABLE
 
 Notes
payable consisted of the following:
 
 September 30,2010
                  
                  
                  December
      31,2009(Unaudited)
                  
                  
                  (Audited)Notes
      payable to a financial institution, bearing interest at 10.188% per
      annum, secured by a director’s properties and the Company's
      equipment, due in September, 2012
                  
                  $
                  223,944
                  
                  
                  $
                  253,028Note
      payable to a bank, bearing interest at 6.372% per annum, guaranteed
      by a director and a third party, due in May 2010
                  
                  
                  -
                  
                  
                  
                  292,517Note
      payable to a bank, bearing interest at bank’s one-year Benchmark
      lending rate at the date of loan plus 20% (i.e. 6.372%) per annum,
      guaranteed by a director and a third party, due in September
      2010
                  
                  
                  
                  
                  
                  
                  292,517223,944
                  
                  
                  
                  838,062Less:
      current maturities
                  
                  
                  -
                  
                  
                  
                  (838,062
                  )Long-term
      maturities
                  
                  $
                  223,944
                  
                  
                  $
                  -
 11
 
 HUIFENG
BIO-PHARMACEUTICAL TECHNOLOGY INC. AND SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 AS
OF SEPTEMBER 30, 2010 (UNAUDITED)
 Interest
expense for the three and nine months ended September 30, 2010 and 2009 was
$16,654, $12,023, $44,871 and $34,662, respectively.
 
 NOTE
17.  CONVERTIBLE NOTES PAYABLE
 
 On
December 31, 2007, the Company consummated a private placement of 10% secured
convertible notes in the aggregate principal amount of $2,000,000 (the
“Notes”).  In connection with this offering, the Company also issued
three-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 using the effective interest method. For the three and
nine months ended September 30, 2010 and 2009, the Company amortized financing
cost of $0, $42,438, $0 and $127,313, respectively which is included in
interest expenses. The Notes were due on December 31, 2009 and were convertible
into 2,000,000 shares of common stock of the Company at a conversion price of
$1.00 per share.
  On
December 31, 2009, one Note holder converted the principal amount of $200,000 of
its Note into 200,000 shares of common stock of the Company. On December 24,
2009, the Company and the remaining six note holders holding Notes totaling
$1,800,000, entered into a note amendment agreement as follows:
   1.
              The
      maturity date of the Notes was extended from December 31, 2009 to June 30,
      2011;
   2.
              The
      conversion price of the Notes was reduced from $1.00 to
      $0.80;
  3.
              The
      exercise price of warrants to purchase 450,000 shares of common stock was
      reduced from $1.50 to
$1.00;
  4.
              The
      term of warrants was extended by one year to December 31,
      2011;
  5.
              The
      Company agreed to issue to the holders an aggregate of 450,000 shares of
      common stock in consideration for entering into the amendment;
      and
 
 6.
              The
      principal is due and payable in accordance with a payment schedule by
      percentages from 2.5% to 14.5% beginning on April 30, 2010 with the entire
      remaining balance payable on June 30,
2011.
 
 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. The Company may prepay all or any part of the outstanding
principal amount of the Notes, together with interest accrued, if any, upon not
fewer than thirty days’ prior written notice to the holders.
 
 In
accordance with ASC 470-20 (formerly EITF 98-5), a beneficial conversion feature
has been recorded on the extension of the maturity date of the Notes as the
conversion price of the Notes of $0.8 is lower than the fair market value per
share of $0.99 at December 24, 2009. The value of beneficial conversion feature
of $342,000 is recorded as a reduction in the carrying value of the Notes
against additional paid-in capital and is amortized over the term of the Notes
from the respective date of extension using the effective yield method. The
Company amortized $68,134 and $217,621 respectively of beneficial
conversion feature as interest expense for the three and nine months ended
September 30, 2010.
 
 The Notes
are secured by 500,000 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.
 
 The
Company recorded a discount on the Notes in accordance with ASC 470-20 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, the Company recorded amortization of $38,335 and $115,007
respectively as interest expenses in the statement of operations. Pursuant to
the amendment of the terms of the Notes the fair value of the remaining warrants
was re-calculated using the Black-Scholes model using the following assumptions;
(i) risk-free interest rate of 1%; (ii) expected life of 2 years; (iii)
expected volatility of 177%; (iv) expected dividend yield of 0.00%; and (v)
stock market price of $0.99. The Company recorded a fair value of $352,463 as
further discount on Notes and amortized $70,218 and $224,279 respectively
as an interest expense in the statement of operations for the three and nine
months ended September 30, 2010.
 12
 
 HUIFENG
BIO-PHARMACEUTICAL TECHNOLOGY INC. AND SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 AS
OF SEPTEMBER 30, 2010 (UNAUDITED)
 The
issuance of 450,000 shares of common stock to the Note holders in consideration
for entering into the amendment is a cost associated with the extension of the
Notes. The Company recorded a fair value of $445,500 as discount on Notes and
amortized $88,754 and $283,481 respectively as an interest expense in the
statement of operations for the three and nine months ended September 30,
2010.
 
 The Notes
bear a 10% annual interest rate payable in arrears with a first payment due on
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, 2010 and 2009, $36,649,
$51,111, $98,451 and $152,222, respectively were recorded as interest
expenses.
 
 As of
September 30, 2010, four Note holders converted principal in the amount of
$275,000 into 343,750 shares of common stock of the Company at a conversion
price of $0.80 per share and the Company repaid principal in the amount of
$234,375 in cash to the remaining two Note holders.
 
