UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549





FORM
10-K





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


For the
fiscal year ended December 31, 2008





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


For the
transition period from ________ to _________





Commission
File Number: 000-32253





HUIFENG BIO-PHARMACEUTICAL
TECHNOLOGY, INC.


(Exact
Name of Registrant as specified in its charter)





Nevada
              
              87-0650264(State
      or other jurisdiction of
                Incorporation
      or organization)
              
              (I.R.S.
      Employer
                Identification
      Number)





16B/F
Ruixin Road Bldg. No. 25 Gaoxin Road Xi An 710075 Shaanxi Province,
China


(Address
of principal executive office)





Registrant’s
telephone number, including area code: (86) 29 8824 6358





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





Securities
registered under Section 12(g) of the Exchange Act:


Common Stock, Par Value
$0.018 Per Share


(Title of
Class)





Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.


Yes oNo x





Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act.


Yes oNo x





Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes xNo o





Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K (section 229.405 of this chapter) is not contained herein, and
will not be contained, to the best of the registrant’s knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. o




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








Large
      accelerated filer   ̈
                Accelerated
      filer   ̈Non-accelerated
      filer    ̈
                Smaller
      reporting company x





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





The
aggregate market value of the voting and non-voting stock held by non-affiliates
of the registrant, as of June 30,
2008, was approximately $8,933,679. All executive officers and directors
of the registrant have been deemed, solely for the purpose of the foregoing
calculation, to be "affiliates" of the registrant.





As of
March 11, 2009, there were 18,466,169 shares of the issuer's common stock,
$0.018 par value per share, issued and outstanding.







TABLE OF
CONTENTS





PagePART
      IITEM
      1. of Business
                1ITEM
      1A. Risk Factors
                7ITEM
      2. Properties
                14ITEM
      3. Legal Proceedings
                14ITEM
      4. Submission of Matters to a Vote of Security Holders
                14PART
      IIITEM
      5. Market for registrant’s Common Equity, Related Stockholder Matters and
      Issuer Purchases of Equity Securities
                14ITEM
      6. Selected Financial Data
                15ITEM
      7. Management’s discussion and Analysis of Financial Condition and Results
      of Operation
                15ITEM
      8. Financial Statements and Supplementary Data
                21ITEM
      9.  Changes in and Disagreements with Accountants on Accounting and
      Financial Disclosure
                21ITEM
      9A(T). Controls and Procedures
                21ITEM
      9B. Other Information
                22PART
      IIIITEM
      10.  Directors, Executive Officers and Corporate
      Governance
                22ITEM
      11. Executive Compensation
                24ITEM
      12. Security Ownership of Certain Beneficial Owners and Management and
      Related Stockholder Matters
                24ITEM
      13. Certain Relationships and Related Transactions, and Director
      Independence
                24ITEM
      14. Principal Accounting Fees and Services
                24PART
      IVITEM
      15. Exhibits
                25








STATEMENT
REGARDING FORWARD-LOOKING STATEMENTS




In this
annual report, the terms
“Huifeng Bio-Pharmaceutical,” “HFGB,” the “Company,” “we,” “us,” and “our” refer
to Huifeng Bio-Pharmaceutical Technology, Inc., and its subsidiaries, Northwest
BioTechnic Inc. (“NBTI”) and Huifeng Biochemistry Joint Stock Company
(“Huifeng”).




Except
for the historical information contained herein, some of the statements in this
Report contain forward-looking statements that involve risks and uncertainties.
These statements are found in the sections entitled "Business," "Management's
Discussion and Analysis or Plan of Operation," and "Risk Factors." They include
statements concerning: our business strategy; expectations of market and
customer response; liquidity and capital expenditures; future sources of
revenues; expansion of our proposed product line; and trends in industry
activity generally. In some cases, you can identify forward-looking statements
by words such as "may," "will," "should," "expect," "plan," "could,"
"anticipate," "intend," "believe," "estimate," "predict," "potential," "goal,"
or "continue" or similar terminology. These statements are only predictions and
involve known and unknown risks, uncertainties and other factors, including, but
not limited to, the risks outlined under "Risk Factors," that may cause our or
our industry's actual results, levels of activity, performance or achievements
to be materially different from any future results, levels of activity,
performance or achievements expressed or implied by such forward-looking
statements. For example, assumptions that could cause actual results to vary
materially from future results include, but are not limited to: our ability to
successfully develop and market our products to customers; our ability to
generate customer demand for our products in our target markets; the development
of our target markets and market opportunities; our ability to manufacture
suitable products at competitive cost; market pricing for our products and for
competing products; the extent of increasing competition; technological
developments in our target markets and the development of alternate, competing
technologies in them; and sales of shares by existing shareholders. Although we
believe that the expectations reflected in the forward-looking statements are
reasonable, we cannot guarantee future results, levels of activity, performance
or achievements. Unless we are required to do so under US federal securities
laws or other applicable laws, we do not intend to update or revise any
forward-looking statements.





PART
I




ITEM
1. BUSINESS




History





Our
company, HUIFENG BIO-PHARMACEUTICAL TECHNOLOGY, INC. (“we,” “us,” “our,” “HFGB,”
the “Company” or “our Company”) was incorporated under the laws of the State of
Nevada and trades on the Over the Counter ("OTC") Bulletin Board under the
symbol "HFGB".




HUIFENG
BIO-PHARMACEUTICAL TECHNOLOGY, INC. was incorporated in Nevada on March 16, 2000
under the name “Enternet, Inc.” On May 23, 2002, the Articles of Incorporation
were amended to change the name of the Company to “Secured Data, Inc.” On
October 12, 2005, the Articles of Incorporation were amended to change the name
of the Company to “Huifeng Bio-Pharmaceutical Technology, Inc.”





Since
October 2002, management's business plan was to seek out a privately held
business with whom the Company can reorganize so as to take advantage of the
Company's status as a publicly held corporation.


1





On
December 20, 2004, pursuant to the terms of a Stock Purchase Agreement (“Malone
Agreement”), Art Malone, Jr. sold 7,229,601 shares of the common stock of
Secured Data, Inc. for $300,000.00 (the “Sale”) to Zhi Lan Wang and Jun Lin,
individuals. As a result, the 7,229,601 shares of the common stock of the
Company sold represented approximately 56.18% of the total outstanding stock of
the Company. Immediately thereafter, pursuant to the terms of an Agreement and
Plan of Reorganization dated December 20, 2004 (“Northwest Agreement”), the
Company initially purchased 30% of the common shares of Northwest BioTechnic
Inc. (“NBTI”), a British Virgin Islands corporation, in exchange for 80,735,590
shares of the Company's common stock (“Acquisition”). The purchase price for the
remaining 70% of NBTI's common shares was $1,900,000.00 payable by the Company's
issuance of a promissory note (“Promissory Note”) on December 20, 2004. The
Promissory Note was subsequently converted into 10,465,725 (post a one for
eighteen reverse split) shares of the Company's common stock. As a result, the
80,735,590 shares of the common stock of the Company sold represented
approximately 86.3% of the total outstanding stock of the Company.




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




Business
Overview




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




Huifeng
emphasized technology and product innovation and its strategic mission is to
commercialize Chinese traditional medicine.




Our
Products




Huifeng
produces a series of Rutin and Rutin related products, listed below by
category:




Pharmaceutical
      Intermediates
              
              1. NF11
      Rutin (USP standard)
                2. DAB8_DAB9_DAB10_DAB11
      Rutin (German Codex Standard)
                3. Troxerutin
      (farinaceous injection_oral application)
                4. Quercetin,
      L-RhamnonePharmaceutical
      Material
              
              1. Venoruton
      (farinaceous injection_oral application)
                2. Rutin
                3. Berberine
      Hydrochloride
                4. Matrine
                5. Diosmin
                6. L-RhamnosePlant
      Extracts
              
              1. Hesperidin
                2. Naringin
                3. Epimedium
      Extract
                4. Matrine
                5. Puerorin
                6. Siybun
      Marianum P.E


2




The
chemical name of Rutin is rue glycoside (Molecular formula: C27H30O163H2O) and it
is a kind of plant extract. It can inhibit platelet aggregation and prevent
thrombosis. It can also improve the permeability of capillary vessels, and has
the properties of:




1.
            Anti-
      inflammatory;





2.
            Decreasing blood pressure and
      fat; and





3.
            Mitigating cerebral
      hemorrhage.




Additionally,
it has positive effect in protecting heart and cerebral hemorrhage and
ischemia-reperfusion injury. It is widely used as a raw material for the heart
and cerebral blood vessel medicines as well as an additive for cosmetics and
functional food. The demand for Rutin increases at an annual rate of
approximately 30% due to the increased demand for heart and cerebral blood
vessel medicines as a result of the aging population. Furthermore, the
improvement in living standards in China also stimulates the growth in the
demand for functional food and natural cosmetics.




During
2006, we finished two new products lines, Diosmin and L-Rhamnose.




The chemical name of
Diosmin is
7-[[6-o(6-Deoxy-2-L-mannopyranosyl)-β-D-glucopyran-osyl]oxy]-5-hydroxy-2-(3-hydroxy-4-methoxyphenyl)-4H-l-ben-zopyran-4-one).
Diosmin is a pharmaceutical material, which has comprehensive impact on
blood vessel feedback system and is suitable for treatment of acute or chronic
hemorrhoids and chronic insufficiency of vein (lower limbs varicosity, dropsy
and chronic canker)




The
chemical name of L-Rhamnose is (thymidine-5'-diphosphate-L-rhamnose). Belonging
to the category of monosackcharide, it is generally applied in manufacturing
antivirus and anti-tumor raw medicines. In addition, this product can be an
ingredient for food. It has been used for testing permeation of intestines and
sweet additives. At present, L-Rhamnose is mostly applied in synthetic perfume
of fruit spice. It is the basic material for fruit spice composition. L-Rhamnose
has been widely applied in the industrial production and scientific research,
such as intermediate synthetic perfumes and heart-strength medicines made from
organic matters. Furthermore, as an ingredient for food, L-Rhamnose can be
directly added into top-grade coffee, beverage or meat.





We
introduced a Hesperidin production line in 2008.




Production
Facilities




At
present, we have two major production facilities that included the following
equipment resources:





1.
            Manufacturing plant located at NO
      1,Huifeng Rd, Changwu,
Xianyang:





·
            This
      production site is for refining and manufacturing of new
      products


·
            Has
      a total of eight buildings
including:


-
            A two-level office
      building


-
            A four-level staff
      building


-


-
            One raw materials storage
      building


-
            One building for storage of
      finished products


-
            One building for dangerous
      products


-
            Building for power and
      maintenance (including boiler, power distribution and
      maintenance)


3


-
            One cafeteria and staff
      canteen





2.
            Manufacturing plant located in
      Fenghui, Changan, Xian


·
            This
      production site is for the extraction and supplies of raw materials for
      refining


·
            Has
      a total of four buildings
including:


-
            One office
      building


-
            One manufacturing building
      (including extract workshops, crystallization workshops, communication
      workshops and packaging
workshops),


-
            One raw materials
      building


-
            One
  boiler





The two
production facilities together occupy a total area of approximately 300,000
square feet.  The company has pledged part of its production factilities in
Changwu factory valued at approximately $1,032,046 to Xi'an Beilin District
Credit Cooperatives to secure loan facitilies in the amount of $281,579 due July
2009.





In 2006,
we introduced 2 new production lines: Diosmin production line for Diosmin,
L-Rhamnose production line. In 2008, we introduced a Hesperidin production
line.




We
currently obtain all of our raw materials from third parties and through various
farmers located in the Shaanxi province, Gansu province and Shanxi province
areas of China. Our principal suppliers include Cungui Zhang, Xiaohe Wang and
Yingwei Xu. All of them are the biggest wholesalers in their own
areas.





Target
Markets And Principal Customers




In 2008,
there was no change in the target customers of our Company. Our products are all
raw materials intermediaries for production of medicines and the users of these
products are industrial clients. As a result, Huifeng's main target customers
are pharmaceutical companies and food manufacturers.




Dependence
on Major Customers





At this
time we have five major customers for our business. For the fiscal year
ended on December 31, 2008 these major customers accounted for approximately
22% of our revenues. We are working towards developing a broad base of
customers to minimize our dependency on any major customers.





Sales
And Marketing




In 2008,
there was no change in our target market and the majority of our products are
still raw materials and intermediaries for production of medicines and
cosmetics. Our target customers are mostly industrial clients and we continue to
sell our products to pharmaceutical and food manufacturers. Most of our
customers placed purchase orders directly with our sales and marketing team.
However, in order to diversify and expand our product sales networks, we began
using outside distribution channels for some of our export sales in July 2007.
We accepted purchase orders from professional foreign trade corporations in
order to expand our international distribution channels and increase sale
revenues from exports.





Our sales
department was divided into two teams, domestic sales team and export sales
team.  In 2008, we added one new employee in our export sales department.
As a result, we increased the total number of employees in our sales departments
to 24 people, and as a result strengthened our export sales teams for Europe,
West, Eastern and South Asia, and America.


4




We did
not establish any regional representative or sales office in 2008 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 material,
Huifeng does not face significant competitions within China.




In 2008
our major competitor for Rutin continues to be Sichuan Xieli Pharmaceutical
Company Limited (“Xieli”). However, we believe that because of Xieli’s lack of
technology patents and ready access to raw materials, Xieli is gradually fading
out of the Rutin refining business and is shifting its business from raw
medicine production to finished medicine production, while retaining a
relatively small portion of its business in raw medicine
production.




We also
believe that, in 2008, there were fewer small domestic Rutin manufacturers. We
do not believe that the remaining small manufacturers pose any threat to our
business. On the contrary, they sometimes become our suppliers and support our
operations.





In 2008,
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
thereby restricted. In addition, unlike us, they did not have the requisite
European Certification of Suitability (“COS”). Thus they do not pose any threat
to us in terms of market share and sales, particularly in the export
market.





Looking
forward to 2009, we estimate that there would be some new domestic competitors
for certain new products that we have started selling, including Resveratrol.
However, we do not believe that these competitors have mature technologies for
producing Resveratrol at costs lower than ours. Therefore we do not believe that
they 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
710075, Shaanxi Province, China.




Employees
And Organization





As of
December 31, 2008, we had approximately 221 full-time employees. During 2008, we
reduced 7employees. 5 employees were reduced from Technical department; 2
employees were reduced from production department. we employed 6 new employees.
5 new employees were allotted to the certification department; 1 new employees
were allotted to the sales team. As a result, by the end of 2008, we had a total
of 221 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 to be excellent.




