UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549


FORM
10-K




x   
Annual Report Pursuant To
Section 13 or 15(d) of the Securities Exchange Act of 1934


For the
fiscal year ended: December 31, 2009




 ̈  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 Bldg., No. 25 Gaoxin Road, Xi An, Shaanxi Province, China
710075


(Address
of principal executive office)





86-29-8822-4682


(Registrant’s
telephone number, including area code)





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





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


Common
Stock, Par Value $0.018 Per Share





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


Yes  ̈      No 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  ̈      No 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 x No  ̈




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




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. x




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





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





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





The
aggregate market value of the voting and non-voting stock held by non-affiliates
of the registrant, as of June 30, 2009, was approximately $1,625,348. 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 19, 2010, there were 23,051,169 shares of the issuer's common stock,
$0.018 par value per share, issued and outstanding.









TABLE
OF CONTENTS





PagePART
      I
                1ITEM
      1. Business
                1ITEM
      1A. Risk Factors
                6ITEM
      1B. Unresolved Staff Comments
                11ITEM
      2. Properties
                11ITEM
      3. Legal Proceedings
                11ITEM
      4. Removed and Reserved
                11PART
      II
                11ITEM
      5. Market for Registrant’s Common Equity, Related Stockholder Matters and
      Issuer Purchases of Equity Securities
                11ITEM
      6. Selected Financial Data
                12ITEM
      7. Management’s Discussion and Analysis of Financial Condition and Results
      of Operations
                12ITEM
      7A. Quantitative and Qualitative Disclosures About Market
    Risk
                19ITEM
      8. Financial Statements and Supplementary Data
                19ITEM
      9.  Changes in and Disagreements with Accountants on Accounting
      and Financial Disclosure
                19ITEM
      9A(T). Controls and Procedures
                20ITEM
      9B. Other Information
                20PART
      III
                20ITEM
      10. Directors, Executive Officers and Corporate
      Governance
                20ITEM
      11. Executive Compensation
                22ITEM
      12. Security Ownership of Certain Beneficial Owners and Management and
      Related Stockholder Matters
                23ITEM
      13. Certain Relationships and Related Transactions, and Director
      Independence
                23ITEM
      14. Principal Accounting Fees and Services
                23PART
      IVITEM
      15. Exhibits, Financial Statements Schedules
                24










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.”





The
Company was originally 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.





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”).




1




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.





§
            Produces
      pharmaceutical raw materials, active pharmaceutical ingredients, and plant
      extracts.


§
            Focuses
      on expanding extract production and new market
  penetration.


§
            Currently
      dominant Chinese producer of Rutin and
Diosmin.


§
            Serves
      a diverse domestic and international client
  base.


§
            Maintains
      all Chinese qualifying certifications for domestic and international sales
      of plant extracts and related
products.


§
              Includes
      ISO9000:2001 and multiple national Good Manufacturing Practices(GMP)
      qualifications.




Our
Products




The
Company’s products are primarily in the chemical category called flavonoids,
with medicinal benefits and multiple end markets, including pharmaceuticals used
for human and animals, nutraceuticals, cosmetics, functional drink and
food. All the products can be reduced to the three categories as
following:




Pharmaceutical
Raw Materials


§
            Diosmin
      EP and other specification clients
required.


§
            Rutin
      USP standard, Rutin DAB9, Rutin DAB10, Rutin EP5, Rutin
    BP2006


§
            Troxerutin
      DAB1999, Troxerutin EP5, Troxerutin
EP6


§
            Silymarin
      USP, Silymarin DAB, Silymarin
BP2006




Active
Pharmaceutical Ingredients


§
            Quercetin
      , Rhamnose, Glucomannan, Glucuronolactone, Hesperidin,
      Synephrine, Resveratrol, etc. Soybean Isoflavones, Lutein, Lycopene,
      5-HTP, etc.




Plant
Extracts


§
            Ginkgo
      Biloba Extract, Epimedium Extract, Bilberry Extract, Grape Seed
      Extract, Bitter Melon Extract, Mellisa Officinallis Extract,
      etc.





During
2006, we finished two new products lines, Diosmin and L-Rhamnose. Since January
2008, the Company began the process of applying the Certificate of Suitability
(COS) certificate for Diosmin from the European Directorate for the Quality
of Medicines & HealthCare (EDQM). The Company introduced new facilities and
equipments for this certificate and fulfilled process managing procedures and
files according to the COS requirements. We introduced a Hesperidin
production line in 2008 which keeps the stable quality and sufficiency
of raw material for Diosmin.





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.





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




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. Troxerutin, Quercetin,
Rhamnose is three kinds derivatives of Rutin.





Production
Facilities





On June
28, 2009, Huifeng Bio-Technic disposed its 70% owned interest in Huifeng
Engineering, located in Fenghui, Changan, Xian, for a consideration of
$21,919 in cash. At present, we have one major production facility that included
the following equipment resources:





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 10 buildings
including:


-
            A
      two-level office building


-
            A
      four-level staff building


-
            An
      one-level building for clean area under GMP
  standard


-
            One
      raw materials storage building


-
            Two
      building for storage of finished
products


-
            One
      building for dangerous products


-
            Building
      for quality testing zone and researching
  center


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


-
            One
      cafeteria and staff canteen





The
production facilities together occupy a total area of approximately 117,569
square feet. The Company has pledged part of its production facilities in
Changwu factory valued at approximately $978,851 to Xi'an Beilin District Credit
Cooperatives to secure loan in the amount of $253,028 due June
2010.





In 2006,
we introduced two new production lines: Diosmin production line for Diosmin,
L-Rhamnose production line. In 2008, we introduced a Hesperidin production line.
We constructed a new one-level building for storage of finished products and
rebuilt a building for quality testing zone and research center in 2009. All of
them were built according to COS standards.





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 largest wholesalers in their own
areas.





Target
Markets and Principal Customers





In 2009,
we developed three new customers. Two of them are European customers and the
other one is an international API distributor based in
China. These customers primarily purchase Diosmin from us due to the
high quality of our products, as reflected from the fact that we are the only
Chinese producer that in the process of applying COS from EDQM.





For the
present, our products are all raw materials intermediaries for medicines
productions and the users of these products are industrial clients. As a result,
Huifeng's main target customers are pharmaceutical companies and manufacturers
in nutrient, cosmetics, functional food and drinks.





Dependence
on Major Customers





For the
fiscal year ended December 31, 2009, our top five customers accounted for
approximately 17% of our revenues. We are working towards developing a broad
base of customers to minimize our dependency on any major
customers.




3




Sales
and Marketing





In 2009,
the majority of products were raw materials and intermediaries for production of
medicines, nutraceutical and cosmetics. Our target customers were mostly
industrial clients and we continued to sell our products to pharmaceutical and
nutrition 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 2009. We accepted purchase orders from
professional foreign trade corporations in order to expand our international
distribution channels and increase sale revenues from exports.





The sales
department was divided into two teams, domestic sales team and export sales
team. In 2009, the Company did not add new employee in export sales
department. The total number of employees in sales departments is still 24
people. All the sales department staffs were trained with certain
professional lessons. Most of them attended the industrial international
exhibition and fairs which are held in U.S, European, Shanghai and Beijing,
such as CPHI Shows, API, Supplyside West, etc.





We did
not establish any regional representative or sales office in 2009 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 2009,
our major competitor for Rutin continues to be Sichuan Xieli Pharmaceutical
Company Limited (“Xieli”). However, we believe that due to the lack of
technology patents and 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.





We also
believe that, in 2009, 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 2009,
our competitor for Diosmin and L-Rhamnose is Chengdu Huakang Biology Company
(“Huakang”). However, Huakang has no licenses for drug production and cannot
sell its products for medicinal use.  The scope of its market is
therefore restricted. In addition, unlike us, they 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 2010, 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,
Shaanxi Province, China 710075.





Employees
and Organization





As of
December 31, 2009, we had approximately 224 full-time employees. During 2009, we
employed 3 new employees. 2 new employees were assigned to the certification
department; 1 new employee was assigned to the production department.
As a result, by the end of 2009, we had a total of 224 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
good.





As of
December 31, 2009, our Company organization was as follow:





Department
                    
                    Employee as
                      of end of
                      2009
                    
                    Employee as
                      of end of
                      2008Sales
      department:Domestic
      sales department
                    
                    8
                    
                    8Export
      sales department:Export
      section I
                    
                    8
                    
                    8Export
      section II
                    
                    8
                    
                    8Production
      department
                    
                    155
                    
                    154Technical
      department
                    
                    5
                    
                    5Inspection
      department
                    
                    8
                    
                    8Provision
      department
                    
                    5
                    
                    5Personnel
      department
                    
                    5
                    
                    5Finance
      department
                    
                    7
                    
                    7Security
      department
                    
                    8
                    
                    8Certification
      department
                    
                    7
                    
                    5TOTAL
                    
                    224
                    
                    221




4





Business
Development and Acquisitions





In 2009,
we still focused on new products development and sales channels development.
Looking forward to 2010, 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 materials and plant
extract products in both international and domestic markets;





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





3.           Dominate
Chinese Diosmin market and expand international client base; and





4.           Leverage
R&D and technological innovation for further product
development.





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 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.





Research
and Development





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





The
amounts we spent on research and development for 2009 and 2008 were $43,629 and
$23,726, respectively. The increase is mainly due to the cost of research
materials, related external testing and employees’ wages.





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.




5




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. 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.





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.




6




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.





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. 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.




7




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.





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.




8




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.





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.




9




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


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





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.




10




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.





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 in future, 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-K, 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
1B. UNRESOLVED STAFF COMMENTS





Not
applicable.





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 $978,851 to Xi'an Beilin District Credit Cooperatives to secure
loan in the amount of $253,028 due June, 2010.





On June
28, 2009, Huifeng Bio-Technic disposed its 70% owned interest in Huifeng
Engineering for a consideration of $21,919 in cash. The operations of Huifeng
Engineering have been reclassified as discontinued operations in the
accompanying consolidated statements of operations for the three and six months
ended June 30, 2009 and 2008 and are summarized in Note 16 of the Company’s Form
10-Q filed to SEC on August 14, 2009 (period: June 30, 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. REMOVED AND RESERVED




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, 2008 to December 31, 2009. The OTCBB quotations reflect
inter-dealer prices, without retail mark-up, mark-down or commission, and may
not represent actual transactions.




11




Quarter
                
                High
                
                
                LowFiscal
      Year 2009Fourth
      Quarter
                
                $
                1.29
                
                
                $
                0.45Third
      Quarter
                
                $
                0.60
                
                
                $
                0.15Second
      Quarter
                
                $
                0.50
                
                
                $
                0.15First
      Quarter
                
                $
                0.26
                
                
                $
                0.21Fiscal
      Year 2008Fourth
      Quarter
                
                $
                0.55
                
                
                $
                0.25Third
      Quarter
                
                $
                0.85
                
                
                $
                0.30Second
      Quarter
                
                $
                1.40
                
                
                $
                0.57First
      Quarter
                
                $
                0.72
                
                
                $
                0.25





Holders





As of
March 19, 2010, there were approximately 636 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 Sales
of Unregistered Securities; Use of Proceeds from Registered
Securities





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





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





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





On
December 24, 2009, the Company issued 450,000 shares of common stock to the Note
holders in consideration of entering into the amendment of the Notes having a
fair value of $445,500. The value of the common stock issued was determined
based the closing market price of $0.99 per share on December 24,
2009.





Securities
Authorized for Issuance Under Equity Compensation Plans





None.





ITEM
6. SELECTED FINANCIAL DATA





Not
applicable.





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





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.




12




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 Bio-Technic,
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, 2009 and 2008. 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.





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.