 NOTE
18.  COMMITMENTS AND CONTINGENCIES
  (A)
                  Operating
      lease commitments
 
 
 The
Company leases office and warehouse space from a third party under operating
leases which expire on September 30, 2010 and on July 23, 2011 at a quarterly
rental of $2,861 and at an annually rental of $4,401,
respectively.  For the three and nine months ended September 30, 2010
and 2009, the Company recognized rental expenses in the amount of $3,982,
$4,093, $11,883 and $12,276, respectively.
 
 As of
September 30, 2010, the Company had outstanding commitments with respect to
non-cancelable operating leases of $7,608 which are due by July 23,
2011.
  (B)
                  Capital
      commitments
 
 
 As of
September 30, 2010, the Company had capital commitments of $537,466 for the
purchase of equipment.
  (C)
                  Contingencies
 
 
 The
Company accounts for loss contingencies in accordance with ASC Topic 450
“Contingencies” (ASC Topic 450) and other related guidelines. Set forth below is
a description of certain loss contingencies as of September 30, 2010 (unaudited)
and management’s opinion as to the likelihood of loss in respect of loss
contingency.
 
 NOTE
19.  STOCKHOLDERS’ EQUITY
  (A)
                  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 are exercisable in whole or in part, are fully vested and are
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 ASC 718 with the following
assumptions and estimates: expected dividend 0%, volatility 189%, a risk-free
rate of 2.36% and an expected life of two years. The value of options recognized
during the three and nine months ended September 30, 2010 and 2009 was $0,
$10,916, $0 and $32,748 respectively. The stock options were fully exercised in
a cashless exercise in January 2010 and the Company issued 60,000 shares of
common stock.
 13


HUIFENG
BIO-PHARMACEUTICAL TECHNOLOGY INC. AND SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 AS
OF SEPTEMBER 30, 2010 (UNAUDITED)
 (B)
                Stock
      issuances
 
 On
February 25, 2010, the Company appointed three new independent directors and
granted a total of 110,000 shares of the Company’s restricted common stock as
annual compensation to the new directors. On May 6, 2010, one of the new
independent directors resigned and the Company agreed to issue 5,833 shares of
restricted common stock for the two months’ service period. Consequently, the
Company issued 85,833 shares of restricted common stock having a fair value of
$75,533 as annual compensation. The value of the common stock issued was
determined based on the closing market price of $0.88 on February 25, 2010.
The Company recorded deferred stock compensation of $29,333 as of September 30,
2010 and recognized $17,600 and $46,200 respectively as stock-based
compensation expense for the three and nine months ended September 30,
2010.
 
 On April
10, 2010, the Company granted 19,340 shares of the Company’s restricted common
stock to a legal counsel, having a fair value of $19,727 for legal advisory
services. The value of the common stock issued was determined based on the
closing market price of $1.02 on April 10, 2010.
 
 On April
16, 2010, the Company granted 50,000 shares of the Company’s restricted common
stock to an investment related company, having a fair value of $52,500 as annual
compensation. The value of the common stock issued was determined based on the
closing market price of $1.05 on April 16, 2010. The Company recorded deferred
stock compensation of $28,437 and recognized $13,125 and $24,063 as
stock-based compensation expense for the three and nine months ended September
30, 2010.
 
 On April
16, 2010, the Company granted 130,000 shares of the Company’s restricted common
stock to four consultants, having a fair value of $136,500 for consultancy
services. The value of the common stock issued was determined based on the
closing market price of $1.05 on April 16, 2010.
  In April
2010, four Note holders converted $275,000 in principal under their Notes into
343,750 shares of common stock of the Company at a conversion price of $0.80 per
share.
 
 On May 8,
2010, the Company appointed a new independent director and granted 30,000 shares
of restricted common stock, having a fair value of $34,200 as annual
compensation. The value of the common stock issued was determined based on the
closing market price of $1.14 on May 8, 2010. The Company recorded deferred
stock compensation of $19,950 and recognized $8,550 and $14,250 as stock-based
compensation expense for the three and nine months ended September
30, 2010.
 
 On August
23, 2010, the Company issued 220,000 shares of restricted common stock to a
consultant, having a fair value of $138,600 as annual compensation. The value of
the common stock issued was determined based on the closing market price of
$0.63 on August 23, 2010. The Company recorded deferred stock compensation of
$127,050 and recognized $11,550 as stock-based compensation expense for the nine
months ended September 30, 2010.
 
 On
September 9, 2010, the Company issued 2,300,000 shares of restricted common
stock, having a fair value of $1,495,000, as a part of consideration to acquire
90% equity interest of Kexin. The value of the common stock issued was
determined based on the closing market price of $0.65 on acquisition closing
date.
 
 On
September 16, 2010, the Company issued 65,000 shares of restricted common stock
to three consultants, having a fair value of $33,800 as annual compensation. The
value of the common stock issued was determined based on the closing market
price of $0.52 on September 16, 2010.
 
 On
September 16, 2010, the Company issued 200,000 shares of restricted common
stock, having a fair value of $104,000, as the stock compensation to settle
Primary Capital’s litigation. The value of the common stock issued was
determined based on the closing market price of $0.52 on September 16,
2010.
 
 On
September 16, 2010, the Company issued 50,000 shares of restricted common stock
to its Company Secretary, having a fair value of $26,000 for board
services. The value of the common stock issued was determined based on the
closing market price of $0.52 on September 16, 2010.
 14
 
 HUIFENG
BIO-PHARMACEUTICAL TECHNOLOGY INC. AND SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 AS
OF SEPTEMBER 30, 2010 (UNAUDITED)
 NOTE
20.  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,
which was due on December 31, 2009 and extended to June 30, 2011.
 