As of
December 31, 2008, our Company organization was as follow:


5





Department
                                  
                                  Employee as
                                    of end of
                                    2008
                                  
                                  Employee as
                                    of end of
                                    2007Sales
      department:Domestic
      sales department
                                  
                                  8
                                  
                                  
                                  8Export
      sales department:
                                  
                                  
                                  
                                  
                                  -Export
      section I
                                  
                                  8
                                  
                                  
                                  8Export
      section II
                                  
                                  8
                                  
                                  
                                  7Production
      department
                                  
                                  154
                                  
                                  
                                  156Technical
      department
                                  
                                  5
                                  
                                  
                                  10Inspection
      department
                                  
                                  8
                                  
                                  
                                  8Provision
      department
                                  
                                  5
                                  
                                  
                                  5Personnel
      department
                                  
                                  5
                                  
                                  
                                  5Finance
      department
                                  
                                  7
                                  
                                  
                                  7Security
      department
                                  
                                  8
                                  
                                  
                                  8Certification
      department
                                  
                                  5TOTAL
                                  
                                  221
                                  
                                  
                                  222




Business
Development And Acquisitions




In 2008
we still focused on new products development and sales channels development.
Looking forward to 2009, we will focus on:




1.
            Still preparing for obtaining
      American FDA authorization and EU COS authorization so as to increase our
      market share in pharmaceutical raw medicines and plant extract products in
      both international and domestic
markets;





2.
            Streamlining our organization to
      ensure smooth operations and
productions.





On
September 25, 2008, the Company’s subsidiary Huifeng Bio-Technic entered into a
series of exclusive contractual agreements with Xi’an Qinba Xintong Medical
Limited (“Qinba”), a company organized under the laws of the PRC, and their
respective registered shareholders, pursuant to which Huifeng Bio-Technic will
provide exclusive management consulting and other general business operation
services to Qinba in exchange for service fees amounting to 70% of the total
profit of Qinba. Each of the registered PRC shareholders of Qinba also entered
into shares pledge agreements and option agreements; each shareholder pledged
their respective interests in Qinba for the due performance of such Qinba’s
obligations under its respective management entrustment agreement. Huifeng
Bio-Technic has been assigned all voting rights bythe shareholders of Qinba and has the option to acquire the equity
interests of Qinba at a mutually agreed purchase price. As part of this
arrangement, Huifeng Bio-Technic has agreed to provide an interest free loan
totaling $291,792 to Qinba for working capital purposes as follows: i) $72,948
upon signing of the agreements, ii) $72,948 will be advanced to Qinba after the
completion of certain financial due diligence on Qinba, and iii) $145,896 will
be advanced to Qinba within three days after the completion of the audit as of
December 31, 2008.





Through
the above contractual arrangements, Huifeng Bio-Technic would have become the
primary beneficiary of Qinba which is a variable interest entity as defined
under FIN 46R “Consolidation of Variable Interest Entities”.





In
October 2008 Huifeng Bio-Technic advanced Qinba $58,358 as part of the $291,792
loan advancement required to be made for working capital purposes.





Huifeng
Bio-Technic was unable to make further loan advances and defaulted on its
contractual arrangements with Qinba. Subsequent to the default, Huifeng
Bio-Technic in December 2008 entered into discussions with Qinba to terminate
its contractual relationship. The parties have verbally agreed to this
termination on the basis that Huifeng Bio-Technic shares no profits of Qinba and
that Qinba will forfeit $37,933 from the $58,358 interest free loan already
advanced by Huifeng Bio-Technic. In January 2009, Qinba refunded $20,425 balance
of loan to Huifeng Bio-Technic after the deduction of $37,933 as
penalty.





As of
December 31, 2008, the Company wrote-off $37,933 from its loan to Qinba as
irrecoverable.


6





Research
And Development




In 2009
we continued on research and development of new products. We kept the structure
of our research and development team.




The
amounts we spent on research and development for 2008 and 2007 were $23,726 and
$25,547, respectively.




Patents
And Intellectual Properties




Huifeng's
proprietary technology “Producing Rutin by Eliminating Enzyme and Mucus”
received Chinese national technology patent with a ten-year protection
period.




Government
Regulations




The
Chinese government requires all medicine and medicinal products related
manufacturers to obtain GMP certification for their pharmaceutical manufacturing
facilities. Huifeng obtained GMP certification from relevant government
regulatory bodies in January 1, 2005. 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 Law





The Enterprise Income 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%. Although we still enjoy certain tax incentives applicable to
foreign-invested enterprises prior to the introduction of the EIT Law, the
current lower EIT rate will be phased up to 25% within a five-year period.
Moreover, we may not enjoy further tax incentives for our further established
companies in the PRC and therefore our tax advantages over domestic enterprises
may be diminished.





ITEM
1A. RISK FACTORS




Risks
Related To Our Business





To
Maximize Our Potential For Future Growth And Achieve Our Expected Revenues, We
Need To Manage Growth In Our Current Operations.





In order
to maximize potential growth in our current and potential markets, we believe
that we must expand our manufacturing and marketing operations. This expansion
will place a significant strain on our management and on our operational,
accounting, and information systems. We expect that as we continue to grow we
will need to improve our financial controls, operating procedures, and
management information systems to handle increased operations. We will also need
to effectively train, motivate, and manage our employees. Failure to manage our
growth could disrupt our operations and ultimately prevent us from generating
the revenues we expect.


7





We
Cannot Guarantee That Our Organic Growth Strategy Will Be
Successful.





One of
our growth strategies is to grow organically by increasing the distribution and
sales of our products in new markets outside of China. However, many obstacles
to entering new markets exist, such as the costs associated with entering into
new markets, developing and implementing effective marketing efforts abroad and
maintaining attractive foreign exchange ratios. We cannot, therefore, assure you
that we will be able to successfully overcome such obstacles and establish our
products in any additional markets. Our inability to successfully implement our
organic growth strategy may have a negative impact on our growth strategy and on
our future financial condition, results of operations or cash
flows.




We
Cannot Assure You That Our Acquisition Growth Strategy Will Be
Successful.





In
addition to our organic growth strategy we also expect to grow through strategic
acquisitions In the case of funds permit.





If
We Are Not Able To Implement Our Strategies To Achieve Our Business Objectives,
Our Business Operations And Financial Performance May Be Adversely
Affected.





Our
business plan and growth strategy is based on currently prevailing circumstances
and the assumption that certain circumstances will or will not occur, as well as
the inherent risks and uncertainties involved in various stages of development.
However, there is no assurance that we will be successful in implementing our
strategies or that our strategies, even if implemented, will lead to the
successful achievement of our objectives. If we are not able to successfully
implement our strategies, our business operations and financial performance may
be adversely affected.





If
We Need Additional Capital To Fund Our Growing Operations, We May Not Be Able To
Obtain Sufficient Capital And May Be Forced To Limit The Scope Of Our
Operations.





As we
implement our growth strategies, we may experience increased capital needs and
we may not have enough capital to fund future operations without additional
capital investments. Our capital needs will depend on numerous factors,
including (1) our profitability; (2) the release of competitive products by our
competition; (3) the level of our investment in research and development; and
(4) the amount of our capital expenditures. We cannot assure you that we will be
able to obtain capital in the future to meet our needs.




If we
cannot obtain additional funding, we may be required to:





·
            reduce our investments in
      research and development;


·
            limit our marketing efforts;
      and


·
            decrease or eliminate capital
      expenditures.





Such
reductions could have a material adverse affect our business and our ability to
compete. Even if we do find a source of additional capital, we may not be able
to negotiate acceptable terms and conditions for receiving the additional
capital. Any future capital investments could dilute or otherwise materially and
adversely affect the holdings or rights of our existing shareholders. In
addition, new equity or convertible debt securities issued by us to obtain
financing could have rights, preferences and privileges senior to our common
stock. We cannot give you any assurance that any additional financing will be
available to us, or if available, will be on terms favorable to
us.


8





We
Depend On Third Parties To Supply Raw Materials, And Any Adverse Changes In Such
Supply Or The Costs Of Raw Materials May Adversely Affect Our
Operations.





We
currently obtain all of our raw materials from third parties and through various
farms. Due to the nature of the raw materials, mainly plants, the supply of
these raw materials can be adversely affected by any material change in the
climate or environmental conditions in China, which may, in turn, result in
increased costs to purchase these raw materials.





Intense
Competition From Existing And New Entities May Adversely Affect Our Revenues And
Profitability.





We
compete with other companies, many of whom are developing, or can be expected to
develop, products similar to ours. Some of our competitors are more established
than we are, and have significantly greater financial, technical, marketing and
other resources than we presently possess. Some of our competitors have greater
name recognition and a larger customer base. These competitors may be able to
respond more quickly to new or changing opportunities and customer requirements
and may be able to undertake more extensive promotional activities, offer more
attractive terms to customers, and adopt more aggressive pricing policies. We
intend to create greater brand awareness for our brand name so that we can
successfully compete with our competitors. We cannot guarantee that we will be
able to compete effectively with current or future competitors or that the
competitive pressures we face will not harm our business.





We
Depend On Our Key Management Personnel And The Loss Of Their Services Could
Adversely Affect Our Business.





We place
substantial reliance upon the efforts and abilities of our executive officers,
Jingan Wang, our Chairman and Chief Executive Officer; Sanding Tao, our acting
Chief Financial Officer; and Xinwen Hou, Chief Operations Officer and Secretary.
The loss of the services of any of our executive officers could have a material
adverse effect on our business, operations, revenues or prospects. We do not
maintain key man life insurance on the lives of these individuals.





We
May Incur Significant Costs To Ensure Compliance With U.S. Corporate Governance
And Accounting Requirements.





We may
incur significant costs associated with our public company reporting
requirements, costs associated with newly applicable corporate governance
requirements, including requirements under the Sarbanes-Oxley Act of 2002 and
other rules implemented by the Securities and Exchange Commission and the NASDAQ
OTCBB. We expect all of these applicable rules and regulations to increase our
legal and financial compliance costs and to make some activities more
time-consuming and costly. We also expect that these applicable rules and
regulations may make it more difficult and more expensive for us to obtain
director and officer liability insurance and we may be required to accept
reduced policy limits and coverage or incur substantially higher costs to obtain
the same or similar coverage. As a result, it may be more difficult for us to
attract and retain qualified individuals to serve on our board of directors or
as executive officers. We are currently evaluating and monitoring developments
with respect to these newly applicable rules, and we cannot predict or estimate
the amount of additional costs we may incur or the timing of such
costs.


9




We
May Have Difficulty Raising Necessary Capital To Fund Operations As A Result Of
Market Price Volatility Of Our Shares Of Common Stock.





If our
business development plans are successful, we may require additional financing
to continue to develop and exploit existing and new technologies and to expand
into new markets. The exploitation of our technologies may, therefore, be
dependent upon our ability to obtain equity financing through debt and equity or
other means. In recent years, the securities markets in the United States have
experienced a high level of price and volume volatility, and the market price of
securities of many companies have experienced wide fluctuations that have not
necessarily been related to the operations, performance, underlying asset values
or prospects of such companies.




For these
reasons, our shares of common stock can also be expected to be subject to
volatility resulting from purely market forces over which we will have no
control. Such volatility may make it more difficult to find investors willing to
invest in our common stock, or to negotiate equity financing or terms that are
acceptable to us.





Risks
Relating To The People's Republic Of China





There
Could Be Changes In Government Regulations Towards The Pharmaceutical And Health
Supplement Industries That May Adversely Affect Our Business.





The
manufacture and sale of pharmaceutical products in the PRC is heavily regulated
by many state, provincial and local authorities. These regulations significantly
increase the difficulty and costs involved in obtaining and maintaining
regulatory approvals for marketing new and existing products. Our future growth
and profitability depend to a large extent on our ability to obtain regulatory
approvals. The State Food and Drug Administration of China recently implemented
new guidelines for licensing of pharmaceutical products. All existing
manufacturers with licenses, which are currently valid under the previous
guidelines, are required to apply for the Good Manufacturing Practices ("GMP")
certifications, and we receive approvals in January 2005. We have received our
certifications. However, should we fail to maintain the GMP certifications under
the new guidelines in the future; our businesses would be materially and
adversely affected. Moreover, the laws and regulations regarding acquisitions of
the pharmaceutical industry in the PRC may also change and may significantly
impact our ability to grow through acquisitions.





Currency
Conversion And Exchange Rate Volatility Could Adversely Affect Our Financial
Condition.





The PRC
government imposes control over the conversion of Renminbi into foreign
currencies. Under the current unified floating exchange rate system, the
People's Bank of China publishes an exchange rate, which we refer to as the
People's Bank of China exchange rate, based on the previous day's dealings in
the inter-bank foreign exchange market. Financial institutions authorized to
deal in foreign currency may enter into foreign exchange transactions at
exchange rates within an authorized range above or below the People's Bank of
China exchange rate according to market conditions. Pursuant to the Foreign
Exchange Control Regulations of the PRC issued by the State Council which came
into effect on April 1, 1996, and the Regulations on the Administration of
Foreign Exchange Settlement, Sale and Payment of the PRC which came into effect
on July 1, 1996, regarding foreign exchange control, conversion of Renminbi into
foreign exchange by Foreign Investment Enterprises, for use on current account
items, including the distribution of dividends and profits to foreign investors,
is permissible. Foreign Investment Enterprises are permitted to convert their
after-tax dividends and profits to foreign exchange and remit such foreign
exchange to their foreign exchange bank accounts in the PRC. Conversion of
Renminbi into foreign currencies for capital account items, including direct
investment, loans, and security investment, is still under certain restrictions.
On January 14, 1997, the State Council amended the Foreign Exchange Control
Regulations and added, among other things, an important provision, which
provides that the PRC government shall not impose restrictions on recurring
international payments and transfers under current account items.




Enterprises
in the PRC (including Foreign Investment Enterprises) which require foreign
exchange for transactions relating to current account items, may, without
approval of the State Administration of Foreign Exchange, or SAFE, effect
payment from their foreign exchange account or convert and pay at the designated
foreign exchange banks by providing valid receipts and proofs.


10





Most
Of Our Assets Are Located In China, Any Dividends Of Proceeds From Liquidation
Is Subject To The Approval Of The Relevant Chinese Government
Agencies.





Our
assets are predominantly located inside China. Under the laws governing foreign
invested enterprises in China, dividend distribution and liquidation are allowed
but subject to special procedures under the relevant laws and rules. Any
dividend payment will be subject to the decision of the board of directors and
subject to foreign exchange rules governing such repatriation. Any liquidation
is subject to both the relevant government agency's approval and supervision as
well the foreign exchange control. This may generate additional risk for our
investors in case of dividend payment and liquidation.





China’s
economic policies could affect our business.





Substantially
all of our assets are located in China and substantially all of our revenue is
derived from our operations in China. Accordingly, our results of operations and
prospects are subject, to a significant extent, to the economic, political and
legal developments in China.





While
China's economy has experienced a significant growth in the past twenty years,
growth has been irregular, both geographically and among various sectors of the
economy. The Chinese government has implemented various measures to encourage
economic growth and guide the allocation of resources. Some of these measures
benefit the overall economy of China, but may also have a negative effect on us.
For example, our operating results and financial condition may be adversely
affected by the government control over capital investments or changes in tax
regulations.





The
economy of China has been transitioning from a planned economy to a more
market-oriented economy. In recent years the Chinese government has implemented
measures emphasizing the utilization of market forces for economic reform and
the reduction of state ownership of productive assets and the establishment of
corporate governance in business enterprises; however, a substantial portion of
productive assets in China are still owned by the Chinese government. In
addition, the Chinese government continues to play a significant role in
regulating industry development by imposing industrial policies. It also
exercises significant control over China's economic growth through the
allocation of resources, controlling payment of foreign currency-denominated
obligations, setting monetary policy and providing preferential treatment to
particular industries or companies.





