UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
D.C. 20549





FORM
10-Q





(Mark
One)


x
            QUARTERLY REPORT PURSUANT TO
      SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF
      1934





For the
quarterly period ended June 30, 2009





or





 ̈
            TRANSITION REPORTPURSUANT TO SECTION 13 OR 15(d)
      OF THESECURITIES EXCHANGE ACT OF
      1934





For
      the transition period from
                  To





Commission
      File Number :
                  333-112111





Zhongpin
      Inc.(Exact
      name of registrant as specified in its
charter)





Delaware
              
              54-2100419(State
      or other jurisdiction of incorporation or organization)
              
              (I.R.S.
      Employer Identification No.)





21
      Changshe Road, Changge City, Henan Province, People’s Republic of
      China(Address
      of principal executive offices)
              
              (Zip
      Code)





011
      86 10-82861788(Registrant’s
      telephone number, including area
code)





Not
      Applicable(Former
      name, former address and former fiscal year, if changed since last
      report)





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 ninety (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 during the preceding 12 months (or for such shorter
period that the registrant was required to submit and post such
files).    YES  ̈ NO  ̈





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





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





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





As of August 3, 2009, 29,079,951
shares of the registrant’s common stock, and 644,037 shares of the registrant’s
Series A convertible preferred stock, each such share convertible into one share
of the registrant’s common stock, were outstanding.





ZHONGPIN
INC.





FORM
10-Q





INDEX





PagePartI
                                            Financial
      InformationItem 1.
                                            Unaudited
      Financial Statements:Consolidated
      Balance Sheets as of June 30, 2009 (unaudited) andDecember
      31, 2008
                                            
                                            2Consolidated
      Statements of Income and ComprehensiveIncome
      (unaudited) for the three-month and six-month periodsended
      June 30, 2009 and 2008
                                            
                                            3Consolidated
      Statements of Cash Flows (unaudited) for the six-month
      periods ended June 30, 2009 and 2008
                                            
                                            4Notes
      to Consolidated Financial Statements (unaudited)
                                            
                                            5Item 2.
                                            Management’s
      Discussion and Analysis of Financial Conditionand
      Results of Operations
                                            
                                            20Item 3.
                                            Quantitative
      and Qualitative Disclosures About Market Risk
                                            
                                            35Item 4.
                                            Controls
      and Procedures
                                            
                                            36PartII
                                            Other
      InformationItem 1.
                                            Legal
      Proceedings
                                            
                                            37Item 1A.
                                            Risk
      Factors
                                            
                                            37Item 2.
                                            Unregistered
      Sales of Equity Securities and Use of Proceeds
                                            
                                            37Item 3.
                                            Defaults
      Upon Senior Securities
                                            
                                            37Item 4.
                                            Submission
      of Matters to a Vote of Security Holders
                                            
                                            37Item 5.
                                            Other
      Information
                                            
                                            38Item 6.
                                            Exhibits
                                            
                                            38Signatures
                                            
                                            39








ZHONGPIN
INC.





Part
I - Financial Information





Item
1. Financial Statements





The accompanying unaudited consolidated
balance sheets, statements of income and comprehensive income, and statements of
cash flows and the related the notes thereto, have been prepared in accordance
with generally accepted accounting principles in the United States of America
(“GAAP”) for interim financial information and in conjunction with the rules and
regulations of the Securities and Exchange Commission (“SEC”). Accordingly, they
do not include all of the disclosures required by GAAP for complete financial
statements. The financial statements reflect all adjustments, consisting only of
normal, recurring adjustments, which are, in the opinion of management,
necessary for a fair presentation for the interim periods.





The accompanying financial statements
should be read in conjunction with the notes to the aforementioned financial
statements and Management's Discussion and Analysis of Financial Condition and
Results of Operations and the financial statements and notes thereto included in
our Annual Report on Form 10-K for the year ended December 31,
2008.





The results of operations for the
three-month and six-month periods ended June 30, 2009 are not necessarily
indicative of the results to be expected for the entire fiscal year or any other
period.





ZHONGPIN
INC.


CONSOLIDATED
BALANCE SHEETS


(Amounts
in U.S. dollars)




June 30, 2009
                    
                    
                    December 31, 2008(Unaudited)ASSETSCurrent
      assetsCash
      and cash equivalents
                    
                    $
                    26,344,867
                    
                    
                    $
                    41,857,166Restricted
      cash
                    
                    
                    20,776,018
                    
                    
                    
                    17,040,201Bank
      notes receivable
                    
                    
                    6,448,719
                    
                    
                    
                    1,268,890Accounts
      receivable, net of allowance for doubtful accounts of $1,741,421 and
      $1,215,901
                    
                    
                    32,643,512
                    
                    
                    
                    20,432,752Other
      receivables, net of allowance for doubtful accounts of $176,559 and
      $500,447
                    
                    
                    1,535,797
                    
                    
                    
                    1,907,243Purchase
      deposits
                    
                    
                    3,701,447
                    
                    
                    
                    4,308,852Inventories
                    
                    
                    27,706,723
                    
                    
                    
                    16,724,217Prepaid
      expenses and deferred charges
                    
                    
                    333,803
                    
                    
                    
                    360,265VAT
      recoverable
                    
                    
                    11,011,520
                    
                    
                    
                    7,432,365Assets
      held for sale
                    
                    
                    —
                    
                    
                    
                    623,871Deferred
      tax assets
                    
                    
                    310,627
                    
                    
                    
                    311,055Other
      current assets
                    
                    
                    166,071
                    
                    
                    
                    96,402Total
      current assets
                    
                    
                    130,979,104
                    
                    
                    
                    112,363,279Property,
      plant and equipment (net)
                    
                    
                    174,211,358
                    
                    
                    
                    133,684,051Deposits
      for purchase of land usage rights
                    
                    
                    8,830,929
                    
                    
                    
                    6,429,295Construction
      in progress
                    
                    
                    21,455,568
                    
                    
                    
                    40,773,039Land
      usage rights
                    
                    
                    60,521,188
                    
                    
                    
                    35,983,947Deferred
      charges
                    
                    
                    214,706
                    
                    
                    
                    231,769Other
      non-current assets
                    
                    
                    411,935
                    
                    
                    