 NOTE
21.  CONCENTRATIONS AND RISKS
 
 As of
September 30, 2010 and 2009, the Company’s entire assets were located in
China.
 
 During
the nine months ended September 30, 2010 and 2009, 34% and 57% 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, the accounts receivable from these two
customers totaled $652,796. The Company did not rely on any one or a
few major customers during the nine months ended September
30, 2010.
 
 The
Company’s cash equivalents are exposed to concentration of credit risk, The
Company maintains balances at financial institutions which, from time to time,
may exceed Federal Deposit Insurance Corporation insured limits for the banks
located in the United States. Balances at financial institutions or state owned
banks within the PRC are not covered by insurance. As of September 30, 2010 and
December 31, 2009, the Company had deposits in excess of federally insured
limits totaling $2,085,476 and $555,327, respectively. The Company has not
experienced any losses in such accounts and believes it is not exposed to any
significant risks on its cash in bank accounts.
 
 Substantially
all the Company’s operations are carried out in the PRC. Accordingly, the
Company’s business, financial condition and results of operations may be
influenced by the political, economic and legal environments in that country,
and by the general state of that country’s economy. The Company’s operations in
the PRC are subject to specific considerations and significant risks not
typically associated with companies in the United States. These include risks
associated with, among others, the political, economic and legal environments
and foreign currency exchange. The Company’s results may be adversely affected
by changes in governmental policies with respect to laws and regulations,
anti-inflationary measures, currency conversion and remittance abroad, and rates
and methods of taxation, among other things.
 
 NOTE
22. SUBSEQUENT EVENTS
 
 On
November 3, 2010, the Company entered into a loan settlement agreement with a
third party, pursuant to which the Company agreed to issue 861,606 shares of
restricted common stock, at a price of $0.6, to settle the short-term loan of
$499,000 plus interest charged of $17,964 from May 1 to October 30,
2010.
 
 On
November 8, 2010, the Company entered into a material definitive agreement with
a third party, pursuant to which the third party agreed to provide financing for
the construction of a COS Standard Diosmin plant adjacent to the Company’s current plant in
Xi’an, and is
responsible for obtaining construction bids and selecting the construction
company on behalf of the Company. The project has a budget of $3,900,000, which
shall be paid by the third party on behalf of the Company. In consideration for
its services, the Company agreed to issue 6,500,000 shares of restricted common
stock to the third party.
 
 NOTE
23.  RECLASSIFICATION
 
 The
Company disposed of its 70% subsidiary, Huifeng Engineering, in June 2009. As a
result of the disposal, the condensed consolidated financial statements of the
Company reflect the disposal of Huifeng Engineering as discontinued operations
for all periods presented. Accordingly, the net operating results of the
discontinued operations, net of income taxes have been reclassified as loss from
discontinued operations, net of income taxes in the condensed consolidated
statements of operations.
  15
 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, Item1A. 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.
 
 Item 2.Management's Discussion and
Analysis of Financial Condition and Results of Operations
  The
following discussion should be read in conjunction with the Huifeng
Bio-Pharmaceutical Technology, 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
 
 Business
 
 The
Company, through its wholly owned subsidiary Northwest BioTechnic Inc., owns
100% of Xi’an Huifeng Bio-Technic Inc. (“Huifeng PRC”), which produces and
sells plant extracts, biochemical products and pharmaceutical raw products in
the PRC and internationally. Huifeng PRC 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 PRC became one of the major producers
of Rutin in Xian city within two years after it was established. Huifeng’s
patented Rutin-refining technology, is the most advanced in China, and has
enabled the Company to become one of the major Rutin suppliers in the
world. The Company emphasizes technology and product innovation and its
strategic mission is to commercialize Chinese traditional medicine. The
Company’s major business goals are as follows:
 
  ̈
              Produce
      pharmaceutical raw materials, active pharmaceutical ingredients, and plant
      extracts. ̈
              Focus
      on expanding extract production and new market
  penetration. ̈
              Become
      the leading Chinese producer of Rutin and Diosmin. ̈
              Serve
      a diverse domestic and international client base. ̈
              Maintain
      all Chinese qualifying certifications for domestic and international sales
      of plant extracts and related products. ̈
              Obtain
      ISO9000:2001 and multiple national Good Manufacturing Practices (GMP)
      qualifications.
  Our
Products
  The
Company’s products are primarily in the chemical category called flavonoids,
with medicinal benefits and multiple end markets, including pharmaceuticals used
for humans and animals, nutraceuticals, cosmetics, functional drinks and
food. All the Company’s products can be
classified in one of the following three
categories:
 
 Pharmaceutical
Raw Materials
  ̈
              Diosmin
      EP ̈
              Rutin
      USP standard, Rutin DAB9, Rutin DAB10, Rutin EP5, Rutin
    BP2006 ̈
              Troxerutin
      DAB1999, Troxerutin EP5, Troxerutin EP6 ̈
              Silymarin
      USP, Silymarin DAB, Silymarin BP2006 ̈
              Other
      client specified pharmaceutical raw
materials
  Active
Pharmaceutical Ingredients
 16
  ̈
              Quercetin
      , Rhamnose, Glucomannan, Glucuronolactone, Hesperidin,
      Synephrine, Resveratrol, etc. Soybean Isoflavones, Lutein, Lycopene,
      5-HTP, etc.
  Plant
Extracts
  ̈
              Ginkgo
      Biloba Extract, Epimedium Extract, Bilberry Extract, Grape Seed
      Extract, Bitter Melon Extract, Mellisa Officinallis Extract,
      etc.
 