13




Results
of Operations





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





Year
      Ended
                    
                    
                    Year
      EndedDecember
                    
                    
                    December31,
      2009
                    
                    
                    31,
      2008Revenues
                    
                    
                    100.00
                    %
                    
                    
                    100.00
                    %Cost
      of revenues
                    
                    
                    (63.31
                    )%
                    
                    
                    (65.13
                    )%Gross
      margin
                    
                    
                    36.69
                    %
                    
                    
                    34.87
                    %Selling
      and distribution expenses
                    
                    
                    (1.62
                    )%
                    
                    
                    (1.91
                    )%General
      and administrative expenses
                    
                    
                    (4.37
                    )%
                    
                    
                    (10.56
                    )%Depreciation
      and amortization
                    
                    
                    (0.19
                    )%
                    
                    
                    (0.14
                    )%Interest
      income
                    
                    
                    0.03
                    %
                    
                    
                    0.15
                    %Interest
      expenses
                    
                    
                    (4.34
                    )%
                    
                    
                    (5.39
                    )%Other
      income
                    
                    
                    1.67
                    %
                    
                    
                    2.41
                    %Income
      tax expense
                    
                    
                    (5.39
                    )%
                    
                    
                    (4.82
                    )%Non-controlling
      interests
                    
                    
                    (0.48
                    )%
                    
                    
                    (0.13
                    )%Net
      Profit
                    
                    
                    21.63
                    %
                    
                    
                    14.17
                    %





Year
Ended December 31, 2009 Compared To Year Ended December 31, 2008





Revenues,
Cost of Revenues and Gross Margin





Revenues
for the year ended December 31, 2009 were $13,764,886, an increase of $2,807,657
or approximately 25.6% from $10,957,229 in 2008. Our increase in sales revenues
in 2009 mainly attributed to the increase in sales of pharmaceutical raw
materials. In particular, the sales volume of our Diosmin, Rutin and Troxerutin
products increased rapidly, as a result of the high quality of our products. An
analysis of our increase in sales of our products is as follows:





For
      the year endedDecember
      31,Increase/Product
                
                2009
                
                
                2008
                
                
                (Decrease)Pharmaceutical
      raw materials
                
                $
                8,015,822
                
                
                $
                5,852,440
                
                
                $
                2,163,382Plant
      extracts
                
                
                1,995,907
                
                
                
                1,818,924
                
                
                
                176,983Pharmaceutical
      intermediates
                
                
                3,753,157
                
                
                
                3,285,865
                
                
                $
                467,292TOTAL
                
                $
                13,764,886
                
                
                $
                10,957,229
                
                
                $
                2,807,657





The
increase in the sales of pharmaceutical raw materials in 2009 was mainly due to
an increase in the sales of Diosmin, Rutin and Troxerutin, three of our
major products in this category. Revenue for Diosmin in 2009 was $3,397,698, an
increase of $1,142,372 or 51% from the $2,255,326 of 2008. Our significant
revenue growth in Diosmin in international market, especially in Europe, was
driven by our higher quality levels compared with the competitors. In China, we
are the only Disomin producer that is in the process of applying Certificate of
Suitability (COS). The Revenue for Rutin in 2009 was $2,343,218, an increase of
$465,910 or 25% from the $1,877,308 of 2008. As the Good Manufacturing Practice
(GMP) certified Rutin producer, we experienced rapid growth in both
international and domestic market due to our high quality
standards.





Cost of
revenues for the year ended December 31, 2009 were $8,714,848, an increase of
$1,578,356 or 22% from $7,136,492 for the same period in 2008. Compared to
2008, the increase in cost of sales of our products was driven by increase in
revenues.


14


Our gross
profit margin increased from 35% in 2008 to 37% in 2009. Our profit margin for
pharmaceutical raw materials increased from 30% in 2008 to 31% in 2009. The
profit margin for Plant Extracts increased from 50% in 2008 to 51% in 2009. The
profit margin for pharmaceutical intermediates increased from 36% in 2008 to 42%
in 2009. Gross profit for the year ended December 31, 2009 was $5,050,038,
an increase of $1,229,301 or 32% from the $3,820,737 of 2008, in which
$508,039 or 41% of gross profit was attributable to the increase in gross margin
for Diosmin; $312,611 or 25% was attributable to the increase in gross
margin for Troxerutin, and $294,259 or 24% was attributable to the increase in
gross margin for Rutin. An analysis of our increase in gross profit margin
of our products is as follows:





For
      the year endedDecember
      31,Increase/Product
                
                2009
                
                
                2008
                
                
                (Decrease)Pharmaceutical
      raw materials
                
                $
                2,468,805
                
                
                $
                1,739,544
                
                
                $
                729,261Plant
      extracts
                
                
                1,021,910
                
                
                
                906,067
                
                
                
                115,843Pharmaceutical
      intermediates
                
                
                1,559,323
                
                
                
                1,175,126
                
                
                
                384,197TOTAL
                
                $
                5,050,038
                
                
                $
                3,820,737
                
                
                $
                1,229,301





General
and Administrative Expenses





General
and administrative expenses totaled to $602,139 for the year ended December 31,
2009, a decrease of $554,702 or 48% from $1,156,841 for the same period in
2008. The increase in general and administrative expenses was mainly due to
changes in the following expenses:





1.
      Decrease in exchanges losses from foreign currency fluctuations by
      $206,263 or 49%
              :
              The
      increase of value of the Renminbi against the U.S. dollar in 2009 was less
      than the increase in 2008.2.
      Decrease in legal and professional expenses by $214,678 or
    51%
              :
              The
      legal advisory services cost significantly less in 2009. The higher cost
      in 2008 was driven by the legal and consulting expenses related to fund
      raising.3.
      Decrease in allowance for doubtful accounts by $127,393 or
      104%
              :
              The
      decrease in allowance for doubtful accounts was driven by improvement on
      collection of account receivables compared with
  2008.





Selling
and Distribution Expenses





Selling
and distribution expenses amounted to $222,474 for the year ended December 31,
2009, an increase of $13,343 or 6% from $209,131 for the same period in 2008.
The increase in our selling and distribution expenses in 2009 compared to 2008
was mainly due to the following:





Increase
      in transportation costs of $37,297 or 38%
              :
              In
      2009, our overseas sales represented 64% of the total revenue, an increase
      by 10%.





Liquidity
and Capital Resources





Cash





Our cash
balance amounted to $556,763 at December 31, 2009.





During
the year ended December 31, 2009, our cash provided by operating activities
amounted to $565,623, primarily due to the net profit in the current year of
$2,976,892, offset by the increases in accounts receivable of $2,685,021. In the
current year, our changes in accounts receivable increased by $1,511,947 or 129%
to $2,685,021 compared to $1,173,074 for the same period in 2008, our increase
in accounts receivable was due to 26% increase in our net sales compared to the
same period in 2008 and increase in proportion of our credit sales.
Additionally, our increase in inventories was $903,917, which was $971,151 or
52% less than the increase in 2008 of $1,875,068 as part of our strategy to
enhance our production operation. Sufficient inventories storage 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 increase in demand
for our products in 2009 and in future.


15


During
the year ended December 31, 2009, net cash used in investing activities amounted
to $610,713, a decrease of $2,036,756 or 77% as compared to net cash provided by
investing activities of $2,647,469 in 2008. The 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. The net cash provided by financing activities amounted to $555,484,
representing proceeds from notes payable for new bank loans granted from a bank
in May and September 2009.





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





Working
Capital





Our
working capital amounted to $10,011,833 at December 31, 2009, an increase of
$5,330,239 or 114%, compared with the $4,681,594 of 2008, primarily driven by
the $2,698,453 increases in accounts receivables and $916,190 increases in
inventories.





Accounts
Receivable balance at December 31, 2009 was $5,576,321, an increase of
$2,698,453 or 94% from the $2,877,868 of December 31, 2008; and an increase of
$1,758,085 or 46% from the $3,818,236 of September 30, 2009. This was due to the
significant increase in quarter four 2009 revenue, primarily export sales with
three months credit terms, compared with the same quarter last year. The quarter
four 2009 revenue was $4,881,696, an increase of US$2,810,532 or 136% compared
with the $2,071,164 for the same period last year.





Inventory
balance at December 31, 2009 was $5,656,420, an increase of $916,190 from the
$4,740,230 of December 31, 2008, primarily driven by raw materials which
increased $714,406 during this period. The Company’s products are consisted of
pharmaceutical raw materials and intermediates, which are extracted from the
plants. The plants are purchased once a year after the harvesting season, i.e.
from August to November, resulting higher inventory levels after around November
due to purchase made once a year and lower inventory levels before around August
due to production consumption. The Year over Year increase in inventory levels
at 2009 year end was driven by the inventory built up to satisfy export sales
orders, especially for French contract with Safic-Alcan.





Recent
Accounting Pronouncements





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





In
December 2008, the FASB issued Staff Position No. FAS 132(R)-1 “Employers’
Disclosures about Postretirement Benefit Plan Assets” (“FSP FAS 132(R)-1”) (ASC
Topic 715-20-65). FSP FAS 132(R)-1 (ASC Topic 715-20-65) requires more detailed
disclosures about employers’ plan assets in a defined benefit pension or other
postretirement plan, including employers’ investment strategies, major
categories of plan assets, concentrations of risk within plan assets, and inputs
and valuation techniques used to measure the fair value of plan assets. FSP FAS
132(R)-1 (ASC Topic 715-20-65) also requires, for fair value measurements using
significant unobservable inputs (Level 3), disclosure of the effect of the
measurements on changes in plan assets for the period. The disclosures about
plan assets required by FSP FAS 132(R)-1 (ASC Topic 715-20-65) must be provided
for fiscal years ending after December 15, 2009. As this pronouncement is only
disclosure-related, the Company does not have an impact on the financial
position and results of operations.





In
February 2010, FASB issued ASU 2010-9 Subsequent Events (Topic 855) Amendments
to Certain Recognition and Disclosure Requirements ("ASU 2010-9"). ASU 2010-9
amends disclosure requirements within Subtopic 855-10. An entity that is an SEC
filer is not required to disclose the date through which subsequent events have
been evaluated. This change alleviates potential conflicts between Subtopic
855-10 and the SEC's requirements. ASU 2010-9 is effective for interim and
annual periods ending after June 15, 2010. The Company does not expect the
adoption of ASU 2010-09 to have a material impact on its consolidated results of
operations or financial position.





In
January 2010, FASB issued ASU 2010-6 Improving Disclosures about Fair
Measurements ("ASU 2010-6"). ASU 2010-6 provides amendments to subtopic
820-10 that require separate disclosure of significant transfers in and out of
Level 1 and Level 2 fair value measurements and the presentation of
separate information regarding purchases, sales, issuances and settlements for
Level 3 fair value measurements. Additionally, ASU 2010-6 provides
amendments to subtopic 820-10 that clarify existing disclosures about the level
of disaggregation and inputs and valuation techniques. ASU 2010-6 is effective
for financial statements issued for interim and annual periods ending after
December 15, 2010. The Company does not expect the adoption of ASU 2010-06
to have a material impact on its consolidated results of operations or financial
position.


16


In
January 2010, FASB issued ASU 2010-2 Accounting and Reporting for Decreases in
Ownership of a Subsidiary- a Scope Clarification ("ASU 2010-2"). ASU 2010-2
addresses implementation issues related to the changes in ownership provisions
in the Consolidation—Overall Subtopic (Subtopic 810-10) of the FASB Accounting
Standards Codification, originally issued as FASB Statement No. 160,
Noncontrolling Interests in Consolidated Financial Statements. Subtopic 810-10
establishes the accounting and reporting guidance for noncontrolling interests
and changes in ownership interests of a subsidiary. An entity is required to
deconsolidate a subsidiary when the entity ceases to have a controlling
financial interest in the subsidiary. Upon deconsolidation of a subsidiary, an
entity recognizes a gain or loss on the transaction and measures any retained
investment in the subsidiary at fair value. The gain or loss includes any gain
or loss associated with the difference between the fair value of the retained
investment in the subsidiary and its carrying amount at the date the subsidiary
is deconsolidated. In contrast, an entity is required to account for a decrease
in ownership interest of a subsidiary that does not result in a change of
control of the subsidiary as an equity transaction. ASU 2010-2 is effective
for the Company starting January 3, 2010. The Company does not expect the
adoption of ASU 2010-2 to have a material impact on the Company's consolidated
results of operations or financial position.





In
December 2009, FASB issued ASU 2009-17 Consolidations (Topic 810) Improvements
to Financial Reporting by Enterprises Involved with Variable Interest Entities
("ASU 2009-17"). ASU 2009-17 amends the FASB ASC for the issuance of FASB
Statement No. 167, Amendments to FASB Interpretation No. 46(R). The
amendments in ASU 2009-17 replace the quantitative-based risks and rewards
calculation for determining which enterprise, if any, has a controlling
financial interest in a variable interest entity with an approach focused on
identifying which enterprise has the power to direct the activities of a
variable interest entity that most significantly impact the entity's economic
performance and (1) the obligation to absorb losses of the entity or
(2) the right to receive benefits from the entity. ASU 2009-17 also
requires additional disclosures about an enterprise's involvement in variable
interest entities. ASU 2009-17 is effective as of the beginning of each
reporting entity's first annual reporting period that begins after
November 15, 2009. The Company does not expect the adoption of ASU 2009-17
to have a material impact on its consolidated results of operations or financial
position.