                    412,503Total
      assets
                    
                    $
                    396,624,788
                    
                    
                    $
                    329,877,883LIABILITIES
      AND EQUITYCurrent
      liabilitiesShort-term
      loans
                    
                    $
                    82,144,059
                    
                    
                    $
                    67,893,001Bank
      notes payable
                    
                    
                    18,494,123
                    
                    
                    
                    13,252,180Long-term
      loans - current portion
                    
                    
                    4,536,836
                    
                    
                    
                    145,671Accounts
      payable
                    
                    
                    12,129,725
                    
                    
                    
                    9,528,937Other
      payables
                    
                    
                    16,859,553
                    
                    
                    
                    7,130,384Accrued
      liabilities
                    
                    
                    5,211,242
                    
                    
                    
                    5,055,660Deposits
      from customers
                    
                    
                    4,349,826
                    
                    
                    
                    4,331,774Tax
      payable
                    
                    
                    1,561,732
                    
                    
                    
                    1,382,589Deferred
      tax liabilities
                    
                    
                    94,682
                    
                    
                    
                    94,812Total
      current liabilities
                    
                    
                    145,381,778
                    
                    
                    
                    108,815,008Deposits
      from customers
                    
                    
                    2,229,041
                    
                    
                    
                    2,420,967Capital
      lease obligation
                    
                    
                    3,526,204
                    
                    
                    
                    4,252,743Long-term
      loans
                    
                    
                    33,618,140
                    
                    
                    
                    23,475,174Total
      liabilities
                    
                    
                    184,755,163
                    
                    
                    
                    138,963,892EquityPreferred
      stock: par value $0.001; 25,000,000 authorized; 2,094,037 and 2,129,200
      shares issued and outstanding
                    
                    
                    2,094
                    
                    
                    
                    2,129Common
      stock: par value $0.001; 100,000,000 authorized; 27,629,951 and
      27,504,918 shares issued and outstanding
                    
                    
                    27,630
                    
                    
                    
                    27,505Additional
      paid in capital
                    
                    
                    106,434,716
                    
                    
                    
                    105,680,772Retained
      earnings
                    
                    
                    86,573,742
                    
                    
                    
                    66,108,995Accumulated
      other comprehensive income
                    
                    
                    18,831,443
                    
                    
                    
                    19,094,590Total
      equity
                    
                    
                    211,869,625
                    
                    
                    
                    190,913,991Total
      liabilities and equity
                    
                    $
                    396,624,788
                    
                    
                    $
                    329,877,883





The
accompanying notes are an integral part of these consolidated financial
statements.


2





ZHONGPIN
INC. AND SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF INCOME AND COMPREHENSIVE INCOME


(Amount
in U.S. dollars) (Unaudited)





Three Months Ended
                  June30,
                
                
                Six Months Ended
                  June30,2009
                
                
                2008
                
                
                2009
                
                
                2008RevenuesSales
      revenues
                
                $
                161,847,101
                
                
                $
                137,526,574
                
                
                $
                315,696,550
                
                
                $
                246,254,324Cost
      of sales
                
                
                (142,879,580
                )
                
                
                (120,422,667
                )
                
                
                (277,585,227
                )
                
                
                (214,958,874
                )Gross
      profit
                
                
                18,967,521
                
                
                
                17,103,907
                
                
                
                38,111,323
                
                
                
                31,295,450Operating
      expensesGeneral
      and administrative expenses
                
                
                (4,239,704
                )
                
                
                (5,433,433
                )
                
                
                (8,847,990
                )
                
                
                (9,419,462
                )Selling
      expenses
                
                
                (2,787,080
                )
                
                
                (2,331,400
                )
                
                
                (5,580,358
                )
                
                
                (4,315,633
                )Research
      & development expenses
                
                
                5,227
                
                
                
                (6,778
                )
                
                
                (25,351
                )
                
                
                (425,410
                )Gain
      on disposal of a subsidiary
                
                
                654,086
                
                
                
                —
                
                
                
                654,086
                
                
                
                —Amortization
      of loss from sale-leaseback transaction
                
                
                (16,672
                )
                
                
                —
                
                
                
                (33,329
                )
                
                
                —Total
      operating expenses
                
                
                (6,384,143
                )
                
                
                (7,771,611
                )
                
                
                (13,832,942
                )
                
                
                (14,160,505
                )Income
      from operations
                
                
                12,583,378
                
                
                
                9,332,296
                
                
                
                24,278,381
                
                
                
                17,134,945Other
      income (expense)Interest
      expense, net
                
                
                (1,263,975
                )
                
                
                (632,542
                )
                
                
                (2,763,495
                )
                
                
                (803,028
                )Other
      income (expense),  net
                
                
                121,943
                
                
                
                (143,457
                )
                
                
                291,349
                
                
                
                (101,323
                )Government
      subsidies
                
                
                127,453
                
                
                
                432,339
                
                
                
                222,408
                
                
                
                571,883Total
      other income (expense)
                
                
                (1,014,579
                )
                
                
                (343,660
                )
                
                
                (2,249,738
                )
                
                
                (332,468
                )Net
      income before taxes
                
                
                11,568,799
                
                
                
                8,988,636
                
                
                
                22,028,643
                
                
                
                16,802,477Provision
      for income taxes
                
                
                (845,351
                )
                
                
                (466,827
                )
                
                
                (1,563,896
                )
                
                
                (992,907
                )Net
      income
                
                $
                10,723,448
                
                
                $
                8,521,809
                
                
                $
                20,464,747
                
                
                $
                15,809,570Foreign
      currency translation adjustment
                
                $
                115,825
                
                
                $
                3,831,009
                
                
                $
                (263,147
                )
                
                $
                9,770,503Comprehensive
      income
                
                $
                10,839,273
                
                
                $
                12,352,818
                
                
                $
                20,201,600
                
                
                $
                25,580,073Basic
      earnings per common share
                
                $
                0.36
                
                
                $
                0.29
                
                
                $
                0.69
                
                
                $
                0.54Diluted
      earnings per common share
                
                $
                0.36
                
                
                $
                0.29
                
                
                $
                0.69
                
                
                $
                0.53Basic
      weighted average shares outstanding
                
                
                29,709,893
                
                
                
                29,417,845
                
                
                
                29,694,105
                
                
                
                29,375,615Diluted
      weighted average shares outstanding
                
                
                29,905,720
                
                
                
                29,822,935
                
                
                
                29,852,635
                
                
                
                29,841,190





The
accompanying notes are an integral part of these consolidated financial
statements.