 Production
Facilities
 
 On June
28, 2009, Huifeng Bio-Technic disposed of its 70% equity interest in
Huifeng Engineering, located in Fenghui, Changan, Xian, for a cash
consideration of $21,919. At present, we have only one major production site
that includes the following equipment:
 
 Manufacturing
plant located at No. 1, Huifeng Rd, Changwu, Xianyang:
 
 ·
              This
      production site is for refining and manufacturing of new
      products.·
              This
      production site has 10 buildings including:-
              A
      two-level office building-
              A
      four-level staff building-
              An
      one-level building for clean area under GMP standard-
              One
      raw materials storage building-
              Two
      buildings for storage of finished products-
              One
      building for dangerous products-
              Building
      for quality testing zone and researching
  center-
              Building
      for power and maintenance (including boiler, power distribution and
      maintenance)-
              One
      cafeteria and staff canteen
 
 The
production site occupies a total area of approximately 117,569 square feet. The
Company pledged part of its production facilities in Changwu factory valued at
$933,877 to Xi'an Beilin District Credit Cooperatives to secure a loan of
$223,944 due in September 2012.
 
 We
currently obtain all our raw materials from third parties and from various
farmers located in the Shaanxi, Gansu and Shanxi provinces of China. Our
principal suppliers include Cungui Zhang, Xiaohe Wang and Yingwei Xu. All of
them are large wholesalers.
  On
November 8, 2010, the Company, through its wholly-owned subsidiary,
Huifeng-Bio-Technic, entered into a Financing and Construction Agreement with
Xi’an Jucheng Investment & Consulting Co., Ltd. (“Jucheng”), a company
organized and operating under the laws of the PRC. Pursuant to the agreement
with Jucheng, Jucheng has agreed to provide financing for the construction of a
COS Standard Diosmin Plant adjacent to the Company’s current plant in Xi’an,
which will include a synthetic workshop, a cleaning workshop, an
air-conditioning workshop and a water purification workshop. The project has a
budget of $3,900,000, which shall be paid by Jucheng. Huifeng Bio-Technic is
responsible for hiring professional personnel to supervise the project for
compliance with the Diosmin COS Standards. The Company expects the plant to be
completed in eight months.
  Target
Markets and Principal Customers
 
 During
the period ended September 30, 2010, we secured two new customers. One is a
U.S. based purchaser of Quercetin and one is a Spain API sourcing company
that purchases Diosmin.  We are currently the only Chinese producer that is
applying for COS certification from EDQM (European Directorate for
Quality Medicines).
 
 Currently,
all of our products are raw materials and intermediaries used in the production
of medicine, nutraceuticals and cosmetics and our customers are pharmaceutical
companies and manufacturers of nutraceuticals, cosmetics, and functional food
and drinks.
 
 Dependence
on Major Customers
 
 For the
quarter ended September 30, 2010, our top five customers accounted for
approximately 20% of our revenues. We are working towards developing a broad
base of customers to minimize our dependency on any major
customers.
 
 Sales
and Marketing
 
 For the
period ended September 30, 2010, our major products were raw materials and
intermediaries used in the production of medicine, nutraceuticals and
cosmetics. We sell our products primarily to pharmaceutical,
nutraceuticals and food manufacturers. Most of our customers place purchase
orders directly with our sales and marketing team.
 
 The sales
department is divided into two teams, a domestic sales team and an export sales
team. During the period ended September 30, 2010, the sales department had
24 employees. No new employees were added during the quarter end September 30,
2010. All the sales department employees are well trained. We also expand
our sales networks by attending international industrial exhibitions and
fairs.
 17
 We did
not establish any regional representative or sales office in the nine months
ended September 30, 2010 because our products were primarily sold through direct
orders from our clients who placed orders with our sales department. There was
no need for any retail distribution of our product.
 
 Competition
 
 Huifeng
engages in Rutin production in China. With its proprietary technology of
“Producing Rutin by Eliminating Enzyme and Mucus” and with abundant resources of
high quality pagoda rice in the Northwest region of China as raw materials,
Huifeng does not face significant competition within China.
 
 Our major
competitor for Rutin continues to be Sichuan Xieli Pharmaceutical Company
Limited (“Xieli”). However, we believe that due to the lack of technology
patents and access to raw materials, Xieli is fading out of the Rutin refining
business and is shifting its business from raw medicine production to finished
medicine production.
 
 Our
competitor for Diosmin and L-Rhamnose is Chengdu Huakang Biology Company
(“Huakang”). However, Huakang has no licenses for drug production and cannot
sell its products for medicinal use.  The scope of its market is
therefore restricted. In addition, unlike us, they do not have the requisite
European Certification of Suitability (“COS”). Thus they cannot pose any threat
to us in terms of market share and sales, particularly in the overseas
market.
 
 During
the period ended September 30, 2010, some new domestic competitors promoted
products that we are selling, including Resveratrol. However, we do not believe
that these competitors have mature technologies for Resveratrol production at
costs lower than us. Therefore we do not believe that they can pose an immediate
threat to our business.
 
 Principal
Office
 
 Our
principal office is located at 16B/F Ruixin Bldg., No. 25 Gaoxin Road, Xi’an,
Shaanxi Province, China 710075.
 