We
may face obstacles from the communist system in The People's Republic of
China.





Foreign
companies conducting operations in The People's Republic of China face some
political, economic and legal risks.





We
may have difficulty establishing adequate management, legal and financial
controls in The People's Republic of China.





The
People's Republic of China historically has been deficient in Western style
management and financial reporting concepts and practices, as well as in modern
banking, computer and other control systems. We may have difficulty in hiring
and retaining a sufficient number of qualified employees to work in The People's
Republic of China. As a result of these factors, we may experience difficulty in
establishing management, legal and financial controls, collecting financial data
and preparing financial statements, books of account and corporate records and
instituting business practices that meet Western standards.





Because
our assets and operations are located in China, you may have difficulty
enforcing any civil liabilities against us under the securities and other laws
of the United States or any state.





We are a
holding company, and all of our assets are located in the People's Republic of
China. In addition, our directors and officers are non-residents of the United
States, and all or a substantial portion of the assets of these non-residents
are located outside the United States. As a result, it may be difficult for
investors to effect service of process within the United States upon these
non-residents, or to enforce against them judgments obtained in United States
courts, including judgments based upon the civil liability provisions of the
securities laws of the United States or any state.


11




There is
uncertainty as to whether courts of the People's Republic of China would
enforce:





·
            Judgments of United States courts
      obtained against us or these non-residents based on the civil liability
      provisions of the securities laws of the United States or any state;
      or


·
            In original actions brought in
      the People's Republic of China, liabilities against us or non-residents
      predicated upon the securities laws of the United States or any state.
      Enforcement of a foreign judgment in the People's Republic of China also
      may be limited or otherwise affected by applicable bankruptcy, insolvency,
      liquidation, arrangement, moratorium or similar laws relating to or
      affecting creditors' rights generally and will be subject to a statutory
      limitation of time within which proceedings may be
      brought.





The
PRC legal system embodies uncertainties, which could limit law enforcement
availability.





The PRC
legal system is a civil law system based on written statutes. Unlike common law
systems, decided legal cases have little precedence. In 1979, the PRC government
began to promulgate a comprehensive system of laws and regulations governing
economic matters in general. The overall effect of legislation over the past 27
years has significantly enhanced the protections afforded to various forms of
foreign investment in China. Each of our PRC operating subsidiaries and
affiliates is subject to PRC laws and regulations. However, these laws and
regulations change frequently and the interpretation and enforcement involve
uncertainties. For instance, we may have to resort to administrative and court
proceedings to enforce the legal protection that we are entitled to by law or
contract. However, since PRC administrative and court authorities have
significant discretion in interpreting statutory and contractual terms, it may
be difficult to evaluate the outcome of administrative court proceedings and the
level of law enforcement that we would receive in more developed legal systems.
Such uncertainties, including the inability to enforce our contracts, could
affect our business and operation. In addition, intellectual property rights and
confidentiality protections in China may not be as effective as in the United
States or other countries. Accordingly, we cannot predict the effect of future
developments in the PRC legal system, particularly with regard to the industries
in which we operate, including the promulgation of new laws. This may include
changes to existing laws or the interpretation or enforcement thereof, or the
preemption of local regulations by national laws. These uncertainties could
limit the availability of law enforcement, including our ability to enforce our
agreements with the government entities and other foreign
investors.





Risks
Related to Corporate and Stock Matters





The
limited trading volume in our stock may cause volatility in the market price of
our common stock.





Our
common stock is currently traded on a limited basis on the OTCBB under the
symbol, "HFGB.OB" The quotation of our common stock on the OTCBB does not
assure that a meaningful, consistent and liquid trading market currently exists,
and in recent years, such market has experienced extreme price and volume
fluctuations that have particularly affected the market prices of many smaller
companies like us. Our common stock is thus subject to volatility. In the
absence of an active trading market:





·
            investors may have difficulty
      buying and selling or obtaining market
  quotations;


·
            market visibility for our common
      stock may be limited; and


·
            a lack of visibility for our
      common stock may have a depressive effect on the market for our common
      stock.


12





Our
stock is a penny stock. Trading of our stock may be restricted by the SEC's
penny stock regulations which may limit a stockholder's ability to buy and sell
our stock.





Our stock
is a penny stock. The SEC has adopted Rule 15g-9 which generally defines "penny
stock" to be any equity security that has a market price (as defined) less than
$5.00 per share or an exercise price of less than $5.00 per share, subject to
certain exceptions. Our securities are covered by the penny stock rules, which
impose additional sales practice requirements on broker-dealers who sell to
persons other than established customers and "accredited investors". The term
"accredited investor" refers generally to institutions with assets in excess of
$5,000,000 or individuals with a net worth in excess of $1,000,000 or annual
income exceeding $200,000 or $300,000 jointly with their spouse. The penny stock
rules require a broker-dealer, prior to a transaction in a penny stock not
otherwise exempt from the rules, to deliver a standardized risk disclosure
document in a form prepared by the SEC which provides information about penny
stocks and the nature and level of risks in the penny stock market. The
broker-dealer also must provide the customer with current bid and offer
quotations for the penny stock, the compensation of the broker-dealer and its
salesperson in the transaction and monthly account statements showing the market
value of each penny stock held in the customer's account. The bid and offer
quotations, and the broker-dealer and salesperson compensation information, must
be given to the customer orally or in writing prior to effecting the transaction
and must be given to the customer in writing before or with the customer's
confirmation. In addition, the penny stock rules require that prior to a
transaction in a penny stock not otherwise exempt from these rules, the
broker-dealer must make a special written determination that the penny stock is
a suitable investment for the purchaser and receive the purchaser's written
agreement to the transaction. These disclosure requirements may have the effect
of reducing the level of trading activity in the secondary market for the stock
that is subject to these penny stock rules. Consequently, these penny stock
rules may affect the ability of broker-dealers to trade our securities. We
believe that the penny stock rules discourage investor interest in and limit the
marketability of our common stock.




NASD
sales practice requirements may also limit a stockholder's ability to buy and
sell our stock.





Section
15(g) of the Securities Exchange Act of 1934, as amended, and Rule 15g-2
promulgated thereunder by the SEC require broker-dealers dealing in penny stocks
to provide potential investors with a document disclosing the risks of penny
stocks and to obtain a manually signed and dated written receipt of the document
before effecting any transaction in a penny stock for the investor's
account.





Potential
investors in our common stock are urged to obtain and read such disclosure
carefully before purchasing any shares that are deemed to be "penny stock."
Moreover, Rule 15g-9 requires broker-dealers in penny stocks to approve the
account of any investor for transactions in such stocks before selling any penny
stock to that investor. This procedure requires the broker-dealer to (i) obtain
from the investor information concerning his or her financial situation,
investment experience and investment objectives; (ii)reasonably determine, based
on that information, that transactions in penny stocks are suitable for the
investor and that the investor has sufficient knowledge and experience as to be
reasonably capable of evaluating the risks of penny stock transactions; (iii)
provide the investor with a written statement setting forth the basis on which
the broker-dealer made the determination in (ii) above; and (iv) receive a
signed and dated copy of such statement from the investor, confirming that it
accurately reflects the investor's financial situation, investment experience
and investment objectives. Compliance with these requirements may make it more
difficult for holders of our common stock to resell their shares to third
parties or to otherwise dispose of them in the market or otherwise.





Shares
eligible for future sale may adversely affect the market price of our Common
stock, as the future sale of a substantial amount of our restricted stock in the
public marketplace could reduce the price of our common stock.





From time
to time, certain of our stockholders may be eligible to sell all or some of
their shares of common stock by means of ordinary brokerage transactions in the
open market pursuant to Rule 144, promulgated under the Securities Act ("Rule
144"), subject to certain limitations. In general, pursuant to Rule 144, a
stockholder (or stockholders whose shares are aggregated) who has satisfied a
one-year holding period may, under certain circumstances, sell within any
three-month period a number of securities which does not exceed the greater of
1% of the then outstanding shares of common stock or the average weekly trading
-volume of the class during the four calendar weeks prior to such sale. Rule 144
also permits, under certain circumstances, the sale of securities, without any
limitations, by a non-affiliate of our company that has satisfied a two-year
holding period. Any substantial sale of common stock pursuant to Rule 144 or
pursuant to any resale prospectus may have an adverse effect on the market price
of our securities.


13




If we or
our independent registered public accountants cannot attest our adequacy in the
internal control measures over our financial reporting, as required by Section
404 of the U.S. Sarbanes-Oxley Act, for the fiscal year ended December 31, 2008,
we may be adversely affected.





As a
public company, we are subject to report our internal control structure and
procedures for financial reporting in our annual reports on Form 10-KSB, as a
requirement of Section 404 of the U.S. Sarbanes-Oxley Act of 2002 by the U.S.
Securities and Exchange Commission (the "SEC"). The report must contain an
assessment by management about the effectiveness of our internal controls over
financial reporting. Moreover, the independent registered public accountants of
our Company must attest to and report on management's assessment of the same.
Even if our management attests to our internal control measures to be effective,
our independent registered public accountants may not be satisfied with our
internal control structure and procedures. We cannot guarantee the outcome of
the report and it could result in an adverse impact on us in the financial
marketplace due to the loss of investor confidence in the reliability of our
financial statements, which could negative influence to our stock market
price.





ITEM
2. PROPERTIES




See
“Production Facilities” in “ITEM 1. BUSINESS.”




The
company has pledged part of its production facilities in Changwu factory valued
at approximately $1,032,046 to Xi'an Beilin District Credit Cooperatives to
secure loan facilities in the amount of $281,579 due July 2009.





ITEM
3. LEGAL PROCEEDINGS




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





ITEM
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS.




There was
no submission of matters to a vote of security holders in the fourth quarter of
2008.




PART
II




ITEM
5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND SMALL
BUSINESS ISSUER PURCHASES OF EQUITY SECURITIES.




Our
common stock is quoted on the Over-the-Counter Bulletin Board (OTCBB) under the
symbol “HFGB.”




Trading
of our common stock has been limited and sporadic. The following table shows the
range of high and low bid quotations reported by the OTCBB in each fiscal
quarter from January 1, 2007 to December 31, 2008. The OTCBB quotations reflect
inter-dealer prices, without retail mark-up, mark-down or commission, and may
not represent actual transactions.


14





Quarter
                
                High
                
                
                LowFiscal
      Year 2008Fourth
      Quarter
                
                $
                0.55
                
                
                $
                0.25Third
      Quarter
                
                $
                0.85
                
                
                $
                0.30Second
      Quarter
                
                $
                1.40
                
                
                $
                0.57First
      Quarter
                
                $
                0.72
                
                
                $
                0.25Fiscal
      Year 2007Fourth
      Quarter
                
                $
                0.78
                
                
                $
                0.25Third
      Quarter
                
                $
                0.70
                
                
                $
                0.30Second
      Quarter
                
                $
                0.51
                
                
                $
                0.25First
      Quarter
                
                $
                0.66
                
                
                $
                0.27





Holders





As of
March 11, 2009, there were approximately 644 holders of record of our common
stock. This number does not include an indeterminate number of shareholders
whose shares are held by brokers in street name.





Dividends




We
presently intend to retain future earnings, if any, to provide funds for use in
the operation and expansion of our business. Accordingly, we have not declared
or paid any dividends to our common shareholders and do not presently intend to
do so. Any future decision whether to pay dividends will depend on our financial
condition and any other factors that our Board of Directors deems
relevant.




Recent
Issuances of Unregistered Securities




None.





Securities
authorized for issuance under equity compensation plans





None.





ITEM
6. SELECTED FINANCIAL DATA





Not
required.





ITEM
7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION




Cautionary
Statement




This
annual report contains forward-looking statements within the meaning of the
federal securities laws. These include statements about our expectations,
beliefs, intentions or strategies for the future, which we indicate by words or
phrases such as "anticipate," "expect,” "intend,” "plan,” "will,” "we believe,”
"HFGB believes,” "management believes” and similar language. The forward-looking
statements are based on the current expectations of HFGB and are subject to
certain risks, uncertainties and assumptions, including those set forth in the
discussion under "Description of Business” and "Management's Discussion and
Analysis of Financial Condition and Results of Operation.”  The actual
results may differ materially from results anticipated in these forward-looking
statements. We base the forward-looking statements on information currently
available to us, and we assume no obligation to update them.


15




History





On
December 20, 2004, pursuant to the Malone Agreement, Art Malone, Jr. ("Selling
Shareholder") sold 7,229,601 shares of the common stock of the Company for
$300,000 (the "Sale") to Zhi Lan Wang and Jun Lin, individuals on the closing
date of December 20, 2004. As a result, the 7,229,601 shares of the common stock
of the Company sold represented approximately 56.18% of the total outstanding
stock of the Company. Immediately thereafter, On December 20, 2004 HFGB
completed a Northwest Agreement, of which the Company initially purchased 30% of
the common shares of NBTI in exchange for 80,735,590 shares of the Company's
common stock ("Acquisition"). The purchase price for the remaining 70% of NBTI's
common shares was $1,900,000 payable by the Company's issuance of a promissory
note ("Promissory Note") on December 20, 2004 The Promissory Note may be
convertible into 10,465,725 (post a one for eighteen reverse split) shares of
the Company's common stock. As a result, the 80,735,590 shares of the common
stock of the Company sold represented approximately 86.3% of the total
outstanding stock of the Company. The Exchange resulted in a change of voting
control of the Company.




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




The
exchange was treated as a reverse acquisition for accounting purposes. As such,
the financial information reflected activity subsequent to the acquisition for
HFGB and its subsidiaries and financial activity of NBTI prior to the
acquisition. We will continue the business operations conducted by
NBTI.





Critical
Accounting Policies





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




The
Company does not have any reserves against its accounts receivable or
inventories at December 31, 2008 and 2007. Management's estimation that there
are no reserves is based on the current facts that there is 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 in a timely manner, and that their customers' financial
position 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.


16




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




1.
            Persuasive evidence of an
      arrangement exists;


2.
            Delivery has occurred or services
      have been rendered;


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


4.
            Collectibility is reasonably
      assured.




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





Results
Of Operations





The
following table sets forth selected statement of operations data as a percentage
of revenues for the periods indicated.