3


ZHONGPIN
INC. AND SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF CASH FLOWS


(Amount
in U.S. dollars) (Unaudited)





Six Months Ended June 30,2009
                    
                    
                    2008Cash
      flows from operating activities:Net
      income
                    
                    $
                    20,464,747
                    
                    
                    $
                    15,809,570Adjustments
      to reconcile net income to net cash provided by (used in)
      operations:Depreciation
                    
                    
                    3,772,108
                    
                    
                    
                    1,876,533Amortization
                    
                    
                    400,476
                    
                    
                    
                    218,720Allowance
      for doubtful accounts
                    
                    
                    204,524
                    
                    
                    
                    585,626Other
      income
                    
                    
                    (105,725
                    )
                    
                    
                    —Gain
      on disposal of a subsidiary
                    
                    
                    (649,669
                    )
                    
                    
                    —Non-cash
      compensation expense
                    
                    
                    754,034
                    
                    
                    
                    809,146Changes
      in operating assets and liabilities:Accounts
      receivable
                    
                    
                    (12,807,660
                    )
                    
                    
                    (817,864
                    )Other
      receivables
                    
                    
                    654,943
                    
                    
                    
                    1,122,962Purchase
      deposits
                    
                    
                    402,479
                    
                    
                    
                    1,581,114Prepaid
      expense
                    
                    
                    42,697
                    
                    
                    
                    12,649Inventories
                    
                    
                    (11,012,841
                    )
                    
                    
                    1,311,277Tax
      refunds receivable
                    
                    
                    (3,588,961
                    )
                    
                    
                    (1,627,559
                    )Other
      current assets
                    
                    
                    (69,793
                    )
                    
                    
                    —Accounts
      payable
                    
                    
                    2,632,558
                    
                    
                    
                    1,532,950Other
      payables
                    
                    
                    5,533,564
                    
                    
                    
                    993,816Accrued
      liabilities
                    
                    
                    258,905
                    
                    
                    
                    1,351,874Taxes
      payable
                    
                    
                    181,024
                    
                    
                    
                    1,944,718Deposits
      from customers
                    
                    
                    (32,698
                    )
                    
                    
                    5,092,966Net
      cash provided (used) by operating activities
                    
                    
                    7,034,712
                    
                    
                    
                    31,798,498Cash
      flows from investing activities:Deposits
      for purchase of land usage rights
                    
                    
                    (7,245,146
                    )
                    
                    
                    (28,361
                    )Construction
      in progress
                    
                    
                    (19,063,158
                    )
                    
                    
                    (46,485,710
                    )Additions
      to property and equipment
                    
                    
                    (6,064,018
                    )
                    
                    
                    (3,077,784
                    )Additions
      to land usage rights
                    
                    
                    (15,896,295
                    )
                    
                    
                    (360,698
                    )Proceeds
      on disposal of fixed assets
                    
                    
                    50,023
                    
                    
                    
                    74,281Increase
      in restricted cash
                    
                    
                    (3,758,823
                    )
                    
                    
                    (2,709,643
                    )Proceeds
      from disposal of a subsidiary
                    
                    
                    1,226,182
                    
                    
                    
                    —Net
      cash used in investing activities
                    
                    
                    (50,751,235
                    )
                    
                    
                    (52,587,915
                    )Cash
      flows from financing activities:Proceeds
      from (repayment of) bank notes, net
                    
                    
                    78,593
                    
                    
                    
                    (1,167,933
                    )Proceeds
      from short-term bank loans
                    
                    
                    14,342,993
                    
                    
                    
                    20,410,477Proceeds
      from long-term bank loans
                    
                    
                    14,635,501
                    
                    
                    
                    9,921,759Repayment
      of long-term bank loans
                    
                    
                    (70,776
                    )
                    
                    
                    (183,236
                    )Proceeds
      from capital lease obligations
                    
                    
                    (720,604
                    )
                    
                    
                    —Proceeds
      from exercise warrants
                    
                    
                    —
                    
                    
                    
                    1,236,923Net
      cash provided by financing activities
                    
                    
                    28,265,707
                    
                    
                    
                    30,217,990Effects
      of rate changes on cash
                    
                    
                    (61,483
                    )
                    
                    
                    3,385,625Increase
      (decrease) in cash and cash equivalents
                    
                    
                    (15,512,299
                    )
                    
                    
                    12,814,198Cash
      and cash equivalents, beginning of period
                    
                    
                    41,857,166
                    
                    
                    
                    45,142,135Cash
      and cash equivalents, end of period
                    
                    $
                    26,344,867
                    
                    
                    $
                    57,956,333Supplemental
      disclosures of cash flow information:Cash
      paid for interest
                    
                    $
                    3,438,560
                    
                    
                    $
                    2,079,051Cash
      paid for income taxes
                    
                    
                    1,503,753
                    
                    
                    
                    431,604





The
accompanying notes are an integral part of these consolidated financial
statements.


4


ZHONGPIN
INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





1.
            ORGANIZATION
      AND NATURE OF OPERATIONS




Zhongpin
Inc. (the “Company”) was established under the laws of the State of Delaware on
February 4, 2003.  The Company is a public holding company holding an
equity interest in its subsidiaries outside the U.S.  Its operating
subsidiaries are located in the People’s Republic of China (the “PRC”) and focus
on two business divisions: pork and pork products, and vegetables and
fruits.The pork
and pork products division is involved primarily in the processing of live
market hogs into fresh, frozen and processed pork products which are sold
domestically to branded stores, food retailers, food service distributors,
restaurants, hotel chains and non-commercial food service establishments, such
as schools, governments, healthcare facilities, the military and other food
processors, as well as to certain international markets in a limited
scope.  The vegetables and fruits segment is involved primarily in the
processing of frozen vegetables and fruits that are sold to our branded stores
and food retailers.





The
Company holds a 100% interest in Falcon Link Investment Limited, a company
organized under the laws of the British Virgin Islands (“Falcon”), through which
the Company holds a 100% interest in its China-based subsidiaries, each of which
was organized under the laws of the PRC.  The Company’s China-based
subsidiaries include the following:





Name
                        
                        Date of
                          Incorporation
                        
                        Registered
                          Capital
                        
                        Percentage
                          of OwnershipHenan
      Zhongpin Food Company, Ltd.
                        