 Employees and
Organization
 
 As of
September 30, 2010, we had approximately 224 employees. During the nine months
ended September 30, 2010, there was no change in the number of employees. None
of our employees are covered by a collective bargaining agreement and we have
never experienced a work stoppage, and we consider our labor relations be
good.
 
 As of
September 30, 2010, our Company organization was as follow:
 
 No. ofEmployees
                  
                  
                  No.
      of EmployeesAt
                  
                  
                  atSeptember
                  
                  
                  SeptemberDepartment
                  
                  30, 2010
                  
                  
                  30, 2009Sales
      department:Domestic
      sales department
                  
                  
                  8
                  
                  
                  
                  8Export
      sales department:Export
      section I
                  
                  
                  8
                  
                  
                  
                  8Export
      section II
                  
                  
                  8
                  
                  
                  
                  8Production
      department
                  
                  
                  155
                  
                  
                  
                  154Technical
      department
                  
                  
                  5
                  
                  
                  
                  5Inspection
      department
                  
                  
                  8
                  
                  
                  
                  8Provision
      department
                  
                  
                  5
                  
                  
                  
                  5Personnel
      department
                  
                  
                  5
                  
                  
                  
                  5Finance
      department
                  
                  
                  7
                  
                  
                  
                  7Security
      department
                  
                  
                  8
                  
                  
                  
                  8Certification
      department
                  
                  
                  7
                  
                  
                  
                  5TOTAL
                  
                  
                  224
                  
                  
                  
                  221
 18
 
 Research
and Development
 
 During
the period ended September 30, 2010, we continued our research and development
of new products and new technologies. We kept our own structure of our research
and development team.
 
 Research
and development costs for the nine months ended September 30, 2010 and 2009
were $50,995 and $30,902, respectively. The increase is mainly due to the cost
of research materials, related to external testing and employees’
wages.
 
 Patents
and Intellectual Property
 
 Huifeng's
proprietary technology owns a Chinese national technology patent “Producing
Rutin by Eliminating Enzyme and Mucus”.
 
 Government
Regulations
 
 The
Chinese government requires all manufacturers of medicine and medicinal related
products to obtain GMP certification for their pharmaceutical manufacturing
facilities. Huifeng obtained GMP certification from relevant government
regulatory bodies. Other than GMP certification requirements, there was no
significant change in the regulatory environment in China.
 
 Compliance
with Environmental Laws
 
 We
believe that we are in compliance with environmental laws in the PRC which are
applicable to us. The costs of such compliance do not have a material effect on
our financial condition.
 
 Regulation
of Enterprise Income Tax Law
 
 The
Enterprise Income Tax Law (“EIT Law’) was promulgated by the National
People’s Congress on March 16, 2007 to introduce a new uniform taxation regime
in the PRC. Both resident and non-resident enterprises deriving income from the
PRC will be subject to this EIT Law from January 1, 2008. It replaced the
previous two different tax rates applied to foreign-invested enterprises and
domestic enterprises by only one single income tax rate applied for all
enterprises in the PRC. Under this EIT Law, except for some hi-tech enterprises
which are subject to EIT rates of 15% and other very limited situation that
allows EIT rates at 20%, the general applicable EIT rate in the PRC is
25%.
 
 CRITICAL
ACCOUNTING POLICIES AND ESTIMATES
 
 We
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, 2010 and 2009. 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 ASC Topic 605 (formerly 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;
 19
 3. The
      seller's price to the buyer is fixed or determinable;
  and
 
 4. Collectibility
      is reasonably assured.
 
 The
majority of the Company's revenue results from sales contracts with distributors
and revenue is recognized 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 collectibility. Based on these factors, the Company
believes that it can apply the provisions of ASC Topic 605 with minimal
subjectivity.
 
 RESULTS OF
OPERATIONS
 
 Three
Months Ended September 30, 2010 Compared To Three Months Ended September 30,
2009
 
 Revenues,
Cost of Revenues and Gross Margin
 
 Revenues
for the quarter ended September 30, 2010 were $7,422,334, an increase of
$2,956,564, or 66.2%, from $4,465,770 for the same quarter in 2009. Our increase
in sales revenues for the third quarter of 2010 was mainly due to the increase
in our sales of pharmaceutical raw-material and pharmaceutical intermediates,
which include our products of Rutin, Troxerutin and Quercetin. An analysis of
our results in sales of our products is as follows:
  For
      the quarter ended
                    September
      30,
                  
                  IncreaseProduct
                  
                  2010
                  
                  
                  2009Pharmaceutical
      intermediates
                  
                  $
                  2,305,410
                  
                  
                  $
                  1,104,279
                  
                  
                  $
                  1,201,131Pharmaceutical
      raw-material
                  
                  
                  4,417,384
                  
                  
                  
                  2,696,843
                  
                  
                  
                  1,720,541Plant
      extractive and others
                  
                  
                  699,540
                  
                  
                  
                  664,648
                  
                  
                  
                  34,892TOTAL
                  
                  $
                  7,422,334
                  
                  
                  $
                  4,465,770
                  
                  
                  $
                  2,956,564
  Cost of
sales for the quarter ended September 30, 2010 was $3,515,796, an increase
of $521,191, or 17.4%, from $2,994,605 for the quarter ended September 30,
2009. Compared to the quarter ended September 30, 2009, the increase in cost of
sales for the third quarter of 2010 was caused by an increase in sales of our
pharmaceutical intermediates. An analysis of our results in cost of sales of our
products is as follows:
 