Year Ended
                      December
                      31, 2008
                    
                    
                    Year Ended
                      December
                      31, 2007Revenues
                    
                    
                    100.00
                    %
                    
                    
                    100.00
                    %Cost
      of revenues
                    
                    
                    (65.13
                    )%
                    
                    
                    (69.91
                    )%Gross
      margin
                    
                    
                    34.87
                    %
                    
                    
                    30.09
                    %Selling
      and distribution expenses
                    
                    
                    (1.91
                    )%
                    
                    
                    (1.60
                    )%General
      and administrative expenses
                    
                    
                    (10.56
                    )%
                    
                    
                    (5.32
                    )%Depreciation
      and amortization
                    
                    
                    (0.45
                    )%
                    
                    
                    (0.73
                    )%Interest
      income
                    
                    
                    0.15
                    %
                    
                    
                    0.36
                    %Interest
      expenses
                    
                    
                    (5.39
                    )%
                    
                    
                    (0.46
                    )%Other
      income
                    
                    
                    2.41
                    %
                    
                    
                    1.67
                    %Other
      expenses
                    
                    
                    -
                    
                    
                    
                    (0.74
                    )%Income
      tax expense
                    
                    
                    (4.82
                    )%
                    
                    
                    (4.05
                    )%Minority
      interests
                    
                    
                    (0.13
                    )%
                    
                    
                    0.31
                    %Net
      Profit
                    
                    
                    14.17
                    %
                    
                    
                    19.53
                    %





Year
Ended December 31, 2008 Compared To Year Ended December 31, 2007




Revenues,
Cost of Revenues and Gross Margin





Revenues
for the year ended December 31, 2008 were $10,957,229, an increase of $4,385,698
or approximately 66.7% from $6,571,531 in 2007. Our increase in sales revenues
in 2008 was mainly attributable to the increase in our sales in pharmaceutical
raw materials, plant extracts and pharmaceutical intermediates in 2008 against
2007. In particular, the sales volume of our Diosmin Rutin, Quercetin,
Resveratrol, Troxerutin, Konjac extract and Glucurolactone extract products
increased rapidly, as a result of the stable quality of our products and our
increased market share for such products.


17




For the year ended
                                December 31,Product
                              
                              2008
                              
                              2007
                              
                              Increase/
                                (Decrease)Pharmaceutical
      raw materials
                              
                              
                              $
                              5,852,440
                              
                              
                              $
                              3,916,364
                              
                              
                              $
                              1,936,076Plant
      extracts
                              
                              
                              
                              1,818,924
                              
                              
                              
                              211,723
                              
                              
                              
                              1,607,201Pharmaceutical
      intermediates
                              
                              
                              
                              3,285,865
                              
                              
                              
                              2,443,444
                              
                              
                              
                              842,421TOTAL
                              
                              
                              $
                              10,957,229
                              
                              
                              $
                              6,571,531
                              
                              
                              $
                              4,385,698




Our
increase in sales of pharmaceutical raw materials in 2008 was mainly due to an
increase in our sales of Diosmin,Rutin and Troxerutin, three of our major
products in the category of pharmaceutical raw materials. The sales of plant
extracts increased in 2008 as compared to 2007 due to an increase in our sales
of Konjac extract and Glucurolactone extract. Our increase in sales of
pharmaceutical intermediates in 2008 was mainly due to increase of our sales of
Quercetin and Resveratrol, our major products in the category of pharmaceutical
intermediates.





Cost of
revenues for the year ended December 31, 2008 were $7,136,492, an increase of
$2,542,274 or 55.3% from $4,594,218 as compared to 2007. Compared to 2007, the
increase in cost of sales of our products was because of the change in costs in
the following product categories:




For the year ended
                                December 31,Product
                              
                              2008
                              
                              2007
                              
                              Increase/ (Decrease)Pharmaceutical
      raw materials
                              
                              
                              $
                              4,112,896
                              
                              
                              $
                              2,936,220
                              
                              
                              $
                              1,176,676Plant
      extracts
                              
                              
                              
                              912,857
                              
                              
                              
                              153,097
                              
                              
                              
                              759,760Pharmaceutical
      intermediates
                              
                              
                              
                              2,110,739
                              
                              
                              
                              1,504,901
                              
                              
                              
                              605,838TOTAL
                              
                              
                              $
                              7,136,492
                              
                              
                              $
                              4,594,218
                              
                              
                              $
                              2,542,274




Our
overall profit margin increased from 30% in 2007 to 34.9% in 2008. Our profit
margin for pharmaceutical raw materials increased from 25% in 2007 to 29.7% in
2008. The profit margin for Plant Extracts increased from 28% in 2007 to 49.8%
in 2008. The profit margin for pharmaceutical intermediates decreased from 38%
in 2007 to 35.8% in 2008. The increase in our profit margin for pharmaceutical
raw materials was mainly due to increased sales of Diosmin, whose gross profit
margin has increased from 31% in 2007 to 32.3% in 2008. The increase in our
profit margin for Plant Extracts was mainly due to an increase in the sales of
products Resveratrol, Konjac extract and Glucurolactone.





Gross
margin for the year ended December 31, 2008 was $3,820,737, an increase of
$1,843,424 or 93.2% from $1,977,313 from the same period in 2007. This was due
to an increase in gross margin for pharmaceutical raw materials by $759,400, of
which $206,524 or 27.2% was attributable to the increase in gross margin for
Troxerutin; $199,966 or 26.3% was attributable to the increase in gross margin
for Diosmin and $352,910 or 46.5% for other raw materials.





The gross
profit of Plant extracts increased by $849,813or 1,449% for the year ended
December 31, 2008 compared to the same period in 2007. This large increase is
mainly attributable to an increase in gross profit for Resveratrol by $433,453
or 1,971%, other Plant extracts by $416,064 and pharmaceutical intermediates by
$236,584 or 25%.


18





General
and Administrative Expenses





General
and Administrative expenses totaled to $1,119,263 for the year ended December
31, 2008, a increase of $769,672 or 220.2% from $349,591 for the same period in
2007. The increase in general and administrative expenses was mainly due to
changes in the following expenses:




1.
      Increase in exchanges losses from foreign currency fluctuations by
      $334,426 or 409%
                  :
                  There
      was an increase of value of the Renminbi against the U.S.
      dollar.2.
      Increase in legal and professional expenses by $291,843 or
      225%
                  :
                  There
      was an increase of investor relations services of $150,000, consultancy
      services for SOX compliance of $27,500 and legal advisory services of
      $84,090.3.
      Increase in allowance for doubtful accounts by $84,631 or
    100%
                  
                  There
      was an increase of outstanding accounts receivable which were slightly
      over the normal credit
period.





Selling
and Distribution Expenses





Selling
and distribution expenses amounted to $209,131 for the year ended December 31,
2008, an increase of $103,784 or 98.5% from $105,347 for the same period in
2007. The increase in our selling and distribution expenses in 2008 compared to
2007 was mainly due to the following:





Increase
      in advertising and promotion expenses of $50,487 or 1,142%
                :
                In
      2008, There was an increase of exhibitions in Brazil, United States and
      the PRC.Increase
      in transportation costs of $43,060 or 78%
                :
                In
      2008, our overseas sales were increased by
12%.





Liquidity
and Capital Resources




Cash





Our cash
balance amounted to $45,574 at December 31, 2008.




During the
year ended December 31, 2008, our cash provided by operating activities amounted
to $484,589, mainly due to the net profit in the current year of $1,552,431.
Also, in the current year, our changes in accounts receivable increased by
$752,219 or 178.7% to $1,173,074 compared to $420,855 for the same period in
2007, Our large accounts receivable was due to 67% increase in our net sales
compared to the same period in 2007 and increase in proportion of our credit
sales. Our changes in inventories increased by $2,082,925 or 78% from $2,657,305
for the fiscal year ended 2007 to $4,740,230 for the same period in 2008 as part
of our strategy to enhance our production operation. Stocking more inventories
allows us to reduce seasonal fluctuation in raw material availability and cost,
and ensures that we have sufficient supply of raw materials to meet the
increased demand for our products in 2008 and in future.





During the
year ended December 31, 2008, net cash used in investing activities amounted to
$2,685,402, an increase of $2,814,036 or 2,188% as compared to net cash provided
by investing activities of $128,634 in 2007. The increase in net cash used in
investing activities was mainly due to the construction of our new finished
goods warehouse and costs incurred to achieve the requirement of Certificate of
Suitability. Cash flow used in financing activities amounted to $33,035 was
repayment of bank loans to a PRC bank.




The
Company is currently funding its operations from and in addition to sales
revenues.


19




Working
Capital




Our
working capital amounted to $4,567,693 at December 31, 2008.




Recent
Accounting Pronouncements





In
December 2007, FASB issued Statement 141 (Revised 2007), “Business Combinations”. This
statement provides guidance on improving the relevance, representational
faithfulness, and comparability of information that a reporting entity provides
in its financial reports about a business combination and its effects. This
Statement will become effective where is the acquisition date is on or after the
beginning of the first annual reporting period beginning on or after December
15, 2008. The Company does not expect to have a material impact on the Company’s
financial position.





In
December 2007, FASB issued Statement 160, “Noncontrolling Interests in
Consolidated Financial Statement – an amendment of ARB No. 51”, which
establishes accounting and reporting standards to improve the relevance,
comparability, and transparency of financial information in its consolidated
financial statements that include an outstanding noncontrolling interest in one
or more subsidiaries. This effective will effective for all full fiscal and
interim periods beginning after December 15, 2008. The Company does not expect
to have a material impact on the Company’s financial position.





In March
2008, the FASB issued SFAS No. 161, “Disclosures about Derivative
Instruments and Hedging Activities, an amendment of FASB Statement
No. 133” (SFAS 161). This statement is intended to improve
transparency in financial reporting by requiring enhanced disclosures of an
entity’s derivative instruments and hedging activities and their effects on the
entity’s financial position, financial performance, and cash flows. SFAS 161
applies to all derivative instruments within the scope of SFAS 133, “Accounting for Derivative
Instruments and Hedging Activities” (SFAS 133) as well as related hedged
items, bifurcated derivatives, and non derivative instruments that are
designated and qualify as hedging instruments. Entities with instruments subject
to SFAS 161 must provide more robust qualitative disclosures and expanded
quantitative disclosures. SFAS 161 is effective prospectively for financial
statements issued for fiscal years and interim periods beginning after
November 15, 2008, with early application permitted. The Company does not
expect to have a material impact on the Company’s financial
position.





In
May 2008, the FASB released SFAS No. 162, “The Hierarchy of Generally Accepted
Accounting Principles.”SFAS No. 162
identifies the sources of accounting principles and the framework for selecting
the principles used in the preparation of financial statements of
nongovernmental entities that presented in conformity with generally accepted
accounting principles in the United States of America. SFAS No. 162 will be
effective 60 days following the SEC’s approval of the PCAOB amendments to AU
Section 411, The Meaning of Present Fairly in Conformity With Generally Accepted
Accounting Principles. The Company does not believe SFAS 162 will have a
significant impact on the Company’s consolidated financial
statements.





In May
2008, the FASB issued SFAS No. 163, “Accounting for Financial Guarantee
Insurance Contracts, an interpretation of FASB Statement No. 60.” The
scope of this Statement is limited to financial guarantee insurance (and
reinsurance) contracts, as described in this Statement, issued by enterprises
included within the scope of Statement 60. Accordingly, this Statement does not
apply to financial guarantee contracts issued by enterprises excluded from the
scope of Statement 60 or to some insurance contracts that seem similar to
financial guarantee insurance contracts issued by insurance enterprises (such as
mortgage guaranty insurance or credit insurance on trade receivables). This
Statement also does not apply to financial guarantee insurance contracts that
are derivative instruments included within the scope of FASB Statement No. 133,
“Accounting for Derivative Instruments and Hedging Activities.” This Statement
will not have any impact on the Company’s consolidated financial
statements.




Inflation




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


20




Currency
Exchange Fluctuations





All of
Company's revenues and majority of the expenses in 2008 were denominated
primarily in Renminbi ("RMB"), the currency of China, and was converted into US
dollars using the closing rate method. The balance sheet items are translated
into US$ using the exchange rates at the respective balance sheet dates. The
capital and various reserves are translated at historical exchange rates
prevailing at the time of the transactions while income and expenses items are
translated at the average exchange rate for the year. All exchange differences
are recorded within equity. As a result of the appreciation of RMB during 2008
we recognized a foreign currency translation gain of $601,815. There could be no
assurance that RMB-to-U.S. dollar exchange rates will remain stable. The
appreciation of RMB relative to the U.S. dollar would affect our business,
financial condition and results of operations. We do not engage in currency
hedging.




ITEM
8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA





The
consolidated financial statements of the Company and its subsidiaries including
the notes thereto, together with reports thereon of Jimmy C.H. Cheung & Co.
are presented beginning on page F-1.




ITEM 9. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES




None.





ITEM
9A(T). CONTROLS AND PROCEDURES





Evaluation
of Disclosure Controls and Procedures





As
required by Rule 13a-15 under the Exchange Act, as of the end of the period
covered by this Annual Report, being December 31, 2008, we evaluated the
effectiveness of the design and operation of our disclosure controls and
procedures. This evaluation ("Evaluation") was performed by our Chief Executive
Officer and our Chief Financial Officer in consultation with our accounting
personnel.





Based
upon the Evaluation, our Chief Executive Officer and our Chief Financial Officer
have concluded that as of the end of the period covered by this Annual Report,
our disclosure controls and procedures were effective in ensuring that the
information we are required to disclose in reports that we file or submit under
the Exchange Act is recorded, processed, summarized and reported within the time
periods specified in Securities and Exchange Commission rules and
forms.





Management’s
Annual Report on Internal Control Over Financial Reporting





The
management of HFGB is responsible for establishing and maintaining adequate
internal control over financial reporting as such term is defined in Exchange
Act Rules 13a-15(f) and 15d-15(f). Our internal control over financial reporting
is designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with accounting principles generally accepted in the
United States of America.





Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.





There
were no significant changes in our internal controls over financial reporting
identified in connection with this evaluation that occurred during our last
fiscal quarter that have materially affected, or are reasonably likely to
materially affect, HFGB's internal controls over financial
reporting.


21





Under the
supervision and with the participation of the Chief Executive Officer and acting
Chief Financial Officer, management conducted an evaluation of the effectiveness
of its internal control over financial reporting as of December 31, 2008. The
framework on which such evaluation was based is contained in the report entitled
"Internal Control — Integrated Framework" issued by the Committee of Sponsoring
Organizations of the Treadway Commission (the "COSO Report"). Based on that
evaluation and the criteria set forth in the COSO Report, management concluded
that its internal control over financial reporting was effective as of December
31, 2008.





This
Annual Report does not include an attestation report of the Company’s registered
public accounting firm regarding internal control over financial reporting.
Management’s report was not subject to attestation by the Company’s registered
public accounting firm pursuant to temporary rules of the Securities and
Exchange Commission that permit the Company to provide only management’s report
in this Annual Report.





ITEM
9B. OTHER INFORMATION




None.




PART
III




ITEM
10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE.





Management
And Board Of Directors





The
following table sets forth the names and ages of our current directors and
executive officers, their principal offices and positions and the date each such
person became a director or executive officer of our company. Our executive
officers are elected annually by the Board of Directors. Our directors serve one
year terms until their successors are elected. The executive officers serve
terms of one year or until their death, resignation or removal by the Board of
Directors. There are no family relationships between any of the directors and
executive officers. In addition, there were no arrangements or understanding
between any executive officer and any other person pursuant to which any person
was selected as an executive officer. Currently, directors are not compensated
for serving on the Board of Directors. We have not established compensation or
executive committees. Currently, our entire board of directors serves as our
audit committee. Because of the small size of the Company and the risk attendant
to a small public company, we are currently unable to attract an audit committee
financial expert to our Board of Directors.