                        Sep. 15, 2005
                        
                        $ 84,300,000
                        
                        100%Henan
      Zhongpin Food Share Company, Ltd.
                        
                        Jan. 20, 2000
                        
                        626,900,000 RMB
                          ($82,011,411)
                        
                        100%Henan
      Zhongpin Import and Export Trading Company
                        
                        Aug. 11, 2004
                        
                        5,060,000 RMB
                          ($611,111)
                        
                        100%Zhumadian
      Zhongpin Food Company Limited
                        
                        June 7, 2006
                        
                        60,000,000 RMB
                          ($8,585,399)
                        
                        100%Anyang
      Zhongpin Food Company Limited
                        
                        Aug. 21, 2006
                        
                        4,800,000 RMB
                          ($606,927)
                        
                        100%Henan
      Zhongpin Fresh Food Logistics Company Limited
                        
                        Sept. 14, 2006
                        
                        1,500,000 RMB
                          ($189,665)
                        
                        100%Deyang
      Zhongpin Food Company Limited
                        
                        Sept. 25, 2006
                        
                        15,000,000 RMB
                          ($1,967,799)
                        
                        100%Henan
      Zhongpin Business Development Company Limited
                        
                        Sept. 27, 2006
                        
                        5,000,000 RMB
                          ($632,215)
                        
                        100%Heilongjiang
      Zhongpin Food Company Limited
                        
                        Oct. 17, 2006
                        
                        1,000,000 RMB
                          ($126,406)
                        
                        100%(1)Luoyang
      Zhongpin Food Company Limited
                        
                        April 26, 2007
                        
                        5,000,000 RMB
                          ($647,677)
                        
                        100%Yongcheng
      Zhongpin Food Company Limited
                        
                        June 1, 2007
                        
                        5,000,000 RMB
                          ($646,836)
                        
                        100%


5


ZHONGPIN
INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


Name
                      
                      Date of
                        Incorporation
                      
                      Registered
                        Capital
                      
                      Percentage
                        of OwnershipTianjin
      Zhongpin Food Company Limited
                      
                      Sept. 14, 2007
                      
                      5,000,000 RMB
                        ( $664,699 )
                      
                      100%Hebei
      Zhongpin Food Company Limited
                      
                      Nov. 17, 2008
                      
                      1,000,000 RMB
                        ($146,428)
                      
                      100%Jilin
      Zhongpin Food Company Limited
                      
                      Dec. 11, 2008
                      
                      1,000,000 RMB
                        ($145,688)
                      
                      100%Henan
      Zhongpin Agriculture and Animal Husbandry Industry Development Company
      Limited
                      
                      Dec. 26, 2008
                      
                      10,000,000 RMB
                        ($1,461,796)
                      
                      100%







(1)
            Includes
      a 10% ownership interest of another stockholder with respect to which
      Henan Zhongpin is entitled to all economic benefits and the right to vote
      pursuant to the terms of a trust agreement with such
      stockholder.





2.
            SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES




Consolidation
and Basis of Presentation





The consolidated financial statements
include the accounts of the Company and its wholly-owned subsidiaries. All
significant intercompany accounts and transactions have been eliminated during
the process of consolidation. The consolidated financial statements were
prepared in accordance with accounting principles generally accepted in the
United States of America (“U.S. GAAP”).





Foreign
Currency Translations and Transactions





RMB, the national currency of the PRC,
is the primary currency of the economic environment in which our China-based
subsidiaries are operating. The United States dollar (“U.S. dollar”) is the
functional currency used by Falcon and Zhongpin Inc. to record all of their
activities. The Company uses the U.S. dollar for financial reporting
purposes.





The Company translates assets and
liabilities into U.S. dollars using the middle rate of the People’s Bank of
China as of the balance sheet date. The consolidated statement of income is
translated at average rates during the reporting period. Adjustments resulting
from the translation of financial statements from RMB into U.S. dollars are
recorded in stockholders' equity as part of accumulated comprehensive loss
translation adjustments. Gains or losses resulting from transactions in
currencies other than RMB are reflected in income for the reporting
period.





Use
of Estimates





The preparation of financial statements
in conformity with GAAP 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 financial statements and
reported amounts of revenues and expenses, during the reporting period. Actual
results could differ from those estimates.


6


ZHONGPIN
INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





2.
            SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES
(continued)




Revenue
Recognition





Revenues generated from the sales of
various meat products and vegetables and fruits are recognized when these
products are delivered to customers in accordance with previously agreed upon
pricing and delivery arrangements, and the collectability of these sales is
reasonably assured. Since the products sold by the Company are primarily
perishable and frozen food products, the right of return is only for a few days
and has been determined to


be
insignificant by the management of the Company. Accordingly, no provision has
been made for returnable goods. Revenues presented on the consolidated
statements of income and comprehensive income are net of sales
taxes.





Cash
and Cash Equivalents





The Company considers all highly-liquid
investments with maturity of three months or less to be cash equivalents. The
Company maintains its cash accounts at creditworthy financial institutions and
closely monitors the movements of its cash positions.





Restricted
Cash and Bank Notes Payable





Under the terms of the credit
agreements with certain of its lenders, Henan Zhongpin has agreed to maintain
with such lenders in a deposit account an amount of cash that will serve as
collateral for Henan Zhongpin’s delivery of bank promissory notes of such
lenders as payment instruments for its procurement purposes. The amount of bank
promissory notes of such lenders that can be delivered by Henan Zhongpin can be
up to twice the amount of such deposits.  As such cash deposits may
not be withdrawn by Henan Zhongpin without restriction, such cash deposits are
presented as “restricted cash” on the consolidated balance sheets.





Bank
Notes Receivable





The Company only accepts notes issued
by banks in the normal course of business as payment for products sold by the
Company. These bank notes receivable have maturity dates of up to 180 days and
bear no interest. The Company can hold the bank notes until the maturity date
and collect the amount from the issuing banks, or the Company can use these bank
notes as a means for payment for goods or services received. The Company accrues
no provision for these bank notes because such bank notes have little risk of
default in the PRC.