 For
      the quarter ended
                    September
      30,
                  
                  
                  IncreaseProduct
                  
                  2010
                  
                  
                  2009Pharmaceutical
      intermediates
                  
                  $
                  1,108,012
                  
                  
                  $
                  697,933
                  
                  
                  $
                  410,079Pharmaceutical
      raw-material
                  
                  
                  1,972,627
                  
                  
                  
                  1,863,999
                  
                  
                  
                  108,628Plant
      extractive and others
                  
                  
                  435,157
                  
                  
                  
                  432,673
                  
                  
                  
                  2,484TOTAL
                  
                  $
                  3,515,796
                  
                  
                  $
                  2,994,605
                  
                  
                  $
                  521,191
  Our gross
margin for the quarter ended September 30, 2010 was $3,906,538, an increase of
$2,435,373, or 165%, from $1,471,165 for the same quarter in 2009 as a result of
the increase in our products sold and a significant increase in the selling
price of our products, mainly due to the sales increase of pharmaceutical
raw-material and pharmaceutical intermediates.
  Our gross
margin as a percentage of revenues for 2010 increased 19.6% from 33% for the
third quarter of 2009 to 52.6% in the same quarter in 2010, mainly because of a
significant increase in the selling price of our products.
  20
 
 General
and Administrative Expenses
 
 General
and administrative expenses totaled $492,239 for the three months ended
September 30, 2010, increased to $424,272, or 624%, from $67,967 for the
three months ended September 30, 2009. The increase in general and
administrative expenses was mainly due to an increase in legal and professional
fees of $45,747, stock-based compensation expense of $50,825 and
foreign currency exchange loss of $186,768 during the period.
 
 Selling
and Distribution Expenses
 
 Selling
and distribution expenses totaled $56,821 for the three months ended September
30, 2010, a decrease of $30,251, or 35%, from $87,072 for the three months ended
September 30, 2009. The decrease in selling and distribution expenses was mainly
due to the decrease in freight expenses of $19,420 due to the change in
shipping from air freight to ocean freight.
 
 Nine
Months Ended September 30, 2010 Compared To Nine Months Ended September 30,
2009
 
 Revenues,
Cost of Revenues and Gross Margin
 
 Revenues
for the nine months ended September 30, 2010 were $18,273,172, an increase of
$9,389,982, or 106%, from $8,883,190 for the same period in 2009. Our increase
in revenues for the nine months ended September 30, 2010 was mainly due to the
increase in our sales of pharmaceutical raw-material and pharmaceutical
intermediates, which include our products of Rutin, Troxerutin, L-Rhamnose,
Quercetin and Diosmin. An analysis of our results in sales of our products is as
follows:
  Nine
      Months ended
                                    September
      30,
                                  
                                  IncreaseProduct
                                  
                                  2010
                                  
                                  2009Pharmaceutical
      intermediates
                                  
                                  
                                  $
                                  4,611,947
                                  
                                  
                                  $
                                  2,002,165
                                  
                                  
                                  $
                                  2,609,782Pharmaceutical
      raw-material
                                  
                                  
                                  
                                  11,894,424
                                  
                                  
                                  
                                  5,445,430
                                  
                                  
                                  
                                  6,448,994Plant
      extractive and others
                                  
                                  
                                  
                                  1,766,801
                                  
                                  
                                  
                                  1,435,595
                                  
                                  
                                  
                                  331,206TOTAL
                                  
                                  
                                  $
                                  18,273,172
                                  
                                  
                                  $
                                  8,883,190
                                  
                                  
                                  $
                                  9,389,982
  Cost of
sales for the nine months ended September 30, 2010 were $10,276,838, an increase
of $4,316,373, or 72.4%, from $5,960,465 for the nine months ended September 30,
2009. The increase in the cost of sales for the nine months ended September
30, 2010 was caused by an increase in sales of pharmaceutical intermediates and
pharmaceutical raw-materials, which include our products L-Rhamnose, Quercetin
and Diosmin. An analysis of our results in cost of sales of our products is as
follows:
  21
 Nine
      Months ended
                                                September
      30,
                                              
                                              
                                              IncreaseProduct
                                              
                                              2010
                                              
                                              
                                              2009Pharmaceutical
      intermediates
                                              
                                              $
                                              2,597,664
                                              
                                              
                                              $
                                              1,247,493
                                              
                                              
                                              $
                                              1,350,171Pharmaceutical
      raw-material
                                              
                                              
                                              6,830,394
                                              
                                              
                                              
                                              3,864,665
                                              
                                              
                                              
                                              2,965,729Plant
      extractive and others
                                              
                                              
                                              848,780
                                              
                                              
                                              
                                              848,307
                                              
                                              
                                              
                                              473TOTAL
                                              
                                              $
                                              10,276,838
                                              
                                              
                                              $
                                              5,960,465
                                              
                                              
                                              $
                                              4,316,373
  The gross
profit margin for the nine months ended September 30, 2010 was $7,996,334, an
increase of $5,073,609 or 173.6% from $2,922,725 for the nine months ended
September 30, 2009 as a result of an increase in sales of our products and a
significant increase in the selling price of our products, mainly due to an
increase in sales of our pharmaceutical raw-material and pharmaceutical
intermediates.
  Our gross
margin as a percentage of sales for the nine months ended September 30, 2010
increased by 10.8% to 43.8% from 33% in the same period in 2009. The increase in
gross margin was mainly due to the increase in the selling price of
raw-materials.
  General
and Administrative Expenses
 
 General
and administrative expenses totaled $1,067,390 for the nine months ended
September 30, 2010, an increase of $558,017, or 110%, from $509,373 for the nine
months ended September 30, 2009. The increase in general and administrative
expenses was mainly due to an increase in legal and professional fees of
$202,080, stock-based compensation expense of $96,063 and foreign currency
exchange loss of $308,865.
  Selling and Distribution
Expenses
 
 Selling
and distribution expenses totaled $117,213 for the nine months ended September
30, 2010, a decrease of $56,788, or 32.6%, from $174,001 for the nine months
ended September 30, 2009. The decrease in selling and distribution expenses was
mainly due to an increase use of ocean freight instead of air
freight during the nine months ended September 30, 2010, resulting in a decrease
in transportation expense by $40,280 as compared to the same period of
2009.
 