Name
                  
                  Position
                  
                  Date Of AppointmentJingan
      Wang
                  
                  Chief
      Executive Officer
                  
                  December
      20, 2004Sanding
      Tao
                  
                  Chief
      Financial Officer
                  
                  December
      20, 2004Xinwen
      Hou
                  
                  Director
      and Secretary
                  
                  December
      20, 2004




Biographies
Of Officers And Directors




Jingan
Wang




Mr.
Jingan Wang, age 49, Chief Executive Officer of the Company, is the founder and
currently serves as President of Huifeng. Mr. Wang has over fifteen years of
experience in accounting and financial management area. Mr. Wang has served as
Accounting Supervisors and Chief Financial Officers for various companies during
his professional career. Before Mr. Wang founded Huifeng in 2000, he was the
Chief Financial Officer for Wei Xing Enterprises from 1999 to 2000. In 2004, he
was awarded "the Entrepreneur of the Year" by the Xian Hi Tech Development Zone.
Mr. Wang is also a certified public accountant.


22




Sanding
Tao




Mr.
Sanding Tao, age 41, Chief Financial Officer of the Company and of Huifeng. Mr.
Tao served as VP of Finance and CFO for various technology and bio-tech firms
before he joined Huifeng in 2003. From 1998 - 2000, Mr. Tao served as Chief
Financial Officer for Xian Lan Xi Science & Technology, Inc.; and from 2000
-2003, Mr. Tao served as Chief Financial Officer for Xian Xing Yi Science &
Technology, Inc. Mr. Tao is a graduate of Chinese Southern Financial
College.




Xinwen
Hou




Mr.
Xinwen Hou, age 41, Director and Secretary of the Company, currently also serves
as Assistant to the President and as Company Secretary for Huifeng Biochemistry
Joint Stock Company ("Huifeng") in Xian, China. Mr. Hou held various leadership
positions in different public companies in China before he joined Huifeng in
January 2004. From 1997 - 2003, Mr. Hou served as Company Secretary for De Li
Bang Pharmaceutical Inc., which is listed on China's A share stock exchange. He
is also a reputable economist. He graduated from Xian Transportation University
with a major in Business Administration.




Indemnification
Of Directors And Officers




Our
articles of incorporation limit the liability of directors to the maximum extent
permitted by Nevada law. This limitation of liability is subject to exceptions
including intentional misconduct, obtaining an improper personal benefit and
abdication or reckless disregard of director duties. Our articles of
incorporation and bylaws provide that we may indemnify its directors, officer,
employees and other agents to the fullest extent permitted by law. Our bylaws
also permit us to secure insurance on behalf of any officer, director, employee
or other agent for any liability arising out of his or her actions in such
capacity, regardless of whether the bylaws would permit indemnification. We
currently do not have such an insurance policy.




Insofar
as indemnification for liabilities arising under the Securities Act of 1933 may
be permitted for our directors, officers and controlling 1934 persons pursuant
to the foregoing provisions, or otherwise, we have been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable.





Code
Of Ethics




We have
adopted a Code of Ethics and Business Conduct authorizing the establishment of a
committee to ensure that our disclosure controls and procedures remain
effective.  Our Code also defines the standard of conduct expected by our
officers, directors and employees.




Compliance
With Section 16(A) Of The Securities Exchange Act Of 1934




Section
16(a) of the Securities Exchange Act of 1934, as amended, requires our executive
officers and directors and persons who own more than 10% of a registered class
of our equity securities to file with the Securities and Exchange Commission
initial statements of beneficial ownership, reports of changes in ownership and
annual reports concerning their ownership of our common stock and other equity
securities, on Forms 3, 4 and 5 respectively. Executive officers, directors and
greater than 10% shareholders are required by the Securities and Exchange
Commission regulations to furnish our Company with copies of all Section 16(a)
reports they file.




To the
Company's knowledge, based solely on a review of the copies of the reports
furnished to the Company, all executive officers, directors and greater than 10%
shareholders filed the required reports in a timely manner.


23




Directors
Compensation




The
directors and executives of the Company received no compensation from the
Company for the fiscal year ended December 31, 2008. The Company currently has
no agreements for compensation of its executives, and has no stock option plan
or other equity compensation plan for its employees.




ITEM
11. EXECUTIVE COMPENSATION





The
directors and executives of the Company received no compensation from the
Company for the fiscal year ended December 31, 2008. The Company currently has
no agreements for compensation of its executives, and has no stock option plan
or other equity compensation plan for its employees.





ITEM
12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS




The
following table sets forth certain information regarding beneficial ownership of
common stock as of March 11, 2009 by each person known to us to own beneficially
more than 5% of our common stock, each of our directors, each of our named
executive officers; and all executive officers and directors as a group. Except
as otherwise indicated, all persons listed below have (i) sole voting power and
investment power with respect to their shares of Common Stock, except to the
extent that authority is shared by spouses under applicable law, and (ii) record
and beneficial ownership with respect to their shares of stock. The percentage
of beneficial ownership is based upon 18,466,169 shares of Common Stock
outstanding as of March 11, 2009. Unless otherwise identified, the address of
the directors, officers and 5% beneficial owners of the Company listed above is
16B/F Ruixin Road Bldg. No. 25 Gaoxin Road, Xi’an 710075 Shaanxi Province,
China.





Name
                    
                    Position Held
                    
                    Shares
                      Owned
                    
                    % OwnedJingan
      Wang
                    
                    Chief
      Executive Officer
                    
                    
                    7,305,074
                    
                    39.56
                    %Sanding
      Tao
                    
                    Chief
      Financial Officer
                    
                    
                    325,442
                    
                    1.76
                    %Xinwen
      Hou
                    
                    Director
      and Secretary
                    
                    
                    325,442
                    
                    1.76
                    %All
      directors and executive officers as a group (3 persons)
                    
                    7,955,958
                    
                    43.08
                    %




ITEM
13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE




During
2007 the Company received $280,503 on behalf of two stockholders for shares
which they have transferred to a new investor.





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.





All
directors of the Company are executive officers of the Company. None of the
directors is independent.




ITEM
14. PRINCIPAL ACCOUNTANT FEES AND SERVICES





Audit
Fees




The
aggregate fees billed for each of the last two fiscal years for professional
services rendered by the principal accountant for our audit of annual financial
statements and review of financial statements included in our Form 10-K or
10-KSBs and 10-Q or 10-QSBs for services that are normally provided by the
accountant in connection with statutory and regulatory filings or engagements
for those fiscal years were:


24





2008:
$81,550 - Jimmiy C.H. Cheung & Co.





2007:
$74,000 - Jimmy C.H. Cheung & Co.




Audit-Related
Fees




For
fiscal 2008 and 2007, the Company's auditors did not bill any fees for assurance
and related services that are reasonably related to the performance of the audit
or review of the Company's financial statements and are not reported under
"Audit Fees" above.





Tax
Fees




No fees
were billed by the Company's auditors for professional services for tax
compliance, tax advice, and tax planning for fiscal 2008 and 2007,
respectively.





All
Other Fees




The
aggregate fees billed in each of the last two fiscal years for the products and
services provided by the principal accountant, other than the services reported
in paragraph (1) was:




2008 and
2007: $0 - Jimmy C. H. Cheung & Co.




Audit
Committee




The
Company's Board of Directors acts as its audit committee, and it meets prior to
filing of any Form 10-Q or 10-K to approve those filings. In addition, the
committee meets to discuss audit plans and anticipated fees for audit and tax
work prior to the commencement of that work. Approximately 100% of all fees paid
to our independent auditors for fiscal 2008 are pre-approved by the audit
committee.




ITEM
15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES





EXHIBITS





Exhibit No.
                  
                  Description3.1
                  
                  Articles
      of Incorporation (1)3.2
                  
                  Certificate
      of Amendment to Articles of Incorporation (Incorporated by reference to
      the exhibits to the Annual Report on Form 10-K filed on June 20,
      2005.)3.3
                  
                  Bylaws
      of the Company (1)4.1
                  
                  Secured
      Convertible Promissory Note due and payable in full on December 30, 2009
      (2)4.2
                  
                  Form
      of Warrant (2)10.1
                  
                  Purchase
      Agreement made as of October 27, 2006 among Xi’an Huifeng Biochemistry
      Group Co., Ltd. and Shaanxi Pharmaceutical Chemical Facility Co., Ltd.
      (Incorporated by reference to the exhibits to the Form 8-K filed on
      October 31,
2006.)


25





10.2
                
                Securities
      Purchase Agreement dated December 31, 2007 by and among Professional
      Offshore Opportunity Fund, Peter Treadway, Janet Wang, Manilal Patel Ltd.,
      Ancora Greater China Fund, Strategic Alliance Fund, L.P., and Strategic
      Alliance Fund II, L.P. (2)10.3
                
                Registration
      Rights Agreement dated December 31, 2007 by and among Professional
      Offshore Opportunity Fund, Ltd., Peter Treadway, Janet Wang, Manilal
      Patel, Ancora Greater China Fund, Strategic Alliance Fund, L.P., and
      Strategic Alliance Fund II, L.P. (2)10.4
                
                Pledge
      Agreement dated December 31, 2007 by and among Jing’an Wang, Junchao Wang
      and Zhihua Zhang (collectively, the “Pledgors”),
      Professional Offshore Opportunity Fund, Ltd., Peter Treadway, Janet Wang,
      Manilal Patel, Ancora Greater China Fund, Strategic Alliance Fund, L.P.,
      and Strategic Alliance Fund II, L.P. (collectively, the “Pledgee”) (2)10.5
                
                Pledge
      Agreement dated as of December 31st, 2007 by and among Jing'an Wang,
      Xinwen Hou, Junqi Zhang, Binjun Wang, Xugang Wang, and Zhilan Wang
      (collectively, the “Pledgor”),
      Professional Offshore Opportunity Fund, Ltd., Peter Treadway, Janet Wang,
      Manilal Patel, Ancora Greater China Fund, Strategic Alliance Fund, L.P.
      and Strategic Alliance Fund II, L.P. (collectively, The “Pledgee”) and
      Northwest Biotechnic Inc., a British Virgin Islands corporation (2)10.6
                
                Management
      Entrustment Agreement(3)10.7
                
                Share
      Pledge Agreement(3)10.8
                
                Shareholder’s
      Voting Proxy Agreement(3)10.9
                
                Exclusive
      Option Agreement(3)21.1
                
                List
      of Subsidiaries (Incorporated by reference to the exhibits to the
      Registration Statement on Form SB-2 filed on January 30,
    2008)31.1
                
                Sarbanes
      Oxley Section 302 Certification of Chief Executive
  Officer*31.2
                
                Sarbanes
      Oxley Section 302 Certification of Chief Financial
  Officer*32.1
                
                Sarbanes
      Oxley Section 906 Certification of Chief Executive
  Officer*32.2
                
                Sarbanes
      Oxley Section 906 Certification of Chief Financial
  Officer*99.1
                
                Code
      of Ethics(4)


* Filed
herewith


(1)
                
                Incorporated
      by reference to the exhibits to the Registration Statement on Form SB-2
      filed on July 28, 2000.(2)
                
                Incorporated
      by reference to the exhibits to the Form 8-K filed on January 3,
      2008.(3)
                
                Incorporated
      by reference to the exhibits to the Form 8-K filed on September 29,
      2008.(4)
                
                Incorporated
      by reference from the Annual Report on Form 10-K filed on June 20,
      2005.


26





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, thereunto duly
authorized.




Date:
      March 31, 2009Huifeng
      Bio-Pharmaceutical Technology, Inc.By:
                  /s/
      Jing’an WangJing’an
      WangChief
      Executive OfficerBy:
                  /
      s/ Sanding TaoSanding
      TaoChief
      Financing OfficerPrincipal
      Financial Officer




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





/s/
      Jing’an Wang
                    
                    Chairman
      and Chief Executive Office
                    
                    March
      31, 2009(Principal
      Executive Officer)/s/
      Sanding Tao
                    
                    Chief
      Financing Officer
                    
                    March
      31, 2009(Principal
      Financial Officer)Director
      and Secretary
                    
                    March
      31, 2009


27





HUIFENG
BIO-PHARMACEUTICAL TECHNOLOGY INC.


AND
SUBSIDIARIES





CONSOLIDATED
FINANCIAL STATEMENTS


AS OF
DECEMBER 31, 2008 AND 2007











HUIFENG
BIO-PHARMACEUTICAL TECHNOLOGY INC.


AND
SUBSIDIARIES





CONTENTS




PagesReport
      of Independent Registered Public Accounting Firm
                                  
                                  F-1Consolidated
      Balance Sheets as of December 31, 2008 and 2007
                                  
                                  F-2Consolidated
      Statements of Operations and Comprehensive income for the years ended
      December 31, 2008 and 2007
                                  
                                  F-3Consolidated
      Statements of Stockholders’ Equity for the years ended December 31, 2008
      and 2007
                                  
                                  F-4Consolidated
      Statements of Cash Flows for the years ended December 31, 2008 and
      2007
                                  
                                  F-5Notes
      to Consolidated Financial Statements as of December 31, 2008 and
      2007
                                  
                                  F-6
      –
F-16











Jimmy
      C.H. Cheung & CoCertified
      Public Accountants
                        Registered
      with the Public Company(A
      member of Kreston International)
                        Accounting
      Oversight
Board





REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM





To the
Board of Directors of:


Huifeng
Bio-pharmaceutical Technology Inc.





We have
audited the accompanying consolidated balance sheets of Huifeng
Bio-pharmaceutical Technology Inc. and subsidiaries as of December 31, 2008 and
2007 and the related consolidated statements of operations, stockholders’ equity
and cash flows for the years ended December 31, 2008 and 2007. These financial
statements are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these financial statements based on
our audits.





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





In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Huifeng Bio-pharmaceutical
Technology Inc. and subsidiaries as of December 31, 2008 and 2007 and the
consolidated results of its operations and its cash flows for the years ended
December 31, 2008 and 2007, in conformity with accounting principles generally
accepted in the United States of America.





/s/
Jimmy CH Cheung & Co


JIMMY
C.H. CHEUNG & CO


Certified
Public Accountants





Hong
Kong





Date:
March 24, 2009




1607
      Dominion Centre, 43 Queen’s Road East, Wanchai, Hong KongTel:  (852)
      25295500 Fax:  (852) 28651067 Email:
      jchc@krestoninternational.com.hkWebsite:  http://www.jimmycheungco.com




F-1




HUIFENG
BIO-PHARMACEUTICAL TECHNOLOGY INC.