Accounts
Receivable





During the normal course of business,
the Company's policy is to ask larger customers to make deposits in reasonable
and meaningful amounts on a case-by-case basis. For certain newly-developed
customers, the Company may extend unsecured credit.





The Company regularly evaluates and
monitors the creditworthiness of each of its customers in accordance with the
prevailing practice in the meat industry and based on general economic
conditions in the PRC. If any particular customer appears to be delaying or
deferring payments for the Company’s products, the Company generally requests a
deposit from, or an increase in the deposits of, such customer. Such deposits
are typically applied against the outstanding accounts receivable of the
applicable customer during the year. As a result, the Company did not have a bad
debt allowance provided against any specific customer at June 30,
2009.





The
Company maintains a general policy of providing 100% allowance for doubtful
accounts in an amount equal to the aggregate amount of those accounts that are
not collected within one year plus an amount equal to 5% of the aggregate amount
of accounts receivable less than one year old. After all attempts to collect a
receivable have failed, the receivable is written off against the
allowance.


7


ZHONGPIN
INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


2.
            SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES
(continued)




The
following table presents allowance activities in accounts
receivable.





June 30, 2009
                  
                  
                  December 31, 2008Beginning
      balance
                  
                  $
                  1,215,901
                  
                  
                  $
                  1,341,872Additions
      charged to expense
                  
                  
                  525,520
                  
                  
                  
                  (125,971
                  )Ending
      balance
                  
                  $
                  1,741,421
                  
                  
                  $
                  1,215,901





Inventories





Inventories are stated at the lower of
cost or the market based on the weighted average method. Production cost
components include the purchase cost of live hogs, direct labor, depreciation,
packaging material, utility expense and other manufacturing overhead. By using a
systematic costing system, the production cost is allocated to various products
at the stage of work-in-progress and finished goods, respectively. Net
realizable value is the estimated selling price in the ordinary course of
business, less estimated costs to complete and dispose. The Company
regularly inspects the shelf life of prepared foods and, if necessary, writes
down their carrying value based on their salability and expiration dates into
cost of goods sold.





Property,
Plant and Equipment





Property, plant and equipment are
recorded at cost and are stated net of accumulated depreciation. Depreciation
expense is determined using the straight-line method over the estimated useful
lives of the assets, as follows:





Estimated Useful
                            Economic LifePlants
      and buildings
                          
                          5-30 yearsMachinery
      and equipment
                          
                          5-20 yearsOffice
      furniture and equipment
                          
                          3-5 yearsVehicles
                          
                          5 years





Maintenance and repairs are charged
directly to expense as incurred, whereas improvements and renewals are generally
capitalized in their respective property accounts. When an item is retired or
otherwise disposed of, the cost and applicable accumulated depreciation are
removed and the resulting gain or loss is recognized and reflected as a line
item before operating income (loss).





Land
Usage Rights





The Chinese government owns all of the
parcels of land on which the Company's plants are built. In the PRC, land usage
rights for commercial purposes are granted by the PRC government typically for a
term of 40-50 years. The Company is required to pay a lump sum of money to the
State Land and Resource Ministry of the applicable locality to acquire such
rights. In accordance with the provision of Statement of Financial Accounting
Standards No. 142, “Goodwill
and Other Intangible
Assets” (“SFAS No. 142”), the Company capitalizes the lump sum of money
paid and amortizes these land usage rights by using the straight line method
over the term of the land use license granted by the applicable governmental
authority.


8


ZHONGPIN
INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


2.
            SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES
(continued)




Construction
in Progress and Interest Capitalization





Construction in progress is stated at
cost. The cost accumulation process starts from time the construction project is
set-up and ends at the time the project has been put into service and all
regulatory permits and approvals have been received. The interest costs incurred
for these construction projects have been determined to be insignificant by
management. Consequently, no interest has been capitalized during the
construction process.





Fair
Value of Financial Instruments





The carrying amount of cash, accounts
receivable, other receivables, advances to vendors, accounts payable and accrued
liabilities are reasonable estimates of their fair value because of the short
maturity of these items. The fair value of amounts due from or paid to related
parties and stockholders are reasonable estimates of their fair value since the
amounts will be collected and paid off in a period less than one
year.





Shipping
and Handling Cost





The Company adopted EITF 00-10, “Accounting for Shipping and Handling
Fees and Costs.” All shipping and handling fees are included in selling
expenses.





Value
Added Tax





All China-based enterprises are subject
to a value added tax (“VAT”) imposed by the PRC government on their domestic
product sales. The output VAT is charged to customers who purchase goods from
the Company and the input VAT is paid when the Company purchases goods from its
vendors. Input VAT rates are 13% for most of the purchasing activities conducted
by the Company. Output VAT rate is 13% for chilled pork products, frozen pork
products and vegetable and fruit products, and 17% for prepared meat products.
The input VAT can be offset against the output VAT. The VAT payable or
recoverable balance presented on the consolidated balance sheets represents
either the input VAT less than or larger than the output VAT. The debit balance
represents a credit against future collections of output VAT instead of a
receivable.





Share-Based
Payment





Effective January 1, 2006, the Company
adopted Statement of Financial Accounting Standards No. 123R, “Share-Based Payments” (“SFAS
No. 123R”). SFAS No. 123R amended existing accounting pronouncements for
share-based payment transactions in which an enterprise receives employee and
certain non-employee services in exchange for (a) equity instruments of the
enterprise or (b) liabilities that are based on the fair value of the
enterprise's equity instruments or that may be settled by the issuance of such
equity instruments.  SFAS No. 123R generally requires that such
transactions be accounted for using a fair-value-based method. The Company
accounts for stock options granted using a fair-value-based method in accordance
with SFAS No. 123R.





Earnings
Per Share





The Company presents earnings per share
in accordance with Statement of Financial Accounting Standards No. 128, “Earnings per Share” (“SFAS No.
128”).  Under the provision of SFAS No. 128, basic earnings per share
includes no dilution and is computed by dividing income available to common
shareholders by the weighted average number of common shares outstanding during
the period. Diluted earnings per share reflects the potential dilution of
securities that could share in the earnings of an entity, similar to
fully-diluted earnings per share. Based on the fact that the voting rights and
certain other characteristics of the Company’s Series A convertible preferred
stock are the same as those of common stock, the outstanding shares of the
Company's Series A convertible preferred stock at each reporting period are
deemed to be common shares outstanding. All of such securities are included in
the computation of diluted earnings per share. The number of shares of common
stock underlying the outstanding stock warrants and options at June 30, 2009 and
2008 were 1,960,827, and 2,053,377, respectively, all of which
were  included in the computation of diluted earnings per
share.