In
December 2009, FASB issued ASU 2009-16 Transfers and Servicing (Topic 860)
Accounting for Transfers of Financial Assets ("ASU 2009-16"). ASU 2009-16 amends
the FASB Accounting Standards Codification for the issuance of FASB Statement
No. 166, Accounting for Transfers of Financial Assets—an amendment of FASB
Statement No. 140. The amendments in ASU 2009-16 improve financial
reporting by eliminating the exceptions for qualifying special-purpose entities
from the consolidation guidance and the exception that permitted sale accounting
for certain mortgage securitizations when a transferor has not surrendered
control over the transferred financial assets. In addition, the amendments
require enhanced disclosures about the risks that a transferor continues to be
exposed to because of its continuing involvement in transferred financial
assets. ASU 2009-16 is effective as of the beginning of each reporting entity's
first annual reporting period that begins after November 15,
2009.  The Company does not expect the adoption of ASU 2009-16 to have
a material impact on its consolidated results of operations or financial
position.





In
October, 2009, the FASB issued ASU 2009-15, “Accounting for Own-Share Lending
Arrangements in Contemplation of Convertible Debt Issuance or Other Financing”(
amendments to ASC Topic 470, Debt)” (“ASU 2009-15”), and provides guidance for
accounting and reporting for own-share lending arrangements issued in
contemplation of a convertible debt issuance.  At the date of
issuance, a share-lending arrangement entered into on an entity’s own shares
should be measured at fair value in accordance with Topic 820 and recognized as
an issuance cost, with an offset to additional paid-in
capital.  Loaned shares are excluded from basic and diluted earnings
per share unless default of the share-lending arrangement occurs.  The
amendments also require several disclosures including a description and the
terms of the arrangement and the reason for entering into the
arrangement.  The effective dates of the amendments are dependent upon
the date the share-lending arrangement was entered into and include
retrospective application for arrangements outstanding as of the beginning of
fiscal years beginning on or after December 15, 2009.  The
Company does not expect the adoption of ASU 2009-15 to have a material impact on
its financial statements.




In
October 2009, the FASB issued ASU 2009-14, “Certain Arrangements That
Include Software Elements, (amendments to ASC Topic 985, Software)” (“ASU
2009-14”). ASU 2009-14 removes tangible products from the scope of software
revenue guidance and provides guidance on determining whether software
deliverables in an arrangement that includes a tangible product are covered by
the scope of the software revenue guidance. ASU 2009-14 should be applied on a
prospective basis for revenue arrangements entered into or materially modified
in fiscal years beginning on or after June 15, 2010, with early adoption
permitted. The
Company does not expect the adoption of ASU 2009-14 to have a material impact on
its financial statements.





In
October 2009, the FASB issued ASU 2009-13, “Multiple-Deliverable Revenue
Arrangements, (amendments to ASC Topic 605, Revenue Recognition)” (“ASU
2009-13”). ASU 2009-13 requires entities to allocate revenue in an arrangement
using estimated selling prices of the delivered goods and services based on a
selling price hierarchy. The amendments eliminate the residual method of revenue
allocation and require revenue to be allocated using the relative selling price
method. ASU 2009-13 should be applied on a prospective basis for revenue
arrangements entered into or materially modified in fiscal years beginning on or
after June 15, 2010, with early adoption permitted. The
Company does not expect the adoption of ASU 2009-13 to have a material impact on
its financial statements.


17


In
September 2009, the FASB issued Accounting Standards Update (“ASU”) 2009-12,
Fair Value Measurements and Disclosures (Topic 820)—Investments in Certain
Entities That Calculate Net Asset Value Per Share (or Its Equivalent) which
amended Accounting Standards Codification Subtopic 820-10, Fair Value
Measurements and Disclosures—Overall. The amended guidance offers investors a
practical expedient for measuring the fair value of investments in certain
entities that calculate net asset value per share (NAV). The ASU is effective
for the first reporting period (including interim periods) ending after
December 15, 2009. The adoption of ASU 2009-12 did not have a material
impact on the Company’s financial position or results of operations at the date
of adoption.





In
September 2009, the FASB issued ASU 2009-06, Income Taxes (Topic
740)—Implementation Guidance on Accounting for Uncertainty in Income Taxes and
Disclosure Amendments for Nonpublic Entities (formerly proposed as FASB Staff
Position No. 48-d, Application Guidance for Pass-Through Entities and
Tax-Exempt Not-for-Profit Entities and Disclosure Modifications for Nonpublic
Entities), which amended Accounting Standards Codification Subtopic 740-10,
Income Taxes – Overall. ASU 2009-06 clarifies that an entity’s assertion that it
is a pass-through entity is a tax position and should be assessed in accordance
with Subtopic 740-10. Additionally, the ASU provides implementation guidance on
the attribution of income taxes to entities and owners. The revised guidance is
effective for periods ending after September 15, 2009. The adoption of ASU
2009-06 did not have a material impact on the Company’s financial position or
results of operations at the date of adoption.





In
August 2009, FASB issued ASU 2009-5 Fair Value Measurements and Disclosures
(Topic 820) Measuring Liabilities at Fair Value ("ASU 2009-5"). ASU 2009-5
provides amendments to Subtopic 820-10, Fair Value Measurements and
Disclosures-Overall, for the fair value measurement of liabilities. ASU 2009-5
clarifies that in circumstances in which a quoted price in an active market for
the identical liability is not available, a reporting entity is required to
measure fair value. ASU 2009-5 was effective for the Company for interim
and annual periods ending after October 3, 2009. The adoption of
ASU 2009-5 did not have a material impact on the Company's consolidated
results of operations or financial position.





In
August 2009, FASB issued ASU 2009-4 Accounting for Redeemable Equity
Instruments—an Amendment to Section 480-10-S99 ("ASU 2009-4"). ASU 2009-4
represents a Securities and Exchange Commission ("SEC") update to
Section 480-10-S99, Distinguishing Liabilities from Equity. The adoption of
guidance within ASU 2009-4 did not have an impact on the Company's consolidated
results of operations or financial position.





In June
2009, the FASB issued Statement of Financial Accounting Standards (“SFAS”)
No. 168, The FASB Accounting Standards Codification and the Hierarchy of
Generally Accepted Accounting Principles, a replacement of FASB Statement
No. 162 (subsequently codified into FASB ASC Topic 105) which established
the FASB Accounting Standards Codification (“ASC” or the “Codification”) as the
single source of authoritative accounting principles for U.S. GAAP issued by the
FASB. The Codification supersedes all existing non-SEC accounting and reporting
standards and subsequent to adoption, the FASB will issue new standards in the
form of ASUs, and no longer as SFASs, FASB Staff Positions or Emerging Issues
Task Force Abstracts. The Codification is effective for reporting periods ending
on or after September 15, 2009. The adoption of the Codification did not
have any impact on the Company’s financial position or results of operations at
the date of adoption.





In May
2009, the FASB issued guidance on subsequent events (originally issued as SFAS
No. 165, Subsequent Events, and subsequently codified into FASB ASC Topic
855). Topic 855 addresses the accounting for and disclosure of events that occur
after the balance sheet date but before financial statements are issued. Topic
855 is effective for interim or annual periods ending after June 15, 2009.
The adoption of Topic 855 did not have any impact on the Company’s financial
position or results of operations at the date of adoption.





In April
2009, the FASB issued guidance on determining fair value when the volume and
level of activity for an asset or liability has significantly decreased and
identifying transactions that are not orderly (originally issued as FASB Staff
Position SFAS 157-4, Determining Fair Value When the Volume and Level of
Activity for the Asset or Liability Have Significantly Decreased and Identifying
Transactions That Are Not Orderly, and subsequently codified within FASB ASC
Topic 820). The guidance provides additional guidance to expand on the factors
that should be considered in estimating fair value when there has been a
significant decrease in market activity for an asset or liability. The guidance
is effective for interim and annual periods ending after June 15, 2009. The
adoption did not have any impact on the Company’s financial position or results
of operations at the date of adoption.





In
April 2009, FASB issued Staff Position ("FSP") No. 115-2 and FSP 124-2,
Recognition and Presentation of Other-Than-Temporary Impairments (now codified
within ASC 320, Investments—Debt and Equity Securities ("ASC 320")). ASC 320
provides greater clarity about the credit and noncredit component of an
other-than-temporary impairment event and more effectively communicates when an
other-than-temporary impairment event has occurred. ASC 320 amends the
other-than-temporary impairment model for debt securities. The impairment model
for equity securities was not affected. Under ASC 320, an other-than-temporary
impairment must be recognized through earnings if an investor has the intent to
sell the debt security or if it is more likely than not that the investor will
be required to sell the debt security before recovery of its amortized cost
basis. This standard was effective for interim periods ending after
June 15, 2009. The adoption of ASC 320 did not have a material impact on
the Company's consolidated results of operations or financial
position.


18


In April
2009, FASB issued FSP 107-1 and Accounting Principles Board 28-1, Interim
Disclosures about Fair Value of Financial Instruments (now codified within ASC
825, Financial Instruments ("ASC 825")). ASC 825 requires disclosures about
fair value of financial instruments in interim financial statements as well as
in annual financial statements. ASC 825 was effective for interim periods ending
after June 15, 2009. The adoption of ASC 825 did not have a material impact
on the Company's consolidated results of operations or financial
position.





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.





Currency
Exchange Fluctuations





All of
Company's revenues and majority of the expenses in 2009 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
2009 we recognized a foreign currency translation gain of $31,347. 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
7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK





Not
applicable.





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 Baker Tilly Hong Kong
Limited and 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





On
February 17, 2010, the Company was notified of the resignation, effective
immediately, of the US Audit Practice of Jimmy C.H. Cheung & Co. (“JCHC”),
as the Company’s independent registered public accounting firm in connection
with JCHC’s merger on January 29, 2010, with Baker Tilly Hong Kong Limited
(“BTHK”). On February 19, 2010, the Company’s Board of Directors approved the
appointment of BTHK as the Company’s independent registered public accounting
firm.





The audit
reports of JCHC on the financial statements of the Company as of and for the
years ended December 31, 2008 and 2007 did not contain an adverse opinion or a
disclaimer of opinion, and were not qualified or modified as to uncertainty,
audit scope or accounting principles.





In
connection with the audits of the Company’s financial statements for the fiscal
years ended December 31, 2008 and 2007 and through the date of this Current
Report, there were: (i) no disagreements between the Company and JCHC on any
matters of accounting principles or practices, financial statement disclosure,
or auditing scope or procedures, which disagreements, if not resolved to the
satisfaction of JCHC, would have caused JCHC to make reference to the subject
matter of the disagreement in their reports on the Company’s financial
statements for such years, and (ii) on reportable vents within the meaning set
forth in Item 304 (a)(1)(v) of Regulation S-K.





During
the Company’s most two recent fiscal years ended December 31, 2008 and 2007 and
through January 29, 2010, the Company did not consult with BTHK on (i) the
application of accounting principles to a specified transaction, either
completed or proposed, or the type of audit opinion that may be rendered on the
Company’s financial statements, and BTHK did not provide either a written report
or oral advice to the Company that was an important factor considered by the
Company in reaching a decision as to any accounting, auditing, or financial
reporting issue; or (ii) the subject of any disagreement, as defined in ITEM 304
(a)(1)(iv) of Regulation S-K and the related instructions, or a reportable event
within the meaning set forth in Item 304 (a)(1)(v) of Regulation
S-K.


19


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, 2009, 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.





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, 2009. 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, 2009.





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.


20





Name
                
                Position
                
                Date
      Of Appointment
                
                AgeJing’an
      Wang
                
                Chief
      Executive Officer
                
                December
      20, 2004
                
                49Sanding
      Tao
                
                Chief
      Financial Officer
                
                December
      20, 2004
                
                41Xinwen
      Hou*
                
                Director
      and Secretary
                
                December
      20, 2004
                
                41Xiaoli
      Sun**
                
                Director
                
                February
      25, 2010
                
                52Angela
      Aichun Li**
                
                Director
                
                February
      25, 2010
                
                37John
      Zhang**
                
                Director
                
                February
      25, 2010
                
                39





*Xinwen
Hou resigned as Secretary and Director of the Company on September 21,
2009.


** Xiaoli Sun, Angela Aichun
Li and John Zhang were appointed as Company’s independent directors on February
25, 2010.





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.





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.





Xiaoli
Sun





Dr. Sun
has more than thirty years’ experiences in medicine research specializing in
cardiovascular and cerebrovascular diseases and chiral
technology.  Since 2003, Dr. Sun has been serving as the professor and
director of The Fourth Military Medical University.  Dr. Sun is also
serving as the director of Shaanxi Province Chemistry Institute and an expert of
Chinese Military Medical Judge Team.  Dr. Sun received her Bachelor
degree in chemistry from the University of Jilin in Jilin Province in
1980.  She then completed her Master degree in organic synthesis from
Northwest University in Shaanxi Province and received her Doctorial degree in
pharmacology from The Fourth Military Medical University.