AND
SUBSIDIARIES


CONSOLIDATED
BALANCE SHEETS


AS OF DECEMBER 31, 2008 AND
2007





2008
                                                                
                                                                
                                                                2007ASSETSCURRENT
      ASSETSCash
      and cash equivalents
                                                                
                                                                $
                                                                45,574
                                                                
                                                                
                                                                $
                                                                2,219,694Accounts
      receivable, net
                                                                
                                                                
                                                                2,877,868
                                                                
                                                                
                                                                
                                                                1,660,829Inventories,
      net
                                                                
                                                                
                                                                4,740,230
                                                                
                                                                
                                                                
                                                                2,657,305Other
      assets
                                                                
                                                                
                                                                328,996
                                                                
                                                                
                                                                
                                                                1,011,985Total
      Current Assets
                                                                
                                                                
                                                                7,992,668
                                                                
                                                                
                                                                
                                                                7,549,813PROPERTY
      AND EQUIPMENT, NET
                                                                
                                                                
                                                                5,947,458
                                                                
                                                                
                                                                
                                                                3,509,344LAND
      USE RIGHTS, NET
                                                                
                                                                
                                                                148,564
                                                                
                                                                
                                                                
                                                                142,334TOTAL
      ASSETS
                                                                
                                                                $
                                                                14,088,690
                                                                
                                                                
                                                                $
                                                                11,201,491LIABILITIES AND STOCKHOLDERS'
      EQUITYCURRENT
      LIABILITIESAccounts
      payable
                                                                
                                                                $
                                                                520,280
                                                                
                                                                
                                                                $
                                                                93,126Other
      payables and accrued expenses
                                                                
                                                                
                                                                407,726
                                                                
                                                                
                                                                
                                                                245,568Income
      tax and other tax payables
                                                                
                                                                
                                                                538,483
                                                                
                                                                
                                                                
                                                                498,655Notes
      payable
                                                                
                                                                
                                                                281,579
                                                                
                                                                
                                                                
                                                                295,320Due
      to stockholders
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                
                                                                280,503Convertible
      notes payable(net
      of unamortized discount of $323,093 and due onDecember
      31, 2009)
                                                                
                                                                
                                                                1,676,907
                                                                
                                                                
                                                                
                                                                -Total
      Current Liabilities
                                                                
                                                                
                                                                3,424,975
                                                                
                                                                
                                                                
                                                                1,413,172LONG-TERM
      LIABILITIESConvertible
      notes payable(net
      of unamortized discount of $646,186 and due onDecember
      31, 2009)
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                
                                                                1,353,814TOTAL
      LIABILITIES
                                                                
                                                                
                                                                3,424,975
                                                                
                                                                
                                                                
                                                                2,766,986COMMITMENTS
      AND CONTINGENCIES
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                
                                                                -MINORITY
      INTERESTS
                                                                
                                                                
                                                                507,679
                                                                
                                                                
                                                                
                                                                461,826STOCKHOLDERS'
      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,18,466,169
      shares issued and outstanding as ofDecember
      31, 2008 and 2007)
                                                                
                                                                
                                                                332,388
                                                                
                                                                
                                                                
                                                                332,388Additional
      paid-in capital
                                                                
                                                                
                                                                8,355,863
                                                                
                                                                
                                                                
                                                                8,326,752Retained
      earnings (deficit)Unappropriated
                                                                
                                                                
                                                                (403,795
                                                                )
                                                                
                                                                
                                                                (1,671,410
                                                                )Appropriated
                                                                
                                                                
                                                                504,780
                                                                
                                                                
                                                                
                                                                219,964Accumulated
      other comprehensive income
                                                                
                                                                
                                                                1,366,800
                                                                
                                                                
                                                                
                                                                764,985Total
      Stockholders' Equity
                                                                
                                                                
                                                                10,156,036
                                                                
                                                                
                                                                
                                                                7,972,679TOTAL
      LIABILITIES AND STOCKHOLDERS' EQUITY
                                                                
                                                                $
                                                                14,088,690
                                                                
                                                                
                                                                $
                                                                11,201,491





The
accompanying notes are an integral part of these financial
statements




F-2




HUIFENG
BIO-PHARMACEUTICAL TECHNOLOGY INC.


AND
SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF OPERATIONS


AND
COMPREHENSIVE INCOME


FOR THE YEARS ENDED DECEMBER
31, 2008 AND 2007





2008
                                            
                                            
                                            2007NET
      SALES
                                            
                                            $
                                            10,957,229
                                            
                                            
                                            $
                                            6,571,531COST
      OF SALES
                                            
                                            
                                            (7,136,492
                                            )
                                            
                                            
                                            (4,594,218
                                            )GROSS
      PROFIT
                                            
                                            
                                            3,820,737
                                            
                                            
                                            
                                            1,977,313OPERATING
      EXPENSESSelling
      expenses and distribution expenses
                                            
                                            
                                            209,131
                                            
                                            
                                            
                                            105,347General
      and administrative expenses
                                            
                                            
                                            1,157,196
                                            
                                            
                                            
                                            349,591Depreciation
      and amortization
                                            
                                            
                                            49,000
                                            
                                            
                                            
                                            47,951Total
      Operating Expenses
                                            
                                            
                                            1,415,327
                                            
                                            
                                            
                                            502,889INCOME
      FROM OPERATIONS
                                            
                                            
                                            2,405,410
                                            
                                            
                                            
                                            1,474,424OTHER
      INCOME (EXPENSES)Interest income
                                            
                                            
                                            16,824
                                            
                                            
                                            
                                            23,520Interest expenses
                                            
                                            
                                            (590,602
                                            )
                                            
                                            
                                            (30,463
                                            )Other income
                                            
                                            
                                            264,004
                                            
                                            
                                            
                                            109,797Other expenses
                                            
                                            
                                            -
                                            
                                            
                                            
                                            (48,307
                                            )Total
      Other (Expenses) Income
                                            
                                            
                                            (309,774
                                            )
                                            
                                            
                                            54,547INCOME
      FROM OPERATIONS BEFORE TAXESAND MINORITY INTERESTS
                                            
                                            
                                            2,095,636
                                            
                                            
                                            
                                            1,528,971INCOME
      TAX EXPENSE
                                            
                                            
                                            (528,570
                                            )
                                            
                                            
                                            (265,972
                                            )MINORITY
      INTERESTS
                                            
                                            
                                            (14,635
                                            )
                                            
                                            
                                            20,684NET
      INCOME
                                            
                                            
                                            1,552,431
                                            
                                            
                                            
                                            1,283,683OTHER
      COMPREHENSIVE  INCOMEForeign
      currency translation gain
                                            
                                            
                                            601,815
                                            
                                            
                                            
                                            461,686COMPREHENSIVE
      INCOME
                                            
                                            $
                                            2,154,246
                                            
                                            
                                            $
                                            1,745,369Net
      income per share-basic
                                            
                                            $
                                            0.08
                                            
                                            
                                            $
                                            0.07Net
      income per share-diluted
                                            
                                            $
                                            0.08
                                            
                                            
                                            $
                                            0.07Weighted
      average number of shares outstandingduring
      the year-basic
                                            
                                            
                                            18,466,169
                                            
                                            
                                            
                                            18,466,169Weighted
      average number of shares outstandingduring
      the year-diluted
                                            
                                            
                                            20,466,169
                                            
                                            
                                            
                                            18,471,648





The
accompanying notes are an integral part of these financial
statements




F-3




HUIFENG
BIO-PHARMACEUTICAL TECHNOLOGY INC.


AND
SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ EQUITY


FOR THE YEARS ENDED DECEMBER
31, 2008 AND 2007





Additional
                                                                          
                                                                          
                                                                          Unappropriated
                                                                          
                                                                          
                                                                          Appropriated
                                                                          
                                                                          
                                                                          Accumulated otherPreferred
      Stock
                                                                          
                                                                          
                                                                          Common
      Stock
                                                                          
                                                                          
                                                                          paid-in
                                                                          
                                                                          
                                                                          retained
                                                                          
                                                                          
                                                                          retained
                                                                          
                                                                          
                                                                          comprehensiveShares
                                                                          
                                                                          
                                                                          Amount
                                                                          
                                                                          
                                                                          Shares
                                                                          
                                                                          
                                                                          Amount
                                                                          
                                                                          
                                                                          capital
                                                                          
                                                                          
                                                                          deficit
                                                                          
                                                                          
                                                                          earnings
                                                                          
                                                                          
                                                                          income
                                                                          
                                                                          
                                                                          TotalBalance
      at January 1, 2007
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          18,466,169
                                                                          
                                                                          
                                                                          
                                                                          332,388
                                                                          
                                                                          
                                                                          
                                                                          8,020,066
                                                                          
                                                                          
                                                                          
                                                                          (2,818,054
                                                                          )
                                                                          
                                                                          
                                                                          82,925
                                                                          
                                                                          
                                                                          
                                                                          303,299
                                                                          
                                                                          
                                                                          
                                                                          5,920,624Components
      ofcomprehensive
      incomeNet
      income for the year
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          1,283,683
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          1,283,683Income
      from comprehensive
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          461,686
                                                                          
                                                                          
                                                                          
                                                                          461,686Comprehensive
      income
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          1,745,369Fair
      value of warrants issuedwith
      notes payable
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          306,686
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          306,686Transfer
      to statutory reserve
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          (137,039
                                                                          )
                                                                          
                                                                          
                                                                          137,039
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -Balance
      at December 31, 2007
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          $
                                                                          -
                                                                          
                                                                          
                                                                          $
                                                                          18,466,169
                                                                          
                                                                          
                                                                          $
                                                                          332,388
                                                                          
                                                                          
                                                                          $
                                                                          8,326,752
                                                                          
                                                                          
                                                                          $
                                                                          (1,671,410
                                                                          )
                                                                          
                                                                          $
                                                                          219,964
                                                                          
                                                                          
                                                                          $
                                                                          764,985
                                                                          
                                                                          
                                                                          $
                                                                          7,972,679Components
      ofcomprehensive
      incomeNet
      income for the year
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          1,552,431
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          1,552,431Income
      from comprehensive
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          601,815
                                                                          
                                                                          
                                                                          
                                                                          601,815Comprehensive
      income
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          2,154,246Stock
      options issued to alegal
      counsel
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          29,111
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          29,111Transfer
      to statutory reserve
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          (284,816
                                                                          )
                                                                          
                                                                          
                                                                          284,816
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -Balance
      at December 31, 2008
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          $
                                                                          -
                                                                          
                                                                          
                                                                          $
                                                                          18,466,169
                                                                          
                                                                          
                                                                          $
                                                                          332,388
                                                                          
                                                                          
                                                                          $
                                                                          8,355,863
                                                                          
                                                                          
                                                                          $
                                                                          (403,795
                                                                          )
                                                                          
                                                                          $
                                                                          504,780
                                                                          
                                                                          
                                                                          $
                                                                          1,366,800
                                                                          
                                                                          
                                                                          $
                                                                          10,156,036


The
accompanying notes are an integral part of these financial
statements




F-4




HUIFENG
BIO-PHARMACEUTICAL TECHNOLOGY INC.


AND
SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF CASH FLOWS


FOR THE YEARS ENDED DECEMBER
31, 2008 AND 2007





2008
                                                            
                                                            
                                                            2007CASH
      FLOWS FROM OPERATING ACTIVITIESNet
      income
                                                            
                                                            $
                                                            1,552,431
                                                            
                                                            
                                                            $
                                                            1,283,683Adjusted
      to reconcile net income to cash provided by(used
      in) operating activities:Allowance
      for doubtful accounts - accounts receivable
                                                            
                                                            
                                                            84,631
                                                            
                                                            
                                                            
                                                            (36,909
                                                            )Depreciation
      and amortization - cost of sales
                                                            
                                                            
                                                            433,276
                                                            
                                                            
                                                            
                                                            338,190Depreciation
      and amortization
                                                            
                                                            
                                                            49,000
                                                            
                                                            
                                                            
                                                            47,951Amortization
      of discount on convertible notes
                                                            
                                                            
                                                            153,343
                                                            
                                                            
                                                            
                                                            -Amortization
      of deferred financing costs
                                                            
                                                            
                                                            169,750
                                                            
                                                            
                                                            
                                                            -Stock
      options issued to a legal counsel
                                                            
                                                            
                                                            29,111
                                                            
                                                            
                                                            
                                                            -Minority
      interests
                                                            
                                                            
                                                            14,635
                                                            
                                                            
                                                            
                                                            (20,684
                                                            )Changes
      in operating assets and liabilities(Increase)
      decrease in:Accounts
      receivable, net
                                                            
                                                            
                                                            (1,173,074
                                                            )
                                                            
                                                            
                                                            (420,855
                                                            )Inventories,
      net
                                                            
                                                            
                                                            (1,875,068
                                                            )
                                                            
                                                            
                                                            (1,954,397
                                                            )Due
      from stockholders
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            24,769Other
      assets
                                                            
                                                            
                                                            739,237
                                                            
                                                            
                                                            
                                                            34,620Increase
      (decrease) in:Accounts
      payable
                                                            
                                                            
                                                            414,373
                                                            
                                                            
                                                            
                                                            35,746Other
      payables and accrued expenses
                                                            
                                                            
                                                            143,419
                                                            
                                                            
                                                            
                                                            93,208Income
      tax and other taxes payable
                                                            
                                                            
                                                            6,271
                                                            
                                                            
                                                            
                                                            262,235Due
      to stockholders
                                                            
                                                            
                                                            (294,679
                                                            )
                                                            
                                                            
                                                            269,341Net
      cash provided by (used in) operating activities
                                                            
                                                            
                                                            446,656
                                                            
                                                            
                                                            
                                                            (43,102
                                                            )CASH
      FLOWS FROM INVESTING ACTIVITIESDecrease
      in notes receivable
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            459,486Purchase
      of property and equipment
                                                            
                                                            
                                                            (2,647,469
                                                            )
                                                            
                                                            
                                                            (330,852
                                                            )Net
      cash (used in) provided by investing activities
                                                            
                                                            
                                                            (2,647,469
                                                            )
                                                            
                                                            
                                                            128,634CASH
      FLOWS FROM FINANCING ACTIVITIESProceeds
      from issue of convertible notes, net
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            1,660,500Proceeds
      from notes payable
                                                            
                                                            
                                                            (33,035
                                                            )
                                                            
                                                            
                                                            31,507Net
      cash (used in) provided by financing activities
                                                            
                                                            
                                                            (33,035
                                                            )
                                                            
                                                            
                                                            1,692,007EFFECT
      OF EXCHANGE RATES ON CASH
                                                            
                                                            
                                                            59,728
                                                            
                                                            
                                                            
                                                            (21,313
                                                            )NET
      (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
                                                            
                                                            
                                                            (2,174,120
                                                            )
                                                            
                                                            
                                                            1,756,226CASH
      AND CASH EQUIVALENTS AT BEGINNING OF YEAR
                                                            
                                                            
                                                            2,219,694
                                                            
                                                            
                                                            
                                                            463,468CASH
      AND CASH EQUIVALENTS AT END OF YEAR
                                                            
                                                            $
                                                            45,574
                                                            
                                                            
                                                            $
                                                            2,219,694SUPPLEMENTAL DISCLOSURE OF CASH FLOW
      INFORMATIONCash
      paid during the year for:Income
      taxes
                                                            
                                                            $
                                                            400,023
                                                            
                                                            
                                                            $
                                                            11,159Interest
      expenses
                                                            
                                                            $
                                                            250,842
                                                            
                                                            
                                                            $
                                                            30,463





The
accompanying notes are an integral part of these financial
statements




F-5




HUIFENG
BIO-PHARMACEUTICAL TECHNOLOGY INC.


AND
SUBSIDIARIES


NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS


AS OF DECEMBER 31, 2008 AND
2007








1.
              SUMMARY OF SIGNIFICANT
      ACCOUNTING POLICIES AND
ORGANIZATION





(A)
              Organization





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





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





Details
of the Company’s principal subsidiaries as of December 31, 2008 are described in
Note 4 – Subsidiaries.