 Liquidity
and Capital Resources
 
 Cash
 
 Cash and
cash equivalents as of September 30, 2010 was $2,088,599.
  In the
nine months ended September 30, 2010, cash provided by operating activities was
$2,931,146, compared to cash used in operating activities of $169,785 for the
nine months ended September 30, 2009, mainly due to the significant increase in
our net income from continuing operations. In the nine months ended September
30, 2010, cash used in investing activities was $545,997 compared to cash used
in investing activities of $194,238 for the same period in 2009, mainly as a
result of the purchase of new production machinery and equipment. Cash used in
financing activities in the nine months ended September 30, 2010 was $854,937,
compared to cash provided by financing activities of $263,062 in the same period
in 2009, primarily as the result of the repayment of a bank loan and the
repayment of six Note holders.
 On April
30, 2010, the Company’s subsidiary Xi’an Huifeng Bio-Technic Inc. entered into a
Loan Agreement with Xi’an Runfeng Investment, Ltd. Co. pursuant to which Runfeng
loaned the subsidiary $499,000. The loan was due and payable on October 30, 2010
and earned interest at an annual interest rate of 7.2%.
 
 On
November 3, 2010, Xi’an Huifeng Bio-Technic Inc. and Xi’an Runfeng Investment,
Ltd. Co. entered into a Debt Payment Agreement, pursuant to which Runfeng agreed
to accept 861,606 shares of the Company in full payment for all of the
outstanding principal and interest due under the Loan Agreement, which at
October 30, 2010 was $516,964. The Company’s Board of Directors ratified and
approved the Debt Payment Agreement and authorized the issuance of the shares to
Runfeng.
  Working
Capital
  Our
working capital amounted to $14,680,633 at September 30, 2010.
 
 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.
  22
 CURRENCY
EXCHANGE FLUCTUATIONS
  All of
our revenues and majority of the expenses for the nine months ended September
30, 2010 were denominated primarily in Renminbi ("RMB"), the currency of
China, and were converted into US dollars at the exchange rate of 6.6981 to 1.
Since July 22, 2005, the RMB has strengthened against the US dollars. As a
result of the appreciation of RMB we recognized a foreign currency translation
gain of $471,811 during the nine months ended September 30, 2010. 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 not 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
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 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.
 
 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, 2010
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
  Item 1. Legal Proceedings
 
 In May
2010, Primary Capital, Inc. (“Primary Capital”) filed a Complaint against the
Company entitledPrimary Capital, Inc.
vs. Huifeng Bio-Pharmaceutical Technology, Inc. , in the United States
District Court for the Southern District of New York. Primary Capital
asserts that the Company breached its contract with Primary Capital by failing
to honor the exercise of two million option to purchase the Company’s common
stock at the exercise price of $0.9 per share on a cashless basis and to pay the
second retainer payment of $150,000 in exchange for investment banking
services.  According to the Complaint, Primary Capital seeks a minimum of
$930,000 in damages. The Company has filed a formal response to the
Complaint in which the Company denies liability for the claims of Primary
Capital and also has filed a Counterclaim against Primary Capital asserting
breach of contract based on the failure of Primary Capital to provide the
required services under the contract.  Because the litigation is at the
preliminary stage, the Company cannot comment on whether an adverse outcome is
probable or otherwise. The Company believes that any liability it would incur
will not have a material impact on its financial positions and results of
operations. In September 2010, the Company entered into a Settlement and
Termination Agreement with Primary Capital. Pursuant to the settlement
agreement, Primary Capital and the Company filed a Stipulation of Voluntary
Dismissal to the United States District Court for the Southern District of New
York to withdraw the claims and counterclaim and the Company agreed to issue
200,000 shares of restricted common stock plus $55,000 in cash to settle the
lawsuit.
 
 23
 Item
1 A. Risk Factors
 
 Not
required.
 
 Item 2. Unregistered Sales of Equity
Securities and Use of Proceeds
 
 On April
10, 2010, the Company granted 19,340 shares of the Company’s common stock to
legal counsel, having a fair value of $19,727 for legal advisory services. The
value of the common stock issued was determined based on the closing market
price of $1.02 on April 10, 2010. The issuance of these shares was exempt
from registration pursuant to Section 4(2) of the Securities Act of
1933.
 
 On April
16, 2010, the Company granted 50,000 shares of the Company’s common stock to an
investment related company, having a fair value of $52,500 as annual
compensation. The value of the common stock issued was determined based on the
closing market price of $1.05 on April 16, 2010. The issuance of these
shares was exempt from registration pursuant to Section 4(2) of the Securities
Act of 1933.
 