Angela
Aichun Li





Ms. Li
held a number of positions in accounting and finance with various US companies
in the past nine years.  Since June 2006, Ms. Li has been serving as a
Senior Financial Analyst in the CFO group of Bank of America.  She is
an account owner overseeing the financial performance of key P&L
accounts.  From 2003 to 2006, Ms. Li also served as a Senior
Accountant with Nucor Corporation, a leading steel manufacturing
company.  Before joining Nucor, Ms. Li was a consultant with Deloitte
and Touché, one of the global leaders in accounting and consulting
services.  Ms. Li is a certified public accountant (CPA) in the State
of North Carolina.  Ms. Li holds a Master degree in Accounting from
Wake Forest University in 2001 and an MBA degree from Duke University in
2004.





John
Zhang





Mr. Zhang
has a decade of diverse experiences in banking, consulting and finance and
business development.  Mr. Zhang currently serves as the CEO of JC
Global Capital Partners LLC, a boutique financial consulting firm in Shanghai
that specializes in cross-border capital market transactions.  Prior
to founding JC Global in September 2006, from September 2003 to August 2006, Mr.
Zhang was the Managing Director of FirsTrust Group, a US merchant bank
headquartered in Atlanta, GA, where he was responsible for its entire China
operation.  Prior to joining FirsTrust, Mr. Zhang held senior
positions in two other US companies, ASI Computer Technology Inc. and CTX
International.  Mr. Zhang received his Bachelor of Science from The
University of Alabama in Huntsville in 1993 and his MBA degree from Goizueta
Business School of Emory University in 2002.


21


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.


Family
Relationships
 
 There is
no family relationship among any of our officers or directors.
 
 Board
Composition and Committees
 
 Our Board
of Directors currently does not have standing audit, nominating or compensation
committees as of the date hereof and the entire board is performing the
functions normally associated with an audit, nominating and compensation
committee. However, we anticipate the Company will in the future seek to form
audit and other board committees in a manner consistent with NYSE Amex listed
companies in the future.





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, none of
the required parties are delinquent in their Section 16(a) filings, except for
the following directors and executive officers who have not filed a Form 3:
Xiaoli Sun, Angela Aichun Li and John Zhang.





Directors
Compensation





The
directors and executives of the Company received no compensation from the
Company for the fiscal year ended December 31, 2009. 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.


Involvement
in Certain Legal Proceedings
 
 The
Company is not aware of any legal proceedings in which any director, officer, or
any owner of record or beneficial owner of more than five percent of any class
of voting securities of the Company, or any affiliate of any such director,
officer, affiliate of the Company, or security holder, is a party adverse to the
Company or has a material interest adverse to the Company.





ITEM
11. EXECUTIVE COMPENSATION





The
directors and executives of the Company received no compensation from the
Company for the fiscal year ended December 31, 2009. 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.





Name
      and Principal Position
                          
                          Fiscal
      Year
                          
                          Annual
      Salary
                          
                          
                          Bonus
                          
                          
                          Stock
                            Awards
                          
                          
                          Option Awards
                          
                          
                          TotalJingan
      Wang
                          
                          2009
                          
                          $
                          0
                          
                          
                          $
                          0
                          
                          
                          $
                          0
                          
                          
                          $
                          0
                          
                          
                          $
                          0Chief
      Executive Officer
                          
                          2008
                          
                          $
                          0
                          
                          
                          $
                          0
                          
                          
                          $
                          0
                          
                          
                          $
                          0
                          
                          
                          $
                          0Sanding
      Tao
                          
                          2009
                          
                          $
                          0
                          
                          
                          $
                          0
                          
                          
                          $
                          0
                          
                          
                          $
                          0
                          
                          
                          $
                          0Chief
      Financial Officer
                          
                          2008
                          
                          $
                          0
                          
                          
                          $
                          0
                          
                          
                          $
                          0
                          
                          
                          $
                          0
                          
                          
                          $
                          0Xinwen
      Hou*
                          
                          2009
                          
                          $
                          0
                          
                          
                          $
                          0
                          
                          
                          $
                          0
                          
                          
                          $
                          0
                          
                          
                          $
                          0Secretary
                          
                          2008
                          
                          $
                          0
                          
                          
                          $
                          0
                          
                          
                          $
                          0
                          
                          
                          $
                          0
                          
                          
                          $
                          0




22


*Xinwen
Hou resigned as Secretary and Director of the Company on September 21,
2009.





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 19, 2010 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 23,051,169 shares of Common Stock
outstanding as of March 19, 2010. Unless otherwise identified, the address of
the directors, officers and 5% beneficial owners of the Company listed above is
16B/F Ruixin Bldg. No. 25 Gaoxin Road, Xi’an, Shaanxi Province, China
710075.





Name
                  
                  Position
      Held
                  
                  Shares
                    Owned
                  
                  
                  % OwnedJing’an
      Wang
                  
                  Chief
      Executive Officer
                  
                  
                  7,305,074
                  
                  
                  
                  31.69
                  %Sanding
      Tao
                  
                  Chief
      Financial Officer
                  
                  
                  325,442
                  
                  
                  
                  1.41
                  %Xinwen
      Hou*
                  
                  Director
      and Secretary
                  
                  
                  325,442
                  
                  
                  
                  1.41
                  %All
      directors and executive officers as a group above (3
    persons)Xi’an
      Jucheng Investment & Consulting Ltd. *
                  
                  None
                  
                  
                  2,600,000
                  
                  
                  
                  11.28
                  %Xu
      Yingwei*
                  
                  None
                  
                  
                  1,200,000
                  
                  
                  
                  5.21
                  %





*Xinwen
Hou resigned as Secretary and Director of the Company on September 21,
2009.





*On
August 27, 2009, the Company issued 1,200,000 shares of its common stock to its
supplier in lieu of cash payment for overdue accounts payable.





*On
September 2, 2009, the Company issued 2,600,000 of its common stock as partial
payment in lieu of cash payment for the construction of an office building
located at the Chang Wu Factory.





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





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 Convertible Notes issued on December 31, 2007, which due on
December 31, 2009 and extended to June 30, 2011.





Effective
December 24, 2009, the remaining Purchasers who had not converted the Notes
(“Amendment Purchasers”) have entered into an Amendment to Secured Convertible
Promissory Notes and Warrants (the “Amendment”).  Pursuant to the
Amendment, the maturity date of the Notes has been extended from December 31,
2009 to June 30, 2011.  In addition to the continued 10% per annum
interest payments based on the outstanding principal, the remaining $1,800,000
in principal will be paid down. The transaction is disclosed and filed to SEC in
Form 8-K on January 25, 2010.





The two
directors of the Company Jing’an Wang and Sanding Tao are executive officers of
the Company. Xiaoli Sun, Angela Aichun Li, John Zhang are independent
directors.





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:





2009:
            $30,000
      - Jimmy C.H. Cheung & Co.


$30,000
      - Baker Tilly Hong Kong Limited





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


23




Audit-Related
Fees





For
fiscal 2009 and 2008, 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 2009 and 2008,
respectively.





All
Other Fees





No fees
were 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).





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 2009 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.)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)


24





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.





25




SIGNATURES





Pursuant
to the requirements of Section 13 or 15(d) of the Exchange Act,
the Company has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.





Date:
      April 15, 2010Huifeng
      Bio-Pharmaceutical Technology, Inc.By:
                          /s/
      Jing’an WangJing’an
      WangChief
      Executive
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
              
              April
      15, 2010(Principal
      Executive Officer)/s/
      Sanding Tao
              
              Chief
      Financing Officer
              
              April
      15, 2010(Principal
      Financial and Accounting Officer)/s/
      Xiaoli Sun
              
              Director
              
              April
      15, 2010/s/
      Angela Aichun Li
              
              Director
              
              April
      15, 2010/s/
      John Zhang
              
              Director
              
              April
      15, 2010




26




HUIFENG
BIO-PHARMACEUTICAL TECHNOLOGY INC.


AND
SUBSIDIARIES





CONTENTS





PagesReports
      of Independent Registered Public Accounting Firm
                                                  
                                                  F-1
      - F-2Consolidated
      Balance Sheets as of December 31, 2009 and 2008
                                                  
                                                  F-3Consolidated
      Statements of Operations and Comprehensive income for the years ended
      December 31, 2009
      and 2008
                                                  
                                                  F-4Consolidated
      Statements of Stockholders’ Equity for the years ended December 31, 2009
      and 2008
                                                  
                                                  F-5Consolidated
      Statements of Cash Flows for the years ended December 31, 2009 and
      2008
                                                  
                                                  F- 6Notes
      to Consolidated Financial Statements as of December 31, 2009 and
      2008
                                                  
                                                  F-7
      -
F-19





29


REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 Tothe Board of Directors
of:
 Huifeng Bio-Pharmaceutical Technology
Inc.
 
 We have audited the accompanyingconsolidated balance
sheetof Huifeng
Bio-Pharmaceutical Technology Inc.and subsidiariesas of December 31, 2009 and
therelated consolidated
statementof
operations and comprehensive income, stockholders’ equity and cash flows forthe yearended December 31, 2009. 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.
 
 Weconducted 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 arefree 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 financialstatement 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 subsidiariesas of December 31, 2009 and the
consolidated results of its operationsand its cash flows for the
yearended December 31,
2009, in conformity with accounting principles generally accepted in the
United States of
America.
  
 /s/ Baker
Tilly Hong Kong Limited
 BAKER
TILLY HONG KONG LIMITED
 Certified Public
Accountants
  Hong Kong
 
 Date: April 7, 2010


F-1






Jimmy
      C.H. Cheung & Co
                Certified Public
      Accountants
  
 REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 Tothe Board of Directors
of:
 Huifeng Bio-Pharmaceutical Technology
Inc.
 
 We have audited the accompanyingconsolidated balance sheet of Huifeng
Bio-Pharmaceutical
Technology Inc.and
subsidiariesas of December 31, 2008and the related consolidated
statementof operations and comprehensive
income, stockholders’ equity and
cash flows forthe
yearended
December 31,
2008. 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
subsidiariesas of December 31, 2008 and the consolidated
results of its operationsand its cash flows for the
yearended December 31,
2008, in conformity with accounting principles generally accepted in the United
States of America.
  
 /s/ Jimmy
C.H. Cheung & Co.
 JIMMY
C.H. CHEUNG & CO.
 Certified Public
Accountants
 
 
 Hong Kong
 
 Date:
              March 24, 2009except for Note
      1
                as to which the
      date is April 7, 2010
    
 
 1607 Dominion Centre, 43 Queen’s Road East,Wanchai,Hong Kong
 Tel:  (852)
25295500   Fax:  (852)
28651067   Email:jimmy.cheung@jchcheungco.hk
 Website:  http://www.jchcheungco.hk




F-2





HUIFENG
BIO-PHARMACEUTICAL TECHNOLOGY INC.


