Huifeng Bio-Pharma Tech (PINK:HFGB)

On April 11, 2011, the Board of Directors of Huifeng Bio-Pharmaceutical Technology, Inc. (the “Registrant” or the “Company”) entered the decision to dismiss Baker Tilly Hong Kong Limited (“BTHK”) as the Company’s independent registered public accounting firm. The dismissal of BTHK was primarily due to Company’s dissatisfaction with BTHK’s services (the “Dismissal”).

On April 15, 2011, BTHK directed its resignation letter as the Company’s auditors and ceased its services as the Company’s accountants to the Company’s Board of Directors.  In such letter, BTHK stated a number of accounting matters, which principally related to: accounting for revenue, goodwill and financial instruments, completeness and consistency of accounting documentation, effectiveness of internal control system, possibility of materials errors or fraud, which would have prevented BTHK from rendering an unqualified opinion if these issues were not resolved.  In addition, BTHK stated that they were no longer able to place reliance on management representations in relation to prior period financial reports.  BTHK’s audit report on the Company’s 2009 financial statements did not contain any adverse opinion or disclaimer of opinion, and was not qualified or modified as to uncertainty, audit scope or accounting principles.

On April 28, 2011, BTHK submitted a letter to the Company and stated in such letter that:

“in the course of conducting our audit of the Company's financial statements, we have become aware of information indicating that an inappropriate act may have occurred. We therefore concluded:

•  the inappropriate act has a material effect on the financial statements of the issuer;
• senior management of the Company has not taken, and the Board of Directors of the Company has not caused senior management of the Company to take, timely and appropriate remedial actions with respect to this act; and
• the failure to take remedial action warranted our resignation from the audit engagement.”

The Company has started an investigation into the matters raised by BTHK’s letter. The Company is unable to determine the full effect of these matters, including whether any restatement of its historical financial statements will be required, until the investigation is completed.

The Company provided BTHK with a copy of this Current Report on Form 8-K prior to its filing with the Securities and Exchange Commission and requested that BTHK furnish a letter addressed to the Commission stating whether or not BTHK agrees with the statements noted above. A copy of such letter responding to that request, dated July 15, 2011, are attached as Exhibit 16.1 to this Current Report on Form 8-K.

HFGB Obtains COS License

"We are pleased to announce record financial results and robust growth in both our revenue and net income," Mr. Jing'an Wang, the Company's CEO, commented. "Net Revenues grew 66.2% year over year, as we experienced increased sales in our Diosmin and Rutin product lines. Our gross margins for the third-quarter 2010 increased 165%, which is a result of higher selling prices and further economies of scale.  This strong performance and growth has led us to raise our full-year net income guidance for 2010."

"We are also very excited about the construction of our new 500 ton Diosmin plant, which we expect will be completed in 2011 and the final stages of the European COS audit and certification process.  We believe that with European COS certification and our new 500 ton COS Standard Diosmin, the Company is  positioned to be the leading producer of Diosmin for years to come." Mr. Wang continued.

The Company Increases its 2010 Guidance

The Company reaffirms its expectation that it will earn approximately $25 million in revenues for the year ended December 31, 2010, however, the Company now expects to earn net income for the year ended December 31, 2010 of approximately $5.5-$6 million, an increase of $1 million from its previous guidance of approximately $4.5-$5 million. The Company expects continued revenue growth in the last quarter of 2010 as it enters its most profitable selling period.

Answers to questions we recently posed to HFGB management:

Q: Please discuss the components of your selling and distribution expense?

A: Sales expenses consist of shipping costs (domestic and international), customs charges, trade fairs and other expenses like testing costs for certain products, wages and travel expenses.

Q: How is HFGB generating dramatic increase in sales with a tiny and stable selling and distribution expense?

A: There are three things to consider:

• The company has very stable sales team, distribution network and customer base. Most of the customers have more than 6 years relationship with HFGB.  Since the superior quality of HFGB’s products ( CMP certification and Pending COS certification), most of the time, new customers  would come to HFGB first so that HFGB don’t have to spend a lot on finding new customers. 
• In 2010  first two quarters sales expenses was 0.6 %  of its total revenues which is about the industry average because unlike drug manufacturers, raw material manufactures don’t have to do advertising to attract customers.
• Recently a lot of drug manufactures are willing to pick up their orders at HFGB’s factory directly which significantly decrease HFGB’s costs.
• Along with the increasing shipments, the company began to use ocean shipping to replace air transportation, which reduced costs dramatically. Some of their clients only require them to deliver the products to ports.

Q: What are your uplisting goals?

A: Being aggressively pursued.

Q: Can you provide 2011 EPS growth goals?

A: We will be in a better position to discuss this matter at the conclusion of 2010.