9


ZHONGPIN
INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


2.
            SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES
(continued)





Government
Subsidies





The Company's subsidiaries in the PRC
receive government subsidies from local Chinese government agencies in
accordance with relevant Chinese government policies. In general, the Company
presents the government subsidies received as part of other income unless the
subsidies received are earmarked to compensate a specific expense, which have
been accounted for offsetting the specific expense, such as research and
development expense or interest expenses. The information relating to government
subsidies received and recognized is presented in Note 11.





Research
and Development Expenses





Research and development costs are
expensed as incurred. Gross research and development expenses for new product
development and improvements of existing products by the Company incurred for
the three-month periods ended June 30, 2009 and 2008 were $492,000 and $839,000,
respectively, and for the six-month periods ended June 30, 2009 and 2008 were
$1,018,000 and $1,284,600, respectively.





Comprehensive
Income (Loss)





The Company adopted Statement of
Financial Accounting Standard (“SFAS”) No. 130, “Reporting Comprehensive
Income”(“SFAS No. 130”),
issued by the Financial Accounting Standards Board (“FASB”). SFAS No. 130
establishes standards for reporting and presentation of comprehensive income
(loss) and its components in a full set of general-purpose financial
statements.  The Company has chosen to report comprehensive income
(loss) in the statements of income and comprehensive
income.  Comprehensive income (loss) is comprised of net income and
all changes to stockholders' equity except those due to investments by owners
and distributions to owners.





Recently
Adopted Accounting Pronouncements




Adoption
of SFAS No. 141R





Effective
January 1, 2009, the Company adopted SFAS No 141R, “Business
Combinations.”   SFAS No. 141R changes accounting for
acquisitions that close beginning in 2009.  SFAS No. 141R broadens the
guidance of SFAS No. 141, extending its applicability to all transactions and
other events in which one entity obtains control over one or more other
businesses.  It broadens the fair value measurement and recognition of
assets acquired, liabilities assumed, and interests transferred as a result of
business combinations.  SFAS No. 141R expands on required
disclosures to improve the statement users’ abilities to evaluate the
nature and financial effects of business combinations.  The adoption
of SFAS No. 141R did not have a material impact on the Company’s financial
statements.





Adoption
of SFAS No. 160





Effective January 1, 2009, the Company
adopted SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements, An Amendment of ARB
No. 51.”  SFAS No. 160 requires that a noncontrolling
interest in a subsidiary be reported as equity and the amount of consolidated
net income specifically attributable to the noncontrolling interest be
identified in the consolidated financial statements.  It also calls
for consistency in the manner of reporting changes in the parent’s ownership
interest and requires fair value measurement of any noncontrolling equity
investment retained in a deconsolidation.  SFAS No. 160 requires
retroactive adoption of the presentation and disclosure requirements for
existing minority interests.


10


ZHONGPIN
INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


2.
            SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES
(continued)




Adoption
of SFAS No. 161





Effective January 1, 2009, the Company
adopted SFAS No.161, “Disclosures about Derivative
Instruments and Hedging Activities.”  SFAS No. 161 requires
enhanced disclosures about (i) how and why the Company uses derivative
instruments, (ii) how the Company accounts for derivative instruments and
related hedged items under SFAS No. 133, “Accounting for Derivative
Instruments and Hedging Activities,” and (iii) how derivative instruments
and related hedged items affect the Company’s financial results.  The
adoption SFAS No. 161 did not have any impact on the Company’s financial
statements.




Adoption
of SFAS No. 165
  Effective January 1, 2009, the Company
adopted SFAS No. 165, “Subsequent Events.” SFAS No.
165 establishes general standards of accounting for and disclosure of events
that occur after the balance sheet date but before financial statements are
issued or available to be issued. SFAS No. 165 defines (i) the period after the
balance sheet date during which a reporting entity’s management should evaluate
events or transactions that may occur for potential recognition or disclosure in
the financial statements (ii) the circumstances under which an entity should
recognize events or transactions occurring after the balance sheet date in its
financial statements, and (iii) the disclosures an entity should make about
events or transactions that occurred after the balance sheet
date.  SFAS No. 165 became effective for the Company’s financial
statements for periods ending after June 15, 2009.  SFAS No. 165 did
not have a significant impact on the Company’s financial
statements.


Adoption
of FSP No. 142-3





Effective
January 1, 2009, the Company adopted FSP No. 142-3, “Determination of the Useful Life of
Intangible
Assets.”  FSP No. 142-3 amends the factors that should be
considered in developing renewal or extension assumptions used to determine the
useful life of a recognized intangible asset under FASB Statement No. 142,
“Goodwill and Other Intangible
Assets.”  The adoption of
FSP No. 142-3 did not have material impact on the Company’s financial
statements.





Adoption
of FSP APB 14-1




Effective
January 1, 2009, the Company adopted FSP APB 14-1, “Accounting for Convertible Debt
Instruments That May Be Settled inCash upon Conversion (Including
Partial Cash Settlement).”  FSP APB 14-1 will require entities
to account separately for the liability and equity components of a convertible
debt security by measuring the fair value of a similar nonconvertible debt
security when interest cost is recognized in subsequent periods.  FSP
APB 14-1 will require entities to retroactively separate the liability and
equity components of such debt on the entities’ balance sheets on a fair value
basis.  The adoption of FSP APB 14-1 did not have any impact on the
Company’s financial statements.




Reclassification




The
presentation of certain line items presented on the consolidated financial
statements and the relevant notes for the three-month and six-month periods
ended June 30, 2008 have been changed in conformity with the current year
presentation of the consolidated financial statements and the corresponding
notes.