AND
SUBSIDIARIES


CONSOLIDATED
BALANCE SHEETS


AS OF DECEMBER 31, 2009 AND
2008





2009
                              
                              
                              2008ASSETSCURRENT
      ASSETSCash
      and cash equivalents
                              
                              $
                              556,763
                              
                              
                              $
                              44,898Accounts
      receivable, net
                              
                              
                              5,576,321
                              
                              
                              
                              2,877,868Inventories,
      net
                              
                              
                              5,656,420
                              
                              
                              
                              4,740,230Other
      assets
                              
                              
                              573,117
                              
                              
                              
                              328,996Assets
      related to discontinued operations, held for sale
                              
                              
                              -
                              
                              
                              
                              114,577Total
      Current Assets
                              
                              
                              12,362,621
                              
                              
                              
                              8,106,569PROPERTY
      AND EQUIPMENT, NET
                              
                              
                              6,278,619
                              
                              
                              
                              5,833,557LAND
      USE RIGHTS, NET
                              
                              
                              145,605
                              
                              
                              
                              148,564TOTAL
      ASSETS
                              
                              $
                              18,786,845
                              
                              
                              $
                              14,088,690LIABILITIES AND STOCKHOLDERS'
      EQUITYCURRENT
      LIABILITIESAccounts
      payable
                              
                              $
                              397,292
                              
                              
                              $
                              520,280Other
      payables and accrued expenses
                              
                              
                              422,902
                              
                              
                              
                              390,598Income
      tax and other tax payables
                              
                              
                              692,532
                              
                              
                              
                              538,483Notes
      payable
                              
                              
                              838,062
                              
                              
                              
                              281,579Convertible
      notes payable (net of unamortized discount of $323,093 and due on December
      31, 2009)
                              
                              
                              -
                              
                              
                              
                              1,676,907Liabilities
      related to discontinued operations, held for sale
                              
                              
                              -
                              
                              
                              
                              17,128Total
      Current Liabilities
                              
                              
                              2,350,788
                              
                              
                              
                              3,424,975LONG-TERM
      LIABILITIESConvertible
      notes payable (net of unamortized discount of $1,120,447 and due on June
      30, 2011)
                              
                              
                              679,553
                              
                              
                              
                              -TOTAL
      LIABILITIES
                              
                              
                              3,030,341
                              
                              
                              
                              3,424,975COMMITMENTS
      AND CONTINGENCIES
                              
                              
                              -
                              
                              
                              
                              -EQUITYHFGB
      Stockholders' EquityPreferred
      stock ($0.001 par value, 5,000,000 shares authorized, none issued and
      outstanding)
                              
                              
                              -
                              
                              
                              
                              -Common
      stock ($0.018 par value, 100,000,000 shares authorized, 22,991,169 shares
      issued and outstanding as of December 31, 2009 and 18, 466,169 shares
      issued and outstanding as of December 31, 2008)
                              
                              
                              413,838
                              
                              
                              
                              332,388Additional
      paid-in capital
                              
                              
                              10,315,847
                              
                              
                              
                              8,355,863Retained
      earnings (deficit)Unappropriated
                              
                              
                              2,189,692
                              
                              
                              
                              (403,795
                              )Appropriated
                              
                              
                              888,185
                              
                              
                              
                              504,780Accumulated
      other comprehensive income
                              
                              
                              1,398,147
                              
                              
                              
                              1,366,800Total
      HFGB Stockholders' Equity
                              
                              
                              15,205,709
                              
                              
                              
                              10,156,036Non-controlling
      Interests
                              
                              
                              550,795
                              
                              
                              
                              507,679TOTAL
      EQUITY
                              
                              
                              15,756,504
                              
                              
                              
                              10,663,715TOTAL
      LIABILITIES AND STOCKHOLDERS' EQUITY
                              
                              $
                              18,786,845
                              
                              
                              $
                              14,088,690





The
accompanying notes are an integral part of these financial
statements





F-3





HUIFENG
BIO-PHARMACEUTICAL TECHNOLOGY INC.


AND
SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF OPERATIONS


AND
COMPREHENSIVE INCOME


FOR THE YEARS ENDED DECEMBER
31, 2009 AND 2008





2009
                                      
                                      
                                      2008NET
      SALES
                                      
                                      $
                                      13,764,886
                                      
                                      
                                      $
                                      10,957,229COST
      OF SALES
                                      
                                      
                                      (8,714,848
                                      )
                                      
                                      
                                      (7,136,492
                                      )GROSS
      PROFIT
                                      
                                      
                                      5,050,038
                                      
                                      
                                      
                                      3,820,737OPERATING
      EXPENSESSelling
      expenses and distribution expenses
                                      
                                      
                                      222,474
                                      
                                      
                                      
                                      209,131General
      and administrative expenses
                                      
                                      
                                      602,139
                                      
                                      
                                      
                                      1,156,841Depreciation
      and amortization
                                      
                                      
                                      26,280
                                      
                                      
                                      
                                      15,511Total
      Operating Expenses
                                      
                                      
                                      850,893
                                      
                                      
                                      
                                      1,381,483INCOME
      FROM CONTINUING OPERATIONS
                                      
                                      
                                      4,199,145
                                      
                                      
                                      
                                      2,439,254OTHER
      INCOME (EXPENSES)Interest
      income
                                      
                                      
                                      3,626
                                      
                                      
                                      
                                      16,820Interest
      expenses
                                      
                                      
                                      (596,938
                                      )
                                      
                                      
                                      (590,602
                                      )Other
      income
                                      
                                      
                                      230,505
                                      
                                      
                                      
                                      264,004Total
      Other (Expenses) Income
                                      
                                      
                                      (362,807
                                      )
                                      
                                      
                                      (309,778
                                      )INCOME
      FROM OPERATIONS BEFORE INCOME TAXES
                                      
                                      
                                      3,836,338
                                      
                                      
                                      
                                      2,129,476INCOME
      TAX EXPENSE
                                      
                                      
                                      (742,059
                                      )
                                      
                                      
                                      (528,570
                                      )NET
      INCOME FROM CONTINUING OPERATIONS
                                      
                                      
                                      3,094,279
                                      
                                      
                                      
                                      1,600,906DISCONTINUED
      OPERATIONSLoss
      from discontinued operations, net of income taxes
                                      
                                      
                                      (16,961
                                      )
                                      
                                      
                                      (33,840
                                      )Loss
      from disposal of discontinued operations
                                      
                                      
                                      (34,458
                                      )
                                      
                                      
                                      -NET
      LOSS FROM DISCONTINUED OPERATIONS
                                      
                                      
                                      (51,419
                                      )
                                      
                                      
                                      (33,840
                                      )NET
      INCOME
                                      
                                      
                                      3,042,860
                                      
                                      
                                      
                                      1,567,066Less:
      Net income attributable to non-controlling interests
                                      
                                      
                                      (65,968
                                      )
                                      
                                      
                                      (14,635
                                      )NET
      INCOME ATTRIBUTABLE TO HFGB COMMONSTOCKHOLDERS
                                      
                                      
                                      2,976,892
                                      
                                      
                                      
                                      1,552,431OTHER
      COMPREHENSIVE  INCOMETotal
      other comprehensive income
                                      
                                      
                                      8,495
                                      
                                      
                                      
                                      633,033Less:
      foreign currency translation (gain) loss attributable to non-controlling
      interests
                                      
                                      
                                      22,852
                                      
                                      
                                      
                                      (31,218
                                      )Foreign
      currency translation gain attributable to HFGB common
      stockholders
                                      
                                      
                                      31,347
                                      
                                      
                                      
                                      601,815COMPREHENSIVE
      INCOME
                                      
                                      $
                                      3,008,239
                                      
                                      
                                      $
                                      2,154,246Income
      per share-basicContinuing
      operations
                                      
                                      $
                                      0.15
                                      
                                      
                                      $
                                      0.08Discontinued
      operations
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -Net
      income per share - basic
                                      
                                      $
                                      0.15
                                      
                                      
                                      $
                                      0.08Income
      per share-dilutedContinuing
      operations
                                      
                                      $
                                      0.15
                                      
                                      
                                      $
                                      0.08Discontinued
      operations
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -Net
      income per share - diluted
                                      
                                      $
                                      0.15
                                      
                                      
                                      $
                                      0.08Weighted
      average number of shares outstanding during the year-basic
                                      
                                      
                                      19,933,018
                                      
                                      
                                      
                                      18,466,169Weighted
      average number of shares outstanding during the
    year-diluted
                                      
                                      
                                      19,982,333
                                      
                                      
                                      
                                      20,466,169





The
accompanying notes are an integral part of these financial
statements





F-4





HUIFENG
BIO-PHARMACEUTICAL TECHNOLOGY INC.


AND
SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ EQUITY


FOR THE YEARS ENDED DECEMBER
31, 2009 AND 2008





Additional
                                  
                                  
                                  Unappropriated
                                  
                                  
                                  Appropriated
                                  
                                  
                                  Other
                                  
                                  
                                  Total
      HFGBCommon
      Stock
                                  
                                  
                                  paid-in
                                  
                                  
                                  retained
                                  
                                  
                                  retained
                                  
                                  
                                  comprehensive
                                  
                                  
                                  Stockholders'
                                  
                                  
                                  Non-controllingShares
                                  
                                  
                                  Amount
                                  
                                  
                                  capital
                                  
                                  
                                  deficit
                                  
                                  
                                  earnings
                                  
                                  
                                  income
                                  
                                  
                                  equity
                                  
                                  
                                  interests
                                  
                                  
                                  Total
      equityUS$
                                  
                                  
                                  US$
                                  
                                  
                                  US$
                                  
                                  
                                  US$
                                  
                                  
                                  US$
                                  
                                  
                                  US$
                                  
                                  
                                  US$
                                  
                                  
                                  US$Balance
      at January 1, 2008
                                  
                                  
                                  18,466,169
                                  
                                  
                                  
                                  332,388
                                  
                                  
                                  
                                  8,326,752
                                  
                                  
                                  
                                  (1,671,410
                                  )
                                  
                                  
                                  219,964
                                  
                                  
                                  
                                  764,985
                                  
                                  
                                  
                                  7,972,679
                                  
                                  
                                  
                                  461,826
                                  
                                  
                                  
                                  8,434,505Components
      of comprehensive incomeNet
      income for the year
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  1,552,431
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  1,552,431
                                  
                                  
                                  
                                  14,635
                                  
                                  
                                  
                                  1,567,066Foreign
      currency translation income
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  601,815
                                  
                                  
                                  
                                  601,815
                                  
                                  
                                  
                                  31,218
                                  
                                  
                                  
                                  633,033Comprehensive
      income
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  2,200,099Stock
      option issued to a legal advisor
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  29,111
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  29,111
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  29,111Transfer
      from retained earnings to statutory reserves
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  (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
                                  
                                  
                                  
                                  507,679
                                  
                                  
                                  
                                  10,663,715Components
      of comprehensive lossNet
      income for the year
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  2,976,892
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  2,976,892
                                  
                                  
                                  
                                  65,968
                                  
                                  
                                  
                                  3,042,860Foreign
      currency translation income
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  31,347
                                  
                                  
                                  
                                  31,347
                                  
                                  
                                  
                                  (22,852
                                  )
                                  
                                  
                                  8,495Comprehensive
      loss
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  3,051,355Stock
      issued for settlement of debts
                                  
                                  
                                  1,200,000
                                  
                                  
                                  
                                  21,600
                                  
                                  
                                  
                                  162,759
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  184,359
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  184,359Stock
      issued for acquisition of fixed assets
                                  
                                  
                                  2,600,000
                                  
                                  
                                  
                                  46,800
                                  
                                  
                                  
                                  374,591
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  421,391
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  421,391Stock
      issued for services
                                  
                                  
                                  75,000
                                  
                                  
                                  
                                  1,350
                                  
                                  
                                  
                                  36,150
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  37,500
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  37,500Stock
      option issued to a legal advisor
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  58,221
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  58,221
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  58,221Conversion
      of Covertible Notes
                                  
                                  
                                  200,000
                                  
                                  
                                  
                                  3,600
                                  
                                  
                                  
                                  196,400
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  200,000
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  200,000Value
      of warrants associated with convertible notes
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  352,463
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  352,463
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  352,463Value
      of beneficial conversion feature of convertible notes to common
      stock
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  342,000
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  342,000
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  342,000Issuance
      of stock associated with convertible notes
                                  
                                  
                                  450,000
                                  
                                  
                                  
                                  8,100
                                  
                                  
                                  
                                  437,400
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  445,500
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  445,500Transfer
      from retained earnings to statutory reserves
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  (383,405
                                  )
                                  
                                  
                                  383,405
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  -Balance
      at December.31, 2009
                                  
                                  
                                  22,991,169
                                  
                                  
                                  
                                  413,838
                                  
                                  
                                  
                                  10,315,847
                                  
                                  
                                  
                                  2,189,692
                                  
                                  
                                  
                                  888,185
                                  
                                  
                                  
                                  1,398,147
                                  
                                  
                                  
                                  15,205,709
                                  
                                  
                                  
                                  550,795
                                  
                                  
                                  
                                  15,756,504




The
accompanying notes are an integral part of these financial
statements





F-5





HUIFENG
BIO-PHARMACEUTICAL TECHNOLOGY INC.