 On April
16, 2010, the Company granted 130,000 shares of the Company’s common stock to
four consultants, having a fair value of $136,500 for consultancy services. The
value of the common stock issued was determined based on the closing market
price of $1.05 on April 16, 2010. The issuance of these shares was exempt
from registration pursuant to Section 4(2) of the Securities Act of
1933.
 
 In April
2010, four Note holders converted the principal amount of $275,000 of their
Notes into 343,750 shares of common stock of the Company at a conversion price
of $0.80 per share. The issuance of these shares was exempt from
registration pursuant to Section 3(a)(9) of the Securities Act of
1933.
 
 On May 8,
2010, the Company appointed a new independent director and granted 30,000 shares
of the Company’s common stock, having a fair value of $34,200 as annual
compensation. The value of the common stock issued was determined based on the
closing market price of $1.14 on May 8, 2010. The issuance of these shares
was exempt from registration pursuant to Section 4(2) of the Securities Act
of 1933.
 
 On August
23, 2010, the Company issued 220,000 shares of restricted common stock to a
consultant, having a fair value of $138,600 as annual compensation. The value of
the common stock issued was determined based on the closing market price of
$0.63 on August 23, 2010.
 
 On
September 9, 2010, the Company issued 2,300,000 shares of restricted common
stock, having a fair value of $1,495,000, as a part of consideration to acquire
90% equity interest of Shangqiu Kexin Rutin Processing Limited. The value of the
common stock issued was determined based on the closing market price of $0.65 on
September 9, 2010.
 
 On
September 16, 2010, the Company issued 65,000 shares of restricted common stock
to three consultants, having a fair value of $33,800 as annual compensation. The
value of the common stock issued was determined based on the closing market
price of $0.52 on September 16, 2010.
  On
September 16, 2010, the Company issued 200,000 shares of restricted common
stock, having a fair value of $104,000, as the stock compensation to settle
Primary Capital’s litigation. The value of the common stock issued was
determined based on the closing market price of $0.52 on September 16,
2010.
 
 On
September 16, 2010, the Company issued 50,000 shares of restricted common stock
to its Company Secretary, having a fair value of $26,000 for board services. The
value of the common stock issued was determined based on the closing market
price of $0.52 on September 16, 2010.
 
 Item 3. Defaults on Senior
Securities
 
 None.
  Item 4. (Removed and
Reserved)
 
 Item
5. Other
Information
 
 Introduction
 
 24
 On December 31, 2007, the Company
entered into a series of agreements including a Securities Purchase Agreement, a
Registration Rights Agreement, certain Convertible Promissory Notes, certain warrant agreements,
Pledge Agreements and an Escrow Agreement (collectively, the “Transaction Documents”) with certain purchasers including,
among others, Professional Offshore Opportunity Fund, Ltd., Ancora Greater China
Fund, StrategicAlliance Fund, L.P., Strategic Alliance
Fund II, L.P., Peter Treadway, Janet Wang and Manilal Patel (collectively, the
“Investors”).
 
 The
Transaction Documents require Jing’an Wang, the Company’s Chief Executive
Officer, to personally place 1,400,000 shares of the Company’s common stock
(“the Make Good Shares”) in an escrow account to be released to the Investors if
the net income of the Company for fiscal year 2008 is below $3,800,000.
According to the Company’s audited financial statements for the fiscal year
2008, the net income of the Company for fiscal year 2008 was below $3,800,000.
The net income is below $3,800,000 was mainly due to the two reasons: financial
crisis resulted in the Company’s business decreasing and income loss;
unsuccessful second-round capital raising resulted in discontinued acquisition
of Xi’an Qinba Xintong Medical Limited (“Qinba”).
 
 As of the
date of the Settlement Agreement and Release described below, the Make Good
Shares remained in escrow and unreleased.
 
 Settlement
Agreement and Release
 
 On June
30, 2010, the Company and Jing’an Wang, the Company’s Chief Executive Officer,
on the one hand, and the Investors and Sullivan & Worcester LLP, the escrow
agent, on the other hand, entered into a Settlement Agreement and Release,
pursuant to which the parties agreed to release 900,000 shares of the Company’s
common stock from the escrow pro rata to the Investors on the date of the
Settlement Agreement and Release.  The remaining 500,000 shares of the
Company’s common stock shall remain in escrow and shall be returned to Jing’an
Wang if (i) the Company obtains financing in the aggregate amount of at least
$3,000,000 by December 31, 2010; and (ii) the Company completes the listing of
its common stock for trading on any major securities exchange within
twelve (12) months from the date of the Settlement Agreement and Release.If the foregoing conditions are not met, the remaining
500,000 shares will be released to the investors.
 
 Item 6. Exhibits
 
 (a) Exhibits
 
 31.1
              
              Certification
      pursuant to Section 302 of Sarbanes Oxley Act of 2002.31.2
              
              Certification
      pursuant to Section 302 of Sarbanes Oxley Act of 2002.32.1
              
              Certification
      pursuant to Section 906 of Sarbanes Oxley Act of 2002.32.2
              
              Certification
      pursuant to Section 906 of Sarbanes Oxley Act of
  2002.
 
 25
 SIGNATURES
 
 In
accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, there unto duly
authorized.
 
 HUIFENG
      BIO-PHARMACEUTICAL TECHNOLOGY, INC.Dated:
      November 15, 2010
              By:
              /s/
      Jing’an WangJing’an
      Wang
                Chief
      Executive Officer (Principal Executive Officer)Dated:
      November 15, 2010
              By:
              /s/
      Sanding TaoSanding
      TaoChief
      Financial Officer (Principal Accounting
                and Financial
      Officer)
 
 26