3.
              INVENTORIES
  Inventories
at June 30, 2009 and December 31, 2008 consisted of the following:
  June
      30, 2009
                                    
                                    
                                    December
      31, 2008(Unaudited)Raw
      materials
                                    
                                    $
                                    3,893,815
                                    
                                    
                                    $
                                    4,361,159Low
      value consumables and packing materials
                                    
                                    
                                    1,008,650
                                    
                                    
                                    
                                    817,862Work
      in progress
                                    
                                    
                                    2,143,610
                                    
                                    
                                    
                                    1,961,693Finished
      goods
                                    
                                    
                                    20,660,648
                                    
                                    
                                    
                                    9,583,503$
                                    27,706,723
                                    
                                    
                                    $
                                    16,724,217
  11




ZHONGPIN
INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


4.
            PROPERTY,
      PLANT AND EQUIPMENT AND LAND USAGE
RIGHTS




A summary
of property, plant and equipment at cost at June 30, 2009 and December 31, 2008
is as follows:





June30,2009
                  
                  
                  December31,2008(Unaudited)Plants
      and buildings
                  
                  $
                  116,865,885
                  
                  
                  $
                  86,521,013Machinery
      and equipment
                  
                  
                  63,843,268
                  
                  
                  
                  50,803,893Office
      furniture and equipment
                  
                  
                  2,543,278
                  
                  
                  
                  2,043,418Vehicles
                  
                  
                  2,851,324
                  
                  
                  
                  2,463,388Land
      usage rights
                  
                  
                  62,185,250
                  
                  
                  
                  37,249,227Accumulated
      depreciation and amortization
                  
                  
                  (13,556,459
                  )
                  
                  
                  (9,412,941
                  )$
                  234,732,546
                  
                  
                  $
                  169,667,998




The
depreciation and amortization expenses for the three-month periods ended June
30, 2009 and 2008 were $2,183,491 and $1,066,478, respectively, and for the
six-month periods ended June 30, 2009 and 2008 were $4,172,584 and
$2,095,253, respectively.




Property,
plant and equipment under the sale-leaseback agreement at cost at June 30, 2009
and December 31, 2008 was as follows:




June30,2009
                  
                  
                  December31,2008(Unaudited)Plants
      and buildings
                  
                  $
                  486,876
                  
                  
                  $
                  487,547Machinery
      and equipment
                  
                  
                  6,083,671
                  
                  
                  
                  6,092,053Accumulated
      depreciation
                  
                  
                  (272,053
                  )
                  
                  
                  (90,809
                  )$
                  6,298,494
                  
                  
                  $
                  6,488,791


12


ZHONGPIN
INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


5.
              CONSTRUCTIONIN
      PROGRESS




Construction
in progress at June 30, 2009 and December 31, 2008 consisted of the
following:




ConstructionProject
                    
                    Date or
                      Estimated Date
                      PutinService(1)
                    
                    June30,2009
                    
                    
                    December31,2008Replacement
      and maintenance in Changge industrial park
                    
                    July 2009
                    
                    $
                    703,687
                    
                    
                    $
                    48,435Waste
      water solution system in Deyang
                    
                    April 2009
                    
                    
                    —
                    
                    
                    
                    7,329Production
      facility for chilled and frozen pork in Zhumadian
                    
                    November 2009
                    
                    
                    20,199
                    
                    
                    
                    16,709Production
      facility for chilled and frozen pork in Tianjin
                    
                    April 2010
                    
                    
                    8,380,155
                    
                    
                    
                    —Production
      line for prepared pork in Changge industrial plant
                    
                    July 2009
                    
                    
                    351,686
                    
                    
                    
                    547,225Production
      line for fruits and vegetables in Changge industrial park
                    
                    October 2009
                    
                    
                    3,163,602
                    
                    
                    
                    13,670,361Production
      facility for chilled and frozen pork in Yongcheng
                    
                    April 2009
                    
                    
                    —
                    
                    
                    
                    25,434,684Production
      line for chilled and frozen pork in Changge industrial
park
                    
                    November 2009
                    
                    
                    6,563,470
                    
                    
                    
                    —Replacement
      and maintenance in Luoyang
                    
                    December 2009
                    
                    
                    68,488
                    
                    
                    
                    —Water
      solution station in Changge industrial plant
                    
                    October 2009
                    
                    
                    2,204,281
                    
                    
                    
                    1,048,296$
                    21,455,568
                    
                    
                    $
                    40,773,039







(1)
            Represents
      date all regulatory permits and approvals are received and project is
      placed in service. In certain cases, construction of a project may be
      substantially completed and the project may be operational during a
      testing period prior to such date.




6.
            ASSETS
      HELD FOR SALE




The
Company’s slaughtering and meat-producing facilities in Yanling City, Henan
Province were purchased in 2001 by Henan Zhongpin Industry Company Limited, a
subsidiary of Henan Zhongpin (“Zhongpin Industry”).  Over the past
three years, the Company constructed new production facilities in Henan Province
with state-of-the-art production machinery and equipment to produce chilled and
frozen pork products and prepared meat products.  As the machinery and
equipment located in the Company’s Yanling facility were out-of-date and there
was a possibility of a shortage of live hogs to supply both the Yanling facility
and the Company’s newer production facilities in Henan Province, in 2007
management decided to use the Yanling facility to produce vegetables and fruits
products, and put in place a production line with an annual production capacity
of 10,800 metric tons.  However, due to the population expansion of
Yanling City, the location of the Yanling facility became closer to the downtown
area.  Under the latest environment protection restrictions imposed by
the China Environment Protection Agency, the continuation of fruit and vegetable
production activities in Yanling would have required a large
investment.  In addition, the Company’s newly-built vegetable and
fruit production facility in Changge City, which is only approximately 50
kilometers away from Yanling and has an annual production capacity of 30,000
metric tons, was put into service in April 2009.


13


ZHONGPIN
INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


6.
            ASSETS
      HELD FOR SALE (continued)




Based on
the above considerations, during 2008, management of the Company decided to
dispose of the Yanling facility and terminated all production activities at that
location. In accordance with SFAS No. 144, management also stopped depreciating
the Yanling facility as of December 31, 2008.  During February 2009,
the Company’s Board of Directors affirmed management’s decision made before
December 31, 2008 and approved the plan to close and dispose of this facility at
a price that was reasonable in relation to its then-current fair
value.