AND
SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF CASH FLOWS


FOR THE YEARS ENDED DECEMBER
31, 2009 AND 2008





2009
                            
                            
                            2008CASH
      FLOWS FROM OPERATING ACTIVITIESNet
      income continuing operations
                            
                            $
                            2,993,853
                            
                            
                            $
                            1,586,271Net
      loss from discontinued operations
                            
                            
                            (16,961
                            )
                            
                            
                            (33,840
                            )Net
      income continuing operations
                            
                            
                            2,976,892
                            
                            
                            
                            1,552,431Adjusted
      to reconcile net income to cash provided by (used in) operating
      activities:(Beneficial
      of) allowance for doubtful accounts - accounts receivable
                            
                            
                            (4,829
                            )
                            
                            
                            84,631Depreciation
      and amortization - cost of sales
                            
                            
                            594,165
                            
                            
                            
                            433,276Depreciation
      and amortization
                            
                            
                            26,280
                            
                            
                            
                            15,511Amortization
      of discount on convertible notes
                            
                            
                            172,859
                            
                            
                            
                            153,343Amortization
      of deferred financing costs
                            
                            
                            169,750
                            
                            
                            
                            169,750Stock
      options issued to a legal counsel
                            
                            
                            58,221
                            
                            
                            
                            29,111Stock
      issued to a legal counsel
                            
                            
                            37,500
                            
                            
                            
                            -Non-controlling
      interests
                            
                            
                            65,968
                            
                            
                            
                            14,635Loss
      from disposal of discontinued operations
                            
                            
                            34,446
                            
                            
                            
                            -Changes
      in operating assets and liabilities (Increase) decrease
in:Accounts
      receivable, net
                            
                            
                            (2,685,021
                            )
                            
                            
                            (1,173,074
                            )Inventories,
      net
                            
                            
                            (903,917
                            )
                            
                            
                            (1,875,068
                            )Other
      assets
                            
                            
                            (243,172
                            )
                            
                            
                            739,237Increase
      (decrease) in:Accounts
      payable
                            
                            
                            59,972
                            
                            
                            
                            414,373Other
      payables and accrued expenses
                            
                            
                            37,128
                            
                            
                            
                            143,121Income
      tax and other taxes payable
                            
                            
                            152,628
                            
                            
                            
                            6,271Due
      to stockholders
                            
                            
                            -
                            
                            
                            
                            (294,679
                            )Net
      cash provided by operating activities - continuing
    operations
                            
                            
                            548,870
                            
                            
                            
                            412,869Net
      cash provided by operating activities - discontinued
      operations
                            
                            
                            16,753
                            
                            
                            
                            33,787Net
      cash provided by operating activities
                            
                            
                            565,623
                            
                            
                            
                            446,656CASH
      FLOWS FROM INVESTING ACTIVITIESNet
      cash inflow from disposal of discontinued operations
                            
                            
                            15,612
                            
                            
                            
                            -Purchase
      of property and equipment
                            
                            
                            (626,325
                            )
                            
                            
                            (2,647,469
                            )Net
      cash used in investing activities - continuing operations
                            
                            
                            (610,713
                            )
                            
                            
                            (2,647,469
                            )Net
      cash provided by investing activities - discontinued
      operations
                            
                            
                            -
                            
                            
                            
                            -Net
      cash used in investing activities
                            
                            
                            (610,713
                            )
                            
                            
                            (2,647,469
                            )CASH
      FLOWS FROM FINANCING ACTIVITIESProceeds
      from (repayment of) notes payable
                            
                            
                            555,484
                            
                            
                            
                            (33,035
                            )Net
      cash (used in) provided by financing activities - continuing
      operations
                            
                            
                            555,484
                            
                            
                            
                            (33,035
                            )Net
      cash provided by financing activities - discontinued
      operations
                            
                            
                            -
                            
                            
                            
                            -Net
      cash provided by (used in) financing activities
                            
                            
                            555,484
                            
                            
                            
                            (33,035
                            )EFFECT
      OF EXCHANGE RATES ON CASH
                            
                            
                            795
                            
                            
                            
                            59,728NET
      INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
                            
                            
                            511,189
                            
                            
                            
                            (2,174,120
                            )CASH
      AND CASH EQUIVALENTS AT BEGINNING OF YEAR
                            
                            
                            45,574
                            
                            
                            
                            2,219,694CASH
      AND CASH EQUIVALENTS AT END OF YEAR
                            
                            $
                            556,763
                            
                            
                            $
                            45,574SUPPLEMENTAL DISCLOSURE OF CASH FLOW
      INFORMATIONCash
      paid during the year for:Income
      taxes
                            
                            $
                            726,103
                            
                            
                            $
                            400,023Interest
      expenses
                            
                            $
                            254,330
                            
                            
                            $
                            250,842





SUPPLEMENTAL
DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:





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





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





On
December 24, 2009, the Company issued 450,000 shares of restricted common stock
having a fair value of $445,500 to sixinvestors as consideration to extend the
maturity date of $1,800,000 of the remaining Notes from December 2009 to June
2011.





The
accompanying notes are an integral part of these financial
statements





F-6




HUIFENG
BIO-PHARMACEUTICAL TECHNOLOGY INC.


AND
SUBSIDIARIES


NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS


AS OF DECEMBER 31, 2009 AND
2008





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, 2009 are described in
Note 2 – 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 2009 consolidated financial statements include the financial
statements include the financial statements of Huifeng Bio-Pharmaceutical and
its 100% owned subsidiary Northwest, 100% owned subsidiary Huifeng Bio-Technic
and 80.2% owned subsidiary Huifeng Pharmaceutical.





The
accompanying 2008 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, 2009 and 2008, the Company
recorded recovery of and allowance for doubtful accounts of $4,829 and $84,631
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.





(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:





F-7





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 Accounting Standards
Codification (“ASC”) Topic 350 “Intangibles – Goodwill and Other” (formerly 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
ASC Topic 350, 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 ASC Topic 820 “Fair Value Measurements and
Disclosures” (“ASC 820”) (formerly SFAS No. 157, “Fair Value Measurements”). ASC
Topic 820 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 ASC Topic 815
“Derivatives and Hedging” (“ASC 815”) (formerly 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”) and SFAS 133
“Accounting for Derivative Instruments and Hedging Activities” (“SFAS 133”)).
These non-hedging contracts accounted for in accordance with this ASC include
freestanding warrants to purchase the Company’s common stock that have been
bifurcated from the host contract in accordance with the requirements. 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 ASC Topic 480 “Distinguishing Liabilities from Equity” (“ASC 480”)
(formerly SFAS 150, “Accounting for Certain Financial Instruments with
Characteristics of Both Liabilities and Equity” and ASC 815.





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. On December 24, 2009 the Company extended the
maturity date of $1,800,000 of the remaining Notes which were due and payable on
December 31, 2009 to June 30, 2011.  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.





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 ASC
820.





F-8





(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 (now ASC Topic 718 “Compensation-Stock
Compensation”) (“ASC 718”). The Company adopted ASC 718, using a modified
prospective application transition method, which establishes accounting for
stock-based awards in exchange for consultancy services. Under this application,
the Company is required to record stock-based compensation expense for all
awards granted after the date of adoption and unvested awards that were
outstanding as of the date of adoption. ASC 718 requires that stock-based
compensation cost is measured at grant date, based on the fair value of the
award, and recognized in expense over the vesting period.





Common
stock, 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 ASC 718, which is measured as of the date required by ASC Topic
505-50 “Equity-Based Payments to Non-Employees” (“ASC 505-50”) (formerly 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 ASC 505-50, the non-employee stock options or warrants are
measured at their fair value by using the Black-Scholes option pricing model as
of the earlier of the date at which a commitment for performance to earn the
equity 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 in 2007 and extended the maturity date
until June 30, 2011 on December 24, 2009 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 ASC Topic 740 “Income Taxes” (“ASC
740”) (formerly SFAS No. 109, “Accounting for Income Taxes” (“SFAS
109”)).  Under this ASC, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities and
their respective tax bases.  Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled.  Under this ASC, the effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that
included the enactment date.





(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.





F-9





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





December 31, 2009
                      
                      December 31, 2008Balance
      sheet items, except for preferredstock,
      common stock, additional paid-incapital
      and retained earnings, as of year end
                      
                      US$1=RMB6.83720
                      
                      US$1=RMB6.85420Amounts
      included in the statements ofoperations
      and cash flows for the year
                      
                      US$1=RMB6.84088
                      
                      US$1=RMB6.96225





The
translation gain recorded for the years ended December 31, 2009 and 2008 was
$31,347 and $601,815 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.





Warrants
to purchase 500,000 shares of common stock at $1.50 per share in 2008 and
amended to purchase 450,000 shares of common stock at $1 per share in 2009 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, 2009 and 2008 were excluded from the
calculation of diluted earnings per share because the effects of the stock
warrants and stock option were anti-dilutive in nature.





(P)
            Segments





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





(Q)
            Recent
      Accounting Pronouncements





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





In
December 2008, the FASB issued Staff Position No. FAS 132(R)-1 “Employers’
Disclosures about Postretirement Benefit Plan Assets” (“FSP FAS 132(R)-1”) (ASC
Topic 715-20-65). FSP FAS 132(R)-1 (ASC Topic 715-20-65) requires more detailed
disclosures about employers’ plan assets in a defined benefit pension or other
postretirement plan, including employers’ investment strategies, major
categories of plan assets, concentrations of risk within plan assets, and inputs
and valuation techniques used to measure the fair value of plan assets. FSP FAS
132(R)-1 (ASC Topic 715-20-65) also requires, for fair value measurements using
significant unobservable inputs (Level 3), disclosure of the effect of the
measurements on changes in plan assets for the period. The disclosures about
plan assets required by FSP FAS 132(R)-1 (ASC Topic 715-20-65) must be provided
for fiscal years ending after December 15, 2009. As this pronouncement is only
disclosure-related, the Company does not have an impact on the financial
position and results of operations.





F-10





In
February 2010, FASB issued ASU 2010-9 Subsequent Events (Topic 855) Amendments
to Certain Recognition and Disclosure Requirements ("ASU 2010-9"). ASU 2010-9
amends disclosure requirements within Subtopic 855-10. An entity that is an SEC
filer is not required to disclose the date through which subsequent events have
been evaluated. This change alleviates potential conflicts between Subtopic
855-10 and the SEC's requirements. ASU 2010-9 is effective for interim and
annual periods ending after June 15, 2010. The Company does not expect the
adoption of ASU 2010-09 to have a material impact on its consolidated results of
operations or financial position. In
January 2010, FASB issued ASU 2010-6 Improving Disclosures about Fair
Measurements ("ASU 2010-6"). ASU 2010-6 provides amendments to subtopic
820-10 that require separate disclosure of significant transfers in and out of
Level 1 and Level 2 fair value measurements and the presentation of
separate information regarding purchases, sales, issuances and settlements for
Level 3 fair value measurements. Additionally, ASU 2010-6 provides
amendments to subtopic 820-10 that clarify existing disclosures about the level
of disaggregation and inputs and valuation techniques. ASU 2010-6 is effective
for financial statements issued for interim and annual periods ending after
December 15, 2010. The Company does not expect the adoption of ASU 2010-06
to have a material impact on its consolidated results of operations or financial
position.





In
January 2010, FASB issued ASU 2010-2 Accounting and Reporting for Decreases in
Ownership of a Subsidiary- a Scope Clarification ("ASU 2010-2"). ASU 2010-2
addresses implementation issues related to the changes in ownership provisions
in the Consolidation—Overall Subtopic (Subtopic 810-10) of the FASB Accounting
Standards Codification, originally issued as FASB Statement No. 160,
Noncontrolling Interests in Consolidated Financial Statements. Subtopic 810-10
establishes the accounting and reporting guidance for noncontrolling interests
and changes in ownership interests of a subsidiary. An entity is required to
deconsolidate a subsidiary when the entity ceases to have a controlling
financial interest in the subsidiary. Upon deconsolidation of a subsidiary, an
entity recognizes a gain or loss on the transaction and measures any retained
investment in the subsidiary at fair value. The gain or loss includes any gain
or loss associated with the difference between the fair value of the retained
investment in the subsidiary and its carrying amount at the date the subsidiary
is deconsolidated. In contrast, an entity is required to account for a decrease
in ownership interest of a subsidiary that does not result in a change of
control of the subsidiary as an equity transaction. ASU 2010-2 is effective
for the Company starting January 3, 2010. The Company does not expect the
adoption of ASU 2010-2 to have a material impact on the Company's consolidated
results of operations or financial position.





In
December 2009, FASB issued ASU 2009-17 Consolidations (Topic 810) Improvements
to Financial Reporting by Enterprises Involved with Variable Interest Entities
("ASU 2009-17"). ASU 2009-17 amends the FASB ASC for the issuance of FASB
Statement No. 167, Amendments to FASB Interpretation No. 46(R). The
amendments in ASU 2009-17 replace the quantitative-based risks and rewards
calculation for determining which enterprise, if any, has a controlling
financial interest in a variable interest entity with an approach focused on
identifying which enterprise has the power to direct the activities of a
variable interest entity that most significantly impact the entity's economic
performance and (1) the obligation to absorb losses of the entity or
(2) the right to receive benefits from the entity. ASU 2009-17 also
requires additional disclosures about an enterprise's involvement in variable
interest entities. ASU 2009-17 is effective as of the beginning of each
reporting entity's first annual reporting period that begins after
November 15, 2009. The Company does not expect the adoption of ASU 2009-17
to have a material impact on its consolidated results of operations or financial
position.