(B)
              Use
      of estimates





The
preparation of the financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amount of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.





(C)
              Principles
      of consolidation





The
accompanying 2008 and 2007 consolidated financial statements include the
financial statements of Huifeng Bio-pharmaceutical and its 100% owned subsidiary
Northwest, 100% owned subsidiary Huifeng Bio-Technic, 70% owned subsidiary
Huifeng Engineering and 80.2% owned subsidiary Huifeng
Pharmaceutical.





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





(D)
              Cash
      and cash equivalents





For
purpose of the statements of cash flows, cash and cash equivalents include cash
on hand and demand deposits with a bank with a maturity of three months or
less.





(E)
              Accounts
      receivable





The
Company extends unsecured credit to its customers in the ordinary course of
business but mitigates the associated risks by performing credit checks and
actively pursuing past due accounts.  An allowance for doubtful
accounts is established and recorded based on managements’ assessment of the
credit history with the customer and current relationships with
them.  For the years ended December 31, 2008 and 2007, the Company
recorded allowance for and recovery of doubtful accounts of $84,631 and $36,909
respectively.





(F)
              Inventories





Inventories
are stated at the lower of cost or market value, cost being determined on a
weighted average method.  The Company provides for inventory
allowances based on excess and obsolete inventories determined principally by
customer demand.





F-6





(G)
              Property
      and equipment





Property
and equipment are stated at cost, less accumulated
depreciation.  Expenditure for additions, major renewals and
betterments are capitalized and expenditures for maintenance and repairs are
charged to expense as incurred.





Depreciation
is provided on a straight-line basis over the assets’ estimated useful
lives.  The estimated useful lives are as follows:





Factory buildings
              20
      YearsPlant
      and machinery
              10
      YearsMotor vehicles
              10
      YearsFurniture,
      fixtures and equipment
              5
      Years





Land use
rights are stated at cost, less accumulated amortization. The land use rights
are amortized over the term of the relevant rights of 50 years from the date of
acquisition.





(H)
              Long-lived
      assets





The
Company accounts for long-lived assets under the Statements of Financial
Accounting Standards Nos. 142 and 144 “Accounting for Goodwill and Other
Intangible Assets” and “Accounting for Impairment or Disposal of Long-Lived
Assets” (“SFAS No. 142 and 144”).  In accordance with SFAS No. 142 and
144, long-lived assets, goodwill and certain identifiable intangible assets held
and used by the Company are reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. For purposes of evaluating the recoverability of long-lived assets,
when undiscounted future cash flows will not be sufficient to recover an asset’s
carrying amount, the asset is written down to its fair value.




(I)
              Fair
      value of financial
instruments





In
January 2008, the Company adopted SFAS No. 157, “Fair Value Measurements.” SFAS
No. 157, defines fair value, establishes a three level valuation hierarchy for
disclosures of fair value measurement and enhances disclosures requirements for
fair value measures. The carrying amounts reported in the balance sheets for
receivables and payables qualified as financial instruments and are a reasonable
estimate of fair value because of the short period of time between the
origination of such instruments and their expected realization and their current
market rate of interest. The three levels are defined as follow:





Ÿ
              Level
      1 – inputs to the valuation methodology are quoted prices for identical
      assets or liabilities in active
markets.





Ÿ
              Level
      2 – inputs to the valuation methodology include quoted prices for similar
      assets and liabilities in active markets, and inputs that are observable
      for the assets or liabilities, either directly or indirectly, for
      substantially the full term of the financial
  instruments.





Ÿ
              Level
      3 – Inputs to the valuation methodology are unobservable and significant
      to the fair value.





The
Company accounts for non-hedging contracts that are indexed to, and potentially
settled in, its own common stock in accordance with the provisions of Emerging
Issues Task Force 00-19, “Accounting for Derivative Financial Instruments
Indexed to, and Potentially Settled in, a Company’s Own Stock” (“EITF 00-19”).
These non-hedging contracts accounted for in accordance with EITF 00-19 include
freestanding warrants to purchase the Company’s common stock that have been
bifurcated from the host contract in accordance with the requirements of SFAS
133, “Accounting for Derivative Instruments and Hedging Activities” (“SFAS
133”). Under certain circumstances that could require the Company to settle
these equity items in cash or stock, and the adjustment of that reclassified
amount to fair value at each reporting period, with such adjustments reflected
in the line item of change in valuation of derivative as other income (expenses)
in the statements of operations.





The
Company analyzes all financial instruments with features of both liabilities and
equity under SFAS 150, “Accounting for Certain Financial Instruments with
Characteristics of Both Liabilities and Equity,” SFAS 133, “Accounting for
Derivative Instruments and Hedging Activities” and EITF 00-19, “Accounting for
Derivative Financial Instruments Indexed to, and Potentially Settled in, a
Company’s Own Stock.” On December 31, 2007, the Company issued 10% secured
convertible notes (the “Notes”) in a face amount of $2,000,000 which are due and
payable in full in 2 years from their issuance. As fixed prices are set for the
conversion prices of such Notes and the attached warrants, the Company is in a
position to be sure it had adequate authorized shares for the future conversion
of the Notes and warrants. Therefore, no embedded derivatives and warrants are
required to be recorded at fair value and marked-to-market at each reporting
period.





F-7





The
Company did not identify any assets or liabilities that are required to be
presented on the balance sheet at fair value in accordance with SFAS No.
157.




(J)
            Stock-based
      compensation





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





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





(K)
              Discount
      on notes payable





A
discount with respect to the Notes issued during the year ended December 31,
2007 was recorded by the Company. The amount of the discount was calculated to
be the fair value of the warrants included among the securities issued pursuant
to the terms of the subscription agreement discussed in Note 11.





(L)
              Revenue
      recognition




The
Company recognizes revenue upon delivery or shipment of the products, at which
time title passes to the customer provided that: there are no uncertainties
regarding customer acceptance; persuasive evidence of an arrangement exists; the
sales price is fixed or determinable; and collectability is deemed
probable.





(M)
              Income
      taxes





The
Company accounts for income taxes under the Statement of Financial Accounting
Standards No. 109, “Accounting for Income Taxes” (“Statement
109”).  Under Statement 109, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities and
their respective tax bases.  Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled.  Under Statement 109, the effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that
included the enactment date.





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





F-8





(N)
              Foreign
      currency translation





The
functional currency of Huifeng Bio-Pharmaceutical and Northwest is US$ and the
functional currency of Huifeng Bio-Technic, Huifeng Engineering and Huifeng
Pharmaceutical is Renminbi (“RMB”). Foreign currency transactions during the
year are translated to the functional currency at the approximate rates of
exchange on the dates of transactions.  Monetary assets and
liabilities denominated in foreign currencies at the balance sheet date are
translated at the approximate rates of exchange at that
date.  Non-monetary assets and liabilities are translated at the rates
of exchange prevailing at the time the asset or liability was acquired. Exchange
gains or losses are recorded in the statement operations.





The
financial statements are translated into United States Dollars (“US$”) using the
closing rate method.  The balance sheet items are translated into US$
using the exchange rates at the respective balance sheet dates.  The
capital and various reserves are translated at historical exchange rates
prevailing at the time of the transactions while income and expenses items are
translated at the average exchange rate for the year.  All exchange
differences are recorded within equity.


The
exchange rates used to translate amounts in RMB into US$ for the purposes of
preparing the financial statements were as follows:





December 31, 2008
                                
                                December 31, 2007Balance
      sheet items, except for preferredstock,
      common stock, additional paid-incapital
      and retained earnings, as of year end
                                US$1=RMB6.8542
                                
                                US$1=RMB7.3141Amounts
      included in the statements ofoperations
      and cash flows for the year
                                US$1=RMB6.96225
                                
                                US$1=RMB7.6172





The
translation gain recorded for the years ended December 31, 2008 and 2007 was
$601,815 and $461,686 respectively.





No
presentation is made that RMB amounts have been, or would be, converted into US$
at the above rates. Although the Chinese government regulations now allow
convertibility of RMB for current account transactions, significant restrictions
still remain. Hence, such translations should not be construed as representation
that the RMB could be converted into US$ at that rate or any other
rate.





The value
of RMB against US$ and other currencies may fluctuate and is affected by, among
other things, changes in China’s political and economic conditions, any
significant revaluation of RMB may materially affect the Company’s financial
condition in terms of US$ reporting.





(O)
              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
year.  Diluted income per share is computed similar to basic income
per share except that the denominator is increased to include the number of
additional common shares that would have been outstanding if the potential
common shares had been issued and if the additional common shares were dilutive.
Including in December 31, 2008 and 2007, the Company’s 10% secured convertible
notes (the “Notes”) in a face amount of $2,000,000 which are due and payable in
full in 2 years from their issuance.





Warrants
to purchase 500,000 shares of common stock at prices $1.50 per share and a stock
option to purchase 100,000 shares of common stock at a price of $1.50 per share
were outstanding as of December 31, 2008 and 2007, but were excluded from the
calculation of diluted earnings per share because the effects of stock warrants
and a stock option were anti-dilutive.





(P)
            Segments





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




F-9




(Q)
            Recent
      Accounting Pronouncements





In
December 2007, FASB issued Statement 141 (Revised 2007), “Business Combinations”. This
statement provides guidance on improving the relevance, representational
faithfulness, and comparability of information that a reporting entity provides
in its financial reports about a business combination and its effects. This
Statement will become effective where is the acquisition date is on or after the
beginning of the first annual reporting period beginning on or after December
15, 2008. The Company does not expect to have a material impact on the Company’s
financial position.





In
December 2007, FASB issued Statement 160, “Noncontrolling Interests in
Consolidated Financial Statement – an amendment of ARB No. 51”, which
establishes accounting and reporting standards to improve the relevance,
comparability, and transparency of financial information in its consolidated
financial statements that include an outstanding noncontrolling interest in one
or more subsidiaries. This effective will effective for all full fiscal and
interim periods beginning after December 15, 2008. The Company does not expect
to have a material impact on the Company’s financial position.





In March
2008, the FASB issued SFAS No. 161, “Disclosures about Derivative
Instruments and Hedging Activities, an amendment of FASB Statement
No. 133” (SFAS 161). This statement is intended to improve
transparency in financial reporting by requiring enhanced disclosures of an
entity’s derivative instruments and hedging activities and their effects on the
entity’s financial position, financial performance, and cash flows. SFAS 161
applies to all derivative instruments within the scope of SFAS 133, “Accounting for Derivative
Instruments and Hedging Activities” (SFAS 133) as well as related hedged
items, bifurcated derivatives, and non derivative instruments that are
designated and qualify as hedging instruments. Entities with instruments subject
to SFAS 161 must provide more robust qualitative disclosures and expanded
quantitative disclosures. SFAS 161 is effective prospectively for financial
statements issued for fiscal years and interim periods beginning after
November 15, 2008, with early application permitted. The Company does not
expect to have a material impact on the Company’s financial
position.


In
May 2008, the FASB released SFAS No. 162, “The Hierarchy of Generally Accepted
Accounting Principles.”SFAS No. 162
identifies the sources of accounting principles and the framework for selecting
the principles used in the preparation of financial statements of
nongovernmental entities that presented in conformity with generally accepted
accounting principles in the United States of America. SFAS No. 162 will be
effective 60 days following the SEC’s approval of the PCAOB amendments to AU
Section 411, The Meaning of Present Fairly in Conformity With Generally Accepted
Accounting Principles. The Company does not believe SFAS 162 will have a
significant impact on the Company’s consolidated financial
statements.





In May
2008, the FASB issued SFAS No. 163, “Accounting for Financial Guarantee
Insurance Contracts, an interpretation of FASB Statement No. 60.” The
scope of this Statement is limited to financial guarantee insurance (and
reinsurance) contracts, as described in this Statement, issued by enterprises
included within the scope of Statement 60. Accordingly, this Statement does not
apply to financial guarantee contracts issued by enterprises excluded from the
scope of Statement 60 or to some insurance contracts that seem similar to
financial guarantee insurance contracts issued by insurance enterprises (such as
mortgage guaranty insurance or credit insurance on trade receivables). This
Statement also does not apply to financial guarantee insurance contracts that
are derivative instruments included within the scope of FASB Statement No. 133,
“Accounting for Derivative Instruments and Hedging Activities.” This Statement
will not have any impact on the Company’s consolidated financial
statements.





2.
            BUSINESS
      COMBINATIONS





On
September 25, 2008, the Company’s subsidiary Huifeng Bio-Technic entered into a
series of exclusive contractual agreements with Xi’an Qinba Xintong Medical
Limited (“Qinba”), a company organized under the laws of the PRC, and their
respective registered shareholders, pursuant to which Huifeng Bio-Technic will
provide exclusive management consulting and other general business operation
services to Qinba in exchange for service fees amounting to 70% of the total
profit of Qinba. Each of the registered PRC shareholders of Qinba also entered
into shares pledge agreements and option agreements; each shareholder pledged
their respective interests in Qinba for the due performance of such Qinba’s
obligations under its respective management entrustment agreement. Huifeng
Bio-Technic has been assigned all voting rights by the shareholders of Qinba and
has the option to acquire the equity interests of Qinba at a mutually agreed
purchase price. As part of this arrangement, Huifeng Bio-Technic has agreed to
provide an interest free loan totaling $291,792 to Qinba for working capital
purposes.





Through
the above contractual arrangements, Huifeng Bio-Technic would have become the
primary beneficiary of Qinba which is a variable interest entity as defined
under FIN 46R “Consolidation of Variable Interest Entities”.




F-10




In
October 2008 Huifeng Bio-Technic advanced Qinba $58,358 as part of the $291,792
loan advancement required to be made for working capital purposes.





Huifeng
Bio-Technic was unable to make further loan advances and defaulted on its
contractual arrangements with Qinba. Subsequent to the default, Huifeng
Bio-Technic in December 2008 entered into discussions with Qinba to terminate
its contractual relationship. The parties have verbally agreed to this
termination on the basis that Huifeng Bio-Technic shares no profits of Qinba and
that Qinba will forfeit $37,933 from the $58,358 interest free loan already
advanced by Huifeng Bio-Technic. In January 2009, Qinba refunded $20,425 balance
of loan to Huifeng Bio-Technic after the deduction of $37,933 as
penalty.  (See note 18)





As of
December 31, 2008, the Company wrote-off $37,933 from its loan to Qinba as
irrecoverable.





3.
            SUBSIDIARIES





Details
of the Company’s principal consolidated subsidiaries as of December 31, 2008
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 In.
                              
                              The
      PRC
                              
                              100%
                              
                              Manufacturing
      and sale of pharmaceutical raw materialsXi’an
      Huifeng Biochemistry Engineering Company Limited
                              
                              The
      PRC
                              
                              70%
                              
                              DormantXi’an
      Huifeng Pharmaceutical Company Limited
                              
                              The
      PRC
                              
                              80.2%
                              
                              Manufacturing
      and sale of pharmaceutical raw
materials





4.
            ACCOUNTS RECEIVABLE,
      NET





Accounts
receivable at December 31, 2008 and 2007 consisted of the
following:




2008
                    
                    
                    2007Accounts
      receivable
                    
                    $
                    2,985,795
                    
                    
                    $
                    1,681,411Less:
      allowance for doubtful accounts
                    
                    
                    (107,927
                    )
                    
                    
                    (20,582
                    )Accounts
      receivable, net
                    
                    $
                    2,877,868
                    
                    
                    $
                    1,660,829





For the
years ended December 31, 2008 and 2007, the Company recorded allowance for and
recovery of doubtful accounts of $84,631 and $36,909
respectively.





