Huifeng Bio-Pharmaceutical Technology, Inc. (OTCBB: HFGB) signed a Letter of Intent under which it will assume operational control of Xi'an Qinba Xintong Medical Ltd. in exchange for a management fee that equals all of Qinba’s profit. There was no mention in the announcement of any other financial details, nor did Huifeng comment on why this form of relationship was chosen rather than an acquisition.

Huifeng manufactures plant extracts and pharmaceutical raw materials that are used in pharmaceutical, nutraceutical and food production. It owns a patented technology to extract rutin and other chemicals that belong to the flavonoid class of extracts.

Qinba has a much different focus: it manufactures finished medical devices. Huifeng is interested in Qinba because of its relationships with pharmacies and medicine buyers. Huifeng said it would use these relationships as a basis for transforming itself into a vertically integrated company that supplies pharmaceutical end products to a worldwide customer base.

Jing'An Wang, CEO and founder of Huifeng, said the Qinba relationship is just the first step in the process. He promised “several larger strategic partnerships” would follow in the future.

A few months ago, Huifeng said it expected to receive European COS (Certificate of Suitability) approval in September, which will allow it to provide Diosmin to Safic-Alcan, a French chemical company. According to the terms of the contract, Huifeng will begin by supplying Safic-Alcan at least 50 tons of Diosmin, an amount that increases to 500 tons in the last year of the five-year contract. Huifeng has begun building up its Diosmin inventory in anticipation of those deliveries.

As part of the announcement of the Qinba relationship, Huifeng reiterated its 2008 full-year guidance of $18 million in revenue and $4 million of net income.

Apparently, Huifeng is counting on a big pop from its Safic-Alcan contract. In the first six months of the year, the company reported revenues of $5.4 million and net income of just $700,000. The company will have to triple its current revenue rate to reach its 2008 goals.

Huifeng ended its Q2 with slightly less than $1 million in cash. With 18.5 million shares outstanding and a current stock price of $.75, Huifeng has a market capitalization of $14 million.