In
December 2009, FASB issued ASU 2009-16 Transfers and Servicing (Topic 860)
Accounting for Transfers of Financial Assets ("ASU 2009-16"). ASU 2009-16 amends
the FASB Accounting Standards Codification for the issuance of FASB Statement
No. 166, Accounting for Transfers of Financial Assets—an amendment of FASB
Statement No. 140. The amendments in ASU 2009-16 improve financial
reporting by eliminating the exceptions for qualifying special-purpose entities
from the consolidation guidance and the exception that permitted sale accounting
for certain mortgage securitizations when a transferor has not surrendered
control over the transferred financial assets. In addition, the amendments
require enhanced disclosures about the risks that a transferor continues to be
exposed to because of its continuing involvement in transferred financial
assets. ASU 2009-16 is effective as of the beginning of each reporting entity's
first annual reporting period that begins after November 15,
2009.  The Company does not expect the adoption of ASU 2009-16 to have
a material impact on its consolidated results of operations or financial
position.





In
October, 2009, the FASB issued ASU 2009-15, “Accounting for Own-Share Lending
Arrangements in Contemplation of Convertible Debt Issuance or Other Financing”(
amendments to ASC Topic 470, Debt)” (“ASU 2009-15”), and provides guidance for
accounting and reporting for own-share lending arrangements issued in
contemplation of a convertible debt issuance.  At the date of
issuance, a share-lending arrangement entered into on an entity’s own shares
should be measured at fair value in accordance with Topic 820 and recognized as
an issuance cost, with an offset to additional paid-in
capital.  Loaned shares are excluded from basic and diluted earnings
per share unless default of the share-lending arrangement occurs.  The
amendments also require several disclosures including a description and the
terms of the arrangement and the reason for entering into the
arrangement.  The effective dates of the amendments are dependent upon
the date the share-lending arrangement was entered into and include
retrospective application for arrangements outstanding as of the beginning of
fiscal years beginning on or after December 15, 2009.   The
Company does not expect the adoption of ASU 2009-15 to have a material impact on
its financial statements.





In
October 2009, the FASB issued ASU 2009-14, “Certain Arrangements That
Include Software Elements, (amendments to ASC Topic 985, Software)” (“ASU
2009-14”). ASU 2009-14 removes tangible products from the scope of software
revenue guidance and provides guidance on determining whether software
deliverables in an arrangement that includes a tangible product are covered by
the scope of the software revenue guidance. ASU 2009-14 should be applied on a
prospective basis for revenue arrangements entered into or materially modified
in fiscal years beginning on or after June 15, 2010, with early adoption
permitted. The Company does not expect the adoption of ASU 2009-14 to have a
material impact on its financial statements.





F-11





In
October 2009, the FASB issued ASU 2009-13, “Multiple-Deliverable Revenue
Arrangements, (amendments to ASC Topic 605, Revenue Recognition)” (“ASU
2009-13”). ASU 2009-13 requires entities to allocate revenue in an arrangement
using estimated selling prices of the delivered goods and services based on a
selling price hierarchy. The amendments eliminate the residual method of revenue
allocation and require revenue to be allocated using the relative selling price
method. ASU 2009-13 should be applied on a prospective basis for revenue
arrangements entered into or materially modified in fiscal years beginning on or
after June 15, 2010, with early adoption permitted. The Company does not
expect the adoption of ASU2009-13 to have a material impact on its financial
statements.





In
September 2009, the FASB issued Accounting Standards Update (“ASU”) 2009-12,
Fair Value Measurements and Disclosures (Topic 820)—Investments in Certain
Entities That Calculate Net Asset Value Per Share (or Its Equivalent) which
amended Accounting Standards Codification Subtopic 820-10, Fair Value
Measurements and Disclosures—Overall. The amended guidance offers investors a
practical expedient for measuring the fair value of investments in certain
entities that calculate net asset value per share (NAV). The ASU is effective
for the first reporting period (including interim periods) ending after
December 15, 2009. The adoption of ASU 2009-12 did not have a material
impact on the Company’s financial position or results of operations at the date
of adoption.





In
September 2009, the FASB issued ASU 2009-06, Income Taxes (Topic
740)—Implementation Guidance on Accounting for Uncertainty in Income Taxes and
Disclosure Amendments for Nonpublic Entities (formerly proposed as FASB Staff
Position No. 48-d, Application Guidance for Pass-Through Entities and
Tax-Exempt Not-for-Profit Entities and Disclosure Modifications for Nonpublic
Entities), which amended Accounting Standards Codification Subtopic 740-10,
Income Taxes – Overall. ASU 2009-06 clarifies that an entity’s assertion that it
is a pass-through entity is a tax position and should be assessed in accordance
with Subtopic 740-10. Additionally, the ASU provides implementation guidance on
the attribution of income taxes to entities and owners. The revised guidance is
effective for periods ending after September 15, 2009. The adoption of ASU
2009-06 did not have a material impact on the Company’s financial position or
results of operations at the date of adoption.





In
August 2009, FASB issued ASU 2009-5 Fair Value Measurements and Disclosures
(Topic 820) Measuring Liabilities at Fair Value ("ASU 2009-5"). ASU 2009-5
provides amendments to Subtopic 820-10, Fair Value Measurements and
Disclosures-Overall, for the fair value measurement of liabilities. ASU 2009-5
clarifies that in circumstances in which a quoted price in an active market for
the identical liability is not available, a reporting entity is required to
measure fair value. ASU 2009-5 was effective for the Company for interim
and annual periods ending after October 3, 2009. The adoption of
ASU 2009-5 did not have a material impact on the Company's consolidated
results of operations or financial position.





In
August 2009, FASB issued ASU 2009-4 Accounting for Redeemable Equity
Instruments—an Amendment to Section 480-10-S99 ("ASU 2009-4"). ASU 2009-4
represents a Securities and Exchange Commission ("SEC") update to
Section 480-10-S99, Distinguishing Liabilities from Equity. The adoption of
guidance within ASU 2009-4 did not have an impact on the Company's consolidated
results of operations or financial position.





In June
2009, the FASB issued Statement of Financial Accounting Standards (“SFAS”)
No. 168, The FASB Accounting Standards Codification and the Hierarchy of
Generally Accepted Accounting Principles, a replacement of FASB Statement
No. 162 (subsequently codified into FASB ASC Topic 105) which established
the FASB Accounting Standards Codification (“ASC” or the “Codification”) as the
single source of authoritative accounting principles for U.S. GAAP issued by the
FASB. The Codification supersedes all existing non-SEC accounting and reporting
standards and subsequent to adoption, the FASB will issue new standards in the
form of ASUs, and no longer as SFASs, FASB Staff Positions or Emerging Issues
Task Force Abstracts. The Codification is effective for reporting periods ending
on or after September 15, 2009. The adoption of the Codification did not
have any impact on the Company’s financial position or results of operations at
the date of adoption.





In May
2009, the FASB issued guidance on subsequent events (originally issued as SFAS
No. 165, Subsequent Events, and subsequently codified into FASB ASC Topic
855). Topic 855 addresses the accounting for and disclosure of events that occur
after the balance sheet date but before financial statements are issued. Topic
855 is effective for interim or annual periods ending after June 15, 2009.
The adoption of Topic 855 did not have any impact on the Company’s financial
position or results of operations at the date of adoption.





In April
2009, the FASB issued guidance on determining fair value when the volume and
level of activity for an asset or liability has significantly decreased and
identifying transactions that are not orderly (originally issued as FASB Staff
Position SFAS 157-4, Determining Fair Value When the Volume and Level of
Activity for the Asset or Liability Have Significantly Decreased and Identifying
Transactions That Are Not Orderly, and subsequently codified within FASB ASC
Topic 820). The guidance provides additional guidance to expand on the factors
that should be considered in estimating fair value when there has been a
significant decrease in market activity for an asset or liability. The guidance
is effective for interim and annual periods ending after June 15, 2009. The
adoption did not have any impact on the Company’s financial position or results
of operations at the date of adoption.





In
April 2009, FASB issued Staff Position ("FSP") No. 115-2 and FSP 124-2,
Recognition and Presentation of Other-Than-Temporary Impairments (now codified
within ASC 320, Investments—Debt and Equity Securities ("ASC 320")). ASC 320
provides greater clarity about the credit and noncredit component of an
other-than-temporary impairment event and more effectively communicates when an
other-than-temporary impairment event has occurred. ASC 320 amends the
other-than-temporary impairment model for debt securities. The impairment model
for equity securities was not affected. Under ASC 320, an other-than-temporary
impairment must be recognized through earnings if an investor has the intent to
sell the debt security or if it is more likely than not that the investor will
be required to sell the debt security before recovery of its amortized cost
basis. This standard was effective for interim periods ending after
June 15, 2009. The adoption of ASC 320 did not have a material impact on
the Company's consolidated results of operations or financial
position.





F-12





In April
2009, FASB issued FSP 107-1 and Accounting Principles Board 28-1, Interim
Disclosures about Fair Value of Financial Instruments (now codified within ASC
825, Financial Instruments ("ASC 825")). ASC 825 requires disclosures about
fair value of financial instruments in interim financial statements as well as
in annual financial statements. ASC 825 was effective for interim periods ending
after June 15, 2009. The adoption of ASC 825 did not have a material impact
on the Company's consolidated results of operations or financial
position.





2.
            SUBSIDIARIES





Details
of the Company’s principal consolidated subsidiaries as of December 31, 2009
were as follows:





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





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





3.
            ACCOUNTS RECEIVABLE,
      NET





Accounts
receivable at December 31, 2009 and 2008 consisted of the
following:


2009
                      
                      
                      2008Accounts
      receivable
                      
                      $
                      5,679,685
                      
                      
                      $
                      2,985,795Less:
      allowance for doubtful accounts
                      
                      
                      (103,364
                      )
                      
                      
                      (107,927
                      )Accounts
      receivable, net
                      
                      $
                      5,576,321
                      
                      
                      $
                      2,877,868





For the
years ended December 31, 2009 and 2008, the Company recorded recovery of and
allowance for doubtful accounts of $4,829 and $84,631 respectively.





4.
            INVENTORIES, NET





Inventories
at December 31, 2009 and 2008 consisted of the following:


2009
                        
                        
                        2008Raw
      materials
                        
                        $
                        1,369,673
                        
                        
                        $
                        655,267Work-in-progress
                        
                        
                        2,369,709
                        
                        
                        
                        2,276,087Finished
      goods
                        
                        
                        1,917,038
                        
                        
                        
                        1,808,8765,656,420
                        
                        
                        
                        4,740,230Less:
      provision of obsolescence
                        
                        
                        -
                        
                        
                        
                        -$
                        5,656,420
                        
                        
                        $
                        4,740,230





For the
years ended December 31, 2009 and 2008, the Company did not have any obsolete
inventories.





F-13





5.
            OTHER
    ASSETS





Other
assets at December 31, 2009 and 2008 consisted of the following:


2009
                      
                      
                      2008Advances
      to staff
                      
                      $
                      11,067
                      
                      
                      $
                      12,206Other
      receivables and prepayments
                      
                      
                      56,604
                      
                      
                      
                      40,131Trade
      deposits paid
                      
                      
                      505,446
                      
                      
                      
                      276,659$
                      573,117
                      
                      
                      $
                      328,996





6.
            PROPERTY AND
      EQUIPMENT





The
following is a summary of property and equipment at December 31, 2009 and
2008:





2009
                  
                  
                  2008Factory
      buildings
                  
                  $
                  1,979,689
                  
                  
                  $
                  1,442,985Plant
      and machinery
                  
                  
                  5,216,362
                  
                  
                  
                  5,128,076Motor
      vehicles
                  
                  
                  122,739
                  
                  
                  
                  122,434Furniture
      and office equipment
                  
                  
                  52,010
                  
                  
                  
                  51,451Construction
      in progress - factory building
                  
                  
                  1,105,716
                  
                  
                  
                  665,2868,476,516
                  
                  
                  
                  7,410,232Less:
      accumulated depreciation
                  
                  
                  (2,197,897
                  )
                  
                  
                  (1,576,675
                  )Property
      and equipment, net
                  
                  $
                  6,278,619
                  
                  
                  $
                  5,833,557





Depreciation
expenses for continuing operations for the years ended December 31, 2009 and
2008 were $617,119 and $445,519 respectively.





7.
            LAND USE RIGHTS,
    NET





Land use
rights at December 31, 2009 and 2008 consisted of the following:


2009
                  
                  
                  2008Land
      use rights
                  
                  $
                  163,078
                  
                  
                  $
                  162,674Less:
      accumulated amortization
                  
                  
                  (17,473
                  )
                  
                  
                  (14,110
                  )Land
      use rights, net
                  
                  $
                  145,605
                  
                  
                  $
                  148,564





Amortization
expenses for the years ended December 31, 2009 and 2008 were $3,326 and $3,268
respectively.