5.
            INVENTORIES,
      NET





Inventories
at December 31, 2008 and 2007 consisted of the following:




2008
                      
                      
                      2007Raw
      materials
                      
                      $
                      655,267
                      
                      
                      $
                      1,050,799Work-in-progress
                      
                      
                      2,276,087
                      
                      
                      
                      922,354Finished
      goods
                      
                      
                      1,808,876
                      
                      
                      
                      684,1524,740,230
                      
                      
                      
                      2,657,305Less:
      provision of obsolescence
                      
                      
                      -
                      
                      
                      
                      -$
                      4,740,230
                      
                      
                      $
                      2,657,305





For the
years ended December 31, 2008 and 2007, the Company did not have any obsolete
inventories.





F-11





6.
            OTHER
    ASSETS





Other
assets at December 31, 2008 and 2007 consisted of the following:




2008
                          
                          
                          2007Advances
      to staff
                          
                          $
                          12,206
                          
                          
                          $
                          17,667Other
      receivables and prepayments
                          
                          
                          40,131
                          
                          
                          
                          14,428Trade
      deposits paid
                          
                          
                          276,659
                          
                          
                          
                          979,890$
                          328,996
                          
                          
                          $
                          1,011,985





7.
            PROPERTY AND
    EQUIPMENT





The
following is a summary of property and equipment at December 31, 2008 and
2007:





2008
                    
                    
                    2007Factory
      buildings
                    
                    $
                    1,442,985
                    
                    
                    $
                    612,159Plant
      and machinery
                    
                    
                    5,462,594
                    
                    
                    
                    3,942,330Motor
      vehicles
                    
                    
                    122,434
                    
                    
                    
                    102,784Furniture
      and office equipment
                    
                    
                    51,451
                    
                    
                    
                    37,536Construction
      in progress - factory building
                    
                    
                    665,286
                    
                    
                    
                    42,8517,744,750
                    
                    
                    
                    4,737,660Less:
      accumulated depreciation
                    
                    
                    (1,797,292
                    )
                    
                    
                    (1,228,316
                    )Property
      and equipment, net
                    
                    $
                    5,947,458
                    
                    
                    $
                    3,509,344





Depreciation
expenses for the years ended December 31, 2008 and 2007 were $479,008 and
$383,153 respectively.





8.
            LAND USE RIGHTS,
  NET





Land use
rights at December 31, 2008 and 2007 consisted of the following:





2008
                      
                      
                      2007Land
      use rights
                      
                      $
                      162,674
                      
                      
                      $
                      151,667Less:
      accumulated amortization
                      
                      
                      (14,110
                      )
                      
                      
                      (9,333
                      )Land
      use rights, net
                      
                      $
                      148,564
                      
                      
                      $
                      142,334




Amortization
expenses for the years ended December 31, 2008 and 2007 were $3,268 and $2,988
respectively.





9.
            OTHER PAYABLES AND ACCRUED
      EXPENSES





Other
payables and accrued expenses at December 31, 2008 and 2007 consisted of the
following:





2008
                    
                    
                    2007Other
      payables
                    
                    $
                    172,797
                    
                    
                    $
                    75,590Accrued
      expenses
                    
                    
                    134,452
                    
                    
                    
                    113,660Deposits
      received from customers
                    
                    
                    100,477
                    
                    
                    
                    56,318$
                    407,726
                    
                    
                    $
                    245,568





F-12





10.
            INCOME
    TAX





a.
              Huifeng
      Bio-pharmaceutical was incorporated in the United States and has incurred
      net operating loss as for income tax purposes for 2008 and
      2007.





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





Huifeng
Bio-Technic, wholly owned subsidiary of Northwest, was incorporated in the PRC
being registered as a new and high technology enterprise is entitled to an
income tax reduction.  According to the document of reductions
approved by the local tax bureau, the income tax rate was reduced from 33% to
15% on a permanent basis. The provision for income tax expenses for 2008 and
2007 was $467,447 and $237,506 respectively.





Huifeng
Engineering, 70% owned subsidiary of Huifeng Bio-Technic, was incorporated in
the PRC and subject to PRC income tax which is computed according to the
relevant laws and regulations in the PRC.  No provision for income tax
expenses for 2008 and 2007 as Huifeng Engineering has incurred net operating
loss.





Huifeng
Pharmaceutical, 80.2% owned subsidiary of Huifeng Bio-Technic, was also
incorporated in the PRC and subject to PRC income tax which is computed
according to the relevant laws and regulations in the PRC. The applicable tax
rates for 2008 and 2007 were 25% and 33% respectively due to changes in income
tax policy during 2008. The provision for income tax expenses for 2008 and 2007
was $61,123 and $28,466 respectively.





The
income tax expenses for 2008 and 2007 are summarized as follows:





2008
                      
                      
                      2007PRC
      Income TaxCurrent
                      
                      $
                      528,570
                      
                      
                      $
                      265,972$
                      528,570
                      
                      
                      $
                      265,972








b.
              The
      Company’s deferred tax assets at December 31, 2008 and 2007 consist of net
      operating loss carry forwards calculated using statutory effective tax
      rates.  Due to its history of losses, the Company determined
      that realization of its net deferred tax assets is currently judged to be
      unlikely rather than not.  Consequently, the Company has
      provided a valuation allowance covering 100% of its net deferred tax
      assets.





As of in
December 31, 2008 and 2007, the Company had net operating loss carry forwards of
approximately $1,937,833 and $985,832 respectively for U.S. income tax purposes
available for offset against future taxable U.S. income, which expire
2025.  The net changes in the valuation allowance for 2008 and 2007
were $658,863 and $335,183 respectively.





c.
              The
      reconciliation of income taxes computed at the statutory income tax rates
      to total income taxes for the years ended December 31, 2008 and 2007 is as
      follows:


2008
                              
                              
                              2007Huifeng
      Bio-PharmaceuticalIncome
      tax computed at the federal statutory rate
                              
                              
                              34
                              %
                              
                              
                              34
                              %State
      income taxes, net of federal tax benefit
                              
                              
                              0
                              %
                              
                              
                              0
                              %Valuation
      allowance
                              
                              
                              (34
                              )%
                              
                              
                              (34
                              )%Foreign
      income taxes
                              
                              
                              24.8
                              %
                              
                              
                              17.4
                              %Effective
      income tax rate
                              
                              
                              24.8
                              %
                              
                              
                              17.4
                              %Total
      deferred tax asset
                              
                              
                              0
                              %
                              
                              
                              0
                              %





11.
            NOTES
      PAYABLE





Notes
payable as of December 31, 2008 and 2007 consisted of the
following:




F-13




2008
                                      
                                      
                                      2007Notes
      payable to a financial institution, interest rate of12.5838%
      per annum, secured by a director property andthe
      company's fixed assets, guaranteed by a third party,due
      August 2008, was extended to July 2009
                                      
                                      $
                                      281,579
                                      
                                      
                                      $
                                      295,320Current
      maturities
                                      
                                      $
                                      281,579
                                      
                                      
                                      $
                                      295,320





Interest
expenses for the years ended December 31, 2008 and 2007 were $34,036 and $27,945
respectively.





12.
            CONVERTIBLE NOTES
      PAYABLE





On
December 31, 2007, the Company consummated a private placement of $2,000,000
principal amount of 10% secured convertible notes (the “Notes”) with a two-year
common stock warrants to seven accredited investors. Financing cost of $339,500
was paid out of the gross proceeds. Financing cost is amortized over the life of
the Notes to interest expense using the effective interest method. For the years
ended December 31, 2008 and 2007, the Company amortized $169,750 and $0 of
financing costs in interest expenses. The Notes are due December 31, 2009 and
are convertible into 2,000,000 shares of common stock of the Company at a
conversion price of $1.00 per share.





The
holders of the Notes may convert the unpaid principal amount of the Notes into
common stock of the Company at any time prior to maturity, at the applicable
conversion price. The Company may prepay all or any part of the outstanding
principal amount of the Notes, together with interest, if any, plus a premium,
if payable prepayment occurs prior to December 31, 2008, the amount paid shall
be 125% of the principal deemed prepaid, and in the event such prepayment occurs
after December 31, 2008, the amount paid shall be 140% of the principal deemed
prepaid. After the occurrence of an Event of Default, 150% of the principal
amount then outstanding plus all interest occurred to the date of the prepayment
is payable within three days.





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





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





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





As of
December 31, 2008, the Note holders have not converted the principal amount of
their Notes into shares of common stock of the Company.





The
Company recorded a discount on the Notes in accordance with EITF 98-5 of
$306,686 for the fair value of the warrants issued. The fair value of warrants
was calculated using the Black-Scholes model with the following assumptions: (i)
risk-free interest rate of 3.07%; (ii) expected life (in years) of 3; (iii)
expected volatility of 172%; (iv) expected dividend yield of 0.00%; and (v)
stock market price of $0.75. The discount on Notes is amortized using effective
interest method over 2 years. For the years ended December 31, 2008 and 2007,
the Company recorded amortization of $153,343 and $0 respectively as interest
expenses in the statement of operations.





The Notes
bear a 10% annual interest rate payable in arrears with a first payment due
March 1, 2008, and thereafter on each June 1, September 1 and December 1 while
the Notes are outstanding, with a final payment of interest due on the maturity
date. For the years ended December 31, 2008 and 2007, $203,333 and $0
respectively was recorded as interest expenses.




F-14




13.
            NET INCOME PER
      SHARE





The
following is net income per share information at December 31:




2008
                          
                          
                          2007Net
      income for basic and diluted income per share
                          
                          $
                          1,552,431
                          
                          
                          $
                          1,283,683Basic
      weighted-average common stock outstanding
                          
                          
                          18,466,169
                          
                          
                          
                          18,466,169Effect
      of dilutive securitiesConvertible
      notes
                          
                          
                          2,000,000
                          
                          
                          
                          5,479Diluted
      weighted-average common stock outstanding
                          
                          
                          20,466,169
                          
                          
                          
                          18,471,648Net
      income per share - basic
                          
                          $
                          0.08
                          
                          
                          $
                          0.07Net
      income per share - diluted
                          
                          $
                          0.08
                          
                          
                          $
                          0.07





14.
            COMMITMENTS AND
      CONTINGENCIES







(A)
            Capital
      commitments





As of
December 31, 2007, the Company had capital commitments of $512,954 with
suppliers for the purchase of production equipment and factory construction. The
Company had no capital commitments as of December 31, 2008.





(B)
            Operating
      lease commitments





The
Company occupies office and storage spaces from a third party under operating
leases which expires on September 30, 2009 and March 10, 2009 at a quarterly
rental of $2,801 and $483 respectively.  Accordingly, for 2008 and
2007, the Company recognized rental expense for these spaces in the amount of
$13,450 and $12,277, respectively.





As of
December 31, 2008, the Company has outstanding commitments with respect to
non-cancelable operating leases of $8,402 and $403, which are due on September
30, 2009 and March 10, 2009 respectively.





(C)
            Contingencies





In
December 2008, the Company was in default to provide the agreed financial
support to its 70% variable Interest entity – Qinba. The Company had advanced
$58,358 in October 2008 and the remainder of $37,933 was become irrecoverable
and therefore the amount has been written off. The termination is still in
progress, the Company was unable to collect the financial statement of Qinba as
of December 31, 2008 and therefore the deconsolidation of Qinba was measured
using the unaudited carrying amounts as of September 30, 2008. Further
compensation may be incurred, but the Company believes that any potential
liability associated with the termination of this matter will not have a
material effect on its financial position or results of operations.





15.
            SHAREHOLDERS’
      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 shall be exercisable in whole or in part, according to the vesting
schedule, shall be fully vested upon execution of the agreement and shall be
exercisable at any time pursuant to the terms of the Agreement until April 28,
2010. The fair value of the options was estimated on the grant date using the
Black-Scholes option pricing model as required by SFAS 123R with the following
assumptions and estimates: expected dividend 0%, volatility 189%, a risk-free
rate of 2.36% and an expected life of two years. The value of options recognized
during the years ended December 31, 2008 and 2007 were $29,111 and $0
respectively.




F-15




(B)
            Appropriated
      retained earnings





The
Company’s wholly owned subsidiary, Huifeng Bio-Technic, 70% owned subsidiary
Huifeng Engineering and 80.2% owned subsidiary Huifeng Pharmaceutical are
required to make appropriations to the statutory surplus reserve based on the
after-tax net income determined in accordance with the laws and regulations of
the PRC. Prior to January 1, 2006 the appropriation to the statutory surplus
reserve should be at least 10% of the after tax net income determined in
accordance with the laws and regulations of the PRC until the reserve is equal
to 50% of the entities’ registered capital. Appropriations to the statutory
public welfare fund are at 5% to 10% of the after tax net income determined by
the Board of Directors. Effective January 1, 2006, the Company is only required
to contribute to one statutory reserve fund at 10% of net income after tax per
annum, such contributions not to exceed 50% of the respective company’s
registered capital.





The
statutory reserve funds are restricted for use to set off against prior period
losses, expansion of production and operation or for the increase in the
registered capital of the Company. These reserves are not transferable to the
Company in the form of cash dividends, loans or advances. These reserves are
therefore not available for distribution except in liquidation.





During
2008 and 2007, the Company’s wholly owned subsidiary Huifeng Bio-Technic
appropriated $264,887 and $137,039, respectively; and the Company’s 80.2% owned
subsidiary Huifeng Pharmaceutical also appropriated $19,929 and $0, respectively
to the reserves funds based on its net income under PRC GAAP.





16.
            RELATED PARTY
      TRANSACTIONS





During
2007 the Company received $280,503 on behalf of two stockholders for shares
which they have transferred to a new investor.





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.





17.
            CONCENTRATIONS AND
      RISKS





During
2008, 100% of the Company’s assets were located in China, and during 2007, 86%
and 14% of the Company’s assets were located in China and Hong Kong
respectively.





During
2008 and 2007, 45% and 57% of the Company’s revenues were derived from companies
located in China respectively.





The
Company relied on one customer for approximately $894,947 representing in
aggregate 14% of sales for the year ended December 31, 2007.  At
December 31, 2007, accounts receivable from that customer totaled
$99,370.





The
Company relied on two suppliers for approximately $644,928 and $606,025
representing in aggregate 23% of purchases for the year ended December 31, 2008,
and relied on two suppliers for approximately $759,628 and $633,974 representing
in aggregate 23% of purchases for the year ended December 31,
2007.  At December 31, 2008 and 2007, accounts payable to those
suppliers totaled $18,332 and $36,423 respectively.





18.
            SUBSEQUENT
      EVENT





In
January 2009, $20,425 was received from Qinba as repayment of advances made less
$37,933 penalty discussed in Note 2.




F-16