8.
            OTHER PAYABLES AND ACCRUED
      EXPENSES





Other
payables and accrued expenses at December 31, 2009 and 2008 consisted of the
following:





2009
                  
                  
                  2008Other
      payables
                  
                  $
                  83,465
                  
                  
                  $
                  155,669Accrued
      expenses
                  
                  
                  159,773
                  
                  
                  
                  134,452Deposits
      received from customers
                  
                  
                  179,664
                  
                  
                  
                  100,477$
                  422,902
                  
                  
                  $
                  390,598





9.
            INCOME
    TAX





a.
              Huifeng
      Bio-Pharmaceutical was incorporated in the United States and has incurred
      net operating loss as for income tax purposes for 2009 and
      2008.





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 2009 and
2008 was $602,952 and $467,447 respectively.





F-14





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 2009 and 2008 as Huifeng Engineering has incurred net operating
loss and was disposed on June 28, 2009.





Huifeng
Pharmaceutical, 80.2% owned subsidiary of Huifeng Bio-Technic, was also
incorporated in the PRC and subject to PRC income tax which is computed
according to the relevant laws and regulations in the PRC. The applicable tax
rate for 2009 and 2008 was 25%. The provision for income tax expenses for 2009
and 2008 was $139,107 and $61,123 respectively.





The
income tax expenses for 2009 and 2008 are summarized as follows:





2009
                  
                  
                  2008PRC
      Income TaxCurrent
                  
                  $
                  742,059
                  
                  
                  $
                  528,570$
                  742,059
                  
                  
                  $
                  528,570





b.
              The
      Company’s deferred tax assets at December 31, 2009 and 2008 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, 2009 and 2008, the Company had net operating loss carry forwards of
approximately $2,680,952 and $1,937,833 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 2009 and 2008
were $911,524 and $658,863 respectively.





c.
              The
      reconciliation of income taxes computed at the statutory income tax rates
      to total income taxes for the years ended December 31, 2009 and 2008 is as
      follows:


2009
                      
                      
                      2008Huifeng
      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
                      
                      
                      19.3
                      %
                      
                      
                      24.8
                      %Effective
      income tax rate
                      
                      
                      19.3
                      %
                      
                      
                      24.8
                      %Total
      deferred tax asset
                      
                      
                      0
                      %
                      
                      
                      0
                      %





10.
            NOTES
      PAYABLE





Notes
payable as of December 31, 2009 and 2008 consisted of the
following:





2009
                    
                    
                    2008Notes
      payable to a financial institution, interest rate of 10.188% per
      annum, secured by a director's property and the company's fixed
      assets, due July 2009, was extended to June 2010
                    
                    $
                    253,028
                    
                    
                    $
                    281,579Note
      payable to a bank, interest rate of 6.372% per annum, guaranteed by a
      director and a third party, due May 2010
                    
                    
                    292,517
                    
                    
                    
                    -Note
      payable to a bank, interest rate of bank's one-year benchmark lending
      rate at the date of loan plus 20% (i.e. 6.372%) per annum, guaranteed
      by a director and a third party, due September 2010
                    
                    
                    292,517
                    
                    
                    
                    -Current
      maturities
                    
                    $
                    838,062
                    
                    
                    $
                    281,579





Interest
expenses for the years ended December 31, 2009 and 2008 were $46,940 and $34,036
respectively.





11.
            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, 2009 and 2008, the Company amortized $169,750 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.





F-15





As of
December 31, 2009, a Note holder converted the principal amount of $200,000 of
its Note into 200,000 shares of common stock of the Company. On December 24,
2009, the Company and six other investors, who held Notes totaling $1,800,000 of
the Notes, entered into an agreement to amend the Notes as follows:





1.
              The
      maturity date of the Notes was extended from December 31, 2009 to June 30,
      2011;


2.
              The
      conversion rate of the Notes into common stock was amended from $1 to
      $0.8;


3.
              The
      exercise price of stock warrants to purchase 450,000 shares of common
      stock was reduced from $1.5 to
$1;


4.
              The
      term of warrants was extended one year to December 31,
    2011;


5.
              The
      Company agreed to issue to the holders an aggregate of 450,000 shares of
      common stock in consideration for entering into the amendment;
      and


6.
              The
      principal shall be due and payable in accordance with the payment schedule
      by percentages from 2.5% to 14.5% starting from April 30, 2010 and
      consequently to June 30, 2011 which payable at monthly
  end.





The
holders of the Notes may convert the unpaid principal amount of the Notes into
common stock of the Company at any time prior to maturity, at the applicable
conversion price. The Company may prepay all or any part of the outstanding
principal amount of the Notes, together with interest accrued, if any, upon not
fewer than thirty days’ prior written notice to the holders.





In
accordance with ASC 470-20 (formerly EITF 98-5), a beneficial conversion feature
has been recorded on the extension of the maturity date of the Notes as the
conversion price of the Notes of $0.8 is lower than the fair market value per
share of $0.99 at December 24, 2009. The value of beneficial conversion feature
of $342,000 is recorded as a reduction in the carrying value of the Notes
against additional paid-in capital and is amortized over the term of the Notes
from the respective date of extension using the effective yield method. The
Company amortized $5,855 of beneficial conversion feature as interest expense
for the year ended December 31, 2009.





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.





The
Company recorded a discount on the Notes in accordance with ASC 470-20 of
$306,686 for the fair value of the warrants issued. The fair value of warrants
was calculated using the Black-Scholes model with the following assumptions: (i)
risk-free interest rate of 3.07%; (ii) expected life (in years) of 3; (iii)
expected volatility of 172%; (iv) expected dividend yield of 0.00%; and (v)
stock market price of $0.75. The discount on Notes is amortized using effective
interest method over 2 years. For the years ended December 31, 2009 and 2008,
the Company recorded amortization of $153,343 as interest expenses in the
statement of operations. Pursuant to the amendment of the terms of the Notes the
fair value of the remaining warrants was re-calculated using the Black-Scholes
model using the following assumptions; (i) risk-free interest rate of 1%; (ii)
expected life of 2 years; (iii) expected volatility of 177%; (iv) expected
dividend yield of 0.00%; and (v) stock market price of $0.99. The Company
recorded a fair value of $352,463 as further discount on Notes and amortized
$6,034 as an interest expense in the statement of operations for the year ended
December 31, 2009.





The
issuance of 450,000 shares of common stock to the Notes holders in consideration
for entering into the amendment is a cost associated with the extension of the
Notes. The Company recorded a fair value of $445,500 as discount on Notes and
amortized $7,627 as an interest expense in the statement of operations for the
year ended December 31, 2009.





The
outstanding 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, 2009 and 2008, $194,733
and $203,333 respectively was recorded as interest expenses.





F-16





12.
            NET INCOME PER
      SHARE





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


2009
                  
                  
                  2008Net
      income for basic and diluted income per share
                  
                  $
                  2,976,892
                  
                  
                  $
                  1,552,431Basic
      weighted-average common stock outstanding
                  
                  
                  19,933,018
                  
                  
                  
                  18,466,169Effect
      of dilutive securitiesConvertible
      notes
                  
                  
                  49,315
                  
                  
                  
                  2,000,000Diluted
      weighted-average common stock outstanding
                  
                  
                  19,982,333
                  
                  
                  
                  20,466,169Net
      income per share - basic
                  
                  $
                  0.15
                  
                  
                  $
                  0.08Net
      income per share - diluted
                  
                  $
                  0.15
                  
                  
                  $
                  0.08





13.
            COMMITMENTS AND
      CONTINGENCIES





(A) Capital
commitments





As of
December 31, 2009, the Company had capital commitments of $176,215 for factory
construction. The Company had no capital commitments as of December 31,
2008.




(B) Operating
lease commitments





The
Company occupies an office and warehouses from third parties under operating
leases which expires on September 30, 2010 and July 23, 2011 at a quarterly
rental of $2,851 and at an annually rental of $4,970
respectively.  Accordingly, for 2009 and 2008, the Company recognized
rental expense for these spaces in the amount of $16,372 and $13,450,
respectively.





As of
December 31, 2009, the Company has outstanding commitments with respect to
non-cancelable operating leases which are due as follows:





2010
                    
                    $
                    13,5222011
                    
                    
                    2,778$
                    16,300





14.
            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 ASC 718 with the following
assumptions and estimates: expected dividend 0%, volatility 189%, a risk-free
rate of 2.36% and an expected life of two years. The value of options recognized
during the years ended December 31, 2009 and 2008 were $58,221 and $29,111
respectively.





(B) Stock
issuances





On August
17, 2009, the Board of Directors approved the issuance of 1,200,000 shares of
restricted common stock having a fair value of $184,359 to a third party for the
settlement of outstanding accounts payable of $181,359. The value of the common
stock issued was determined based on the outstanding balance of payable, which
below the aggregated amount of $420,000 calculated by the closing market price
of $0.35 per share on August 17, 2009.





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





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





In
December 2009, a Note holder converted the principal amount of $200,000 of its
Note into 200,000 shares of common stock of the Company having a fair value of
$200,000 at the conversion price of the Note at $1 per share .





F-17





On
December 24, 2009, the Company issued 450,000 shares of common stock having a
fair value of $445,500 to the remaining Notes holders in consideration for
entering into the amendment of the Notes. The fair value of the common stock
issued was determined based the closing market price of $0.99 per share on
December 24, 2009.





(C)
Appropriated retained earnings





The
Company’s wholly owned subsidiary, Huifeng Bio-Technic 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
2009 and 2008, the Company’s wholly owned subsidiary Huifeng Bio-Technic
appropriated $341,673 and $264,887, respectively; and the Company’s 80.2% owned
subsidiary Huifeng Pharmaceutical also appropriated $41,732 and $19,929,
respectively to the reserves funds based on its net income under PRC
GAAP.





15.
            RELATED PARTY
      TRANSACTIONS





The
current Chief Executive Officer and two other stockholders pledged a total of
5,272,860 shares of common stock held by them to secure the Company’s
performance of the Convertible Notes issued on December 31, 2007, which was due
on December 31, 2009 and extended to June 30, 2011.





16.
            DISCONTINUED
      OPERATIONS





On June
28, 2009, Huifeng Bio-Technic entered into an agreement with a third party to
sell its 70% interest in Huifeng Engineering for a consideration of $21,919 in
cash. The operations of Huifeng Engineering have been reclassified as
discontinued operations in the accompanying consolidated statements of
operations for the years ended December 31, 2009 and 2008 and are summarized as
follows:





2009
                  
                  
                  2008General
      and administrative expenses
                  
                  $
                  (208
                  )
                  
                  $
                  (355
                  )Depreciation
                  
                  
                  (16,753
                  )
                  
                  
                  (33,489
                  )Operating
      expenses
                  
                  
                  (16,961
                  )
                  
                  
                  (33,844
                  )Interest
      income
                  
                  
                  -
                  
                  
                  
                  4Loss
      from discontinued operations
                  
                  $
                  (16,961
                  )
                  
                  $
                  (33,840
                  )





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





2009
                  
                  
                  2008ASSETSCash
      and cash equivalents
                  
                  $
                  -
                  
                  
                  $
                  676Equipment,
      net
                  
                  
                  -
                  
                  
                  
                  113,901Total
      assets related to discontinued operations
                  
                  $
                  -
                  
                  
                  $
                  114,577LIABILITIESOther
      payables
                  
                  $
                  -
                  
                  
                  $
                  17,128Total
      liabilities related to discontinued operations
                  
                  $
                  -
                  
                  
                  $
                  17,128





F-18





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





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





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





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





17.
            CONCENTRATIONS AND
      RISKS





During
2009 and 2008, 100% of the Company’s assets were located in China.





During
2009 and 2008, 35% and 45% of the Company’s revenues were derived from companies
located in China respectively.





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.  At December 31, 2008, accounts payable to those suppliers
totaled $18,332. The Company did not rely on any one or a few major suppliers
during the year ended December 31, 2009.





18.
            RECLASSIFICATION





The
Company disposed its 70% subsidiary – Huifeng Engineering in June 2009. As a
result of the disposal, the consolidated financial statements of the Company
reflect the disposal of Huifeng Engineering as discontinued operations for all
periods presented. Accordingly, the assets and liabilities of Huifeng
Engineering have been reclassified as assets related to discontinued operations,
held for sale and liabilities related to discontinued operations, held for sale
respectively in the consolidated balance sheets. The net operating results of
the discontinued operations, net of income taxes have been reclassified as loss
from discontinued operations, net of income taxes in the consolidated statements
of operations. For details, please refer to Note 16 – Discontinued
Operations.





19.
            SUBSEQUENT
      EVENT





On
February 25, 2010, the Company appointed three new independent directors and
granted a total of 110,000 shares of the Company’s restricted common stock as
annual compensation to the new directors.





F-19