In
accordance with SFAS No. 144, this facility was presented on the balance sheet
as of December 31, 2008 as “assets held for sale” and was stated at the lower of
its cost or its fair value less the estimated cost to sell this facility.
Without knowing a definite fair value of this facility, management estimated the
realizable value of  the machines and equipment, plants and buildings,
certain electronic equipment and the land usage rights and recorded an
impairment loss as follows:




Carrying
                  Value
                
                
                Impairment
                
                
                Realizable
                  ValuePlant
      and building
                
                $
                684,365
                
                
                $
                (525,012
                )
                
                $
                159,353Machine
      and equipment
                
                
                1,963,072
                
                
                
                (1,676,010
                )
                
                
                287,062Electronic
      equipment
                
                
                8,547
                
                
                
                (8,105
                )
                
                
                442Land
      usage rights
                
                
                177,014
                
                
                
                —
                
                
                
                177,014Total
                
                $
                2,832,998
                
                
                $
                (2,209,127
                )
                
                $
                623,871





Management
believes the decision to close and dispose of the Yanling facility did not cause
the operations of that facility to constitute discontinued operations because
the vendors and customers in the region of the Yanling facility were still the
vendors and customers of the Company’s operations.  The revenue and
cash flows associated with the Yanling facility are now associated with the
Company’s production facilities located in Changge City.




On June 19, 2009, an unaffiliated
company entered into a purchase agreement with the Company’s subsidiary, Henan
Zhongpin Food Share Company Limited (“Zhongpin Share”), to purchase the entire
equity of Zhongpin Industry plus an unrelated land usage right that was owned by
Zhongpin Share for an aggregate purchase price of RMB8.38 million (approximately
$1.2 million) .  The land usage right was sold at its carrying value,
and no gain or loss on the  disposal of this asset was recognized by
Zhongpin Share in the transaction.  As a result, a portion of the
aggregate purchase price was allocated for accounting purposes to this
asset.  The purchase and sale transaction was closed on June 30, 2009,
at which time the Company received the purchase price in cash from the purchaser
and transferred to the purchaser the ownership of Zhongpin Industry and the
unrelated land usage right.  The gain on the disposal of Zhongpin
Industry and the unrelated land usage right was determined as
follows:
  Purchase
      price per the purchase agreement
              
              
              
              
              $
              1,226,455Fair
      value of land usage right of Zhongpin Share
              
              
              (96,407
              )Estimated
      net realizable value of assets of Zhongpin Industry
              
              
              (623,871
              )Liabilities
      assumed by the purchaser
              
              
              147,909Net
      assets of the sale transaction
              
              
              
              
              
              
              (572,369
              )Gain
      on disposal of a subsidiary
              
              
              
              
              
              $
              654,086


7.
            SHORT-TERM
      BANK LOANS




Short-term
bank loans are due within one year. Of the $82.1 million aggregate principal
amount of short-term bank loans at June 30, 2009, loans in the principal amount
of $61.6 million were secured by the Company’s plants located primarily in Henan
Province, a loan in the principal amount of $2.9 million was guaranteed by the
Company’s subsidiaries, Zhumadian Zhongpin Food Company Limited and Anyang
Zhongpin Food Company Limited, a loan in the principal amount of $2.2 million
was guaranteed by the Company’s subsidiary, Luoyang  Zhongpin Food
Company Limited, loans in the aggregate principal amount  of $8.8 million
were guaranteed by Henan Huanghe Enterprises Group Co., Ltd., an unaffiliated
third party (“Huanghe Group”), and loans in the aggregate principal amount
of $6.6 million were guaranteed by Xuji Group Co., Ltd., an unaffiliated third
party (“Xuji Group”). These loans bear interest at prevailing lending rates in
the PRC, which ranged from 4.86% to 7.29% per annum at June 30,
2009.


14


ZHONGPIN
INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


8.
            LONG-TERM
      BANK LOANS




Amounts
outstanding under the Company’s long-term debt arrangements at June 30, 2009 and
December 31, 2008 were as follows:




Bank
                  
                  June30,2009
                  
                  
                  December31,2008(Unaudited)China
      Construction Bank
                  
                  $
                  7,318,608
                  
                  
                  $
                  —China
      Minsheng Bank
                  
                  
                  7,318,608
                  
                  
                  
                  —Bank
      of Communications
                  
                  
                  5,854,887
                  
                  
                  
                  5,862,953Rabobank
      Nederland Shanghai
                  
                  
                  11,709,774
                  
                  
                  
                  11,725,906China
      CITIC Bank
                  
                  
                  4,391,165
                  
                  
                  
                  4,397,215Canadian
      Government Transfer Loan
                  
                  
                  1,561,934
                  
                  
                  
                  1,634,771Current
      portion
                  
                  
                  (4,536,836
                  )
                  
                  
                  (145,671
                  )Total
                  
                  $
                  33,618,140
                  
                  
                  $
                  23,475,174





In June
2009, Henan Zhongpin entered into a loan agreement with China Construction Bank
pursuant to which Henan Zhongpin borrowed RMB 50 million ($7.3 million). All
amounts borrowed under the loan agreement bear interest at a floating rate that
was based on the prime rate published by the People’s Bank of China for loans with the
same or similar terms on the drawdown date (5.4% per annum on June 30, 2009) and
are payable on June 10, 2011.  Borrowings under the loan
agreement are guaranteed by the land usage right, property and plant of Henan
Zhongpin.




In May
2009, Henan Zhongpin entered into a loan agreement with China Minsheng Bank
pursuant to which Henan Zhongpin borrowed RMB 50 million ($7.3 million). All
amounts borrowed under the loan agreement bear interest at a floating rate that
was based on the prime rate published by the People’s Bank of China for loans
with the same or similar terms on the drawdown date (5.4% per annum on June 30,
2009) and are payable on May 6, 2011. Borrowings under the loan agreement are
guaranteed by Yongcheng Zhongpin Food Company Limited, a subsidiary of the
Company.





In
November 2008, Henan Zhongpin entered into a loan agreement with Bank of
Communications pursuant to which Henan Zhongpin borrowed RMB 40 million ($5.9
million). All amounts borrowed under the loan agreement bear interest at a
floating rate that was based on the prime rate published by the People’s Bank of
China for loans with the same or similar terms on the drawdown date (5.94% per
annum on June 30, 2009) and are payable on November 27, 2010.  The
accrued interest on this loan is payable quarterly on the 20th day of the last
month of each quarter after the drawdown date.  Borrowings under the
loan agreement are guaranteed by the land usage rights, property and plant of
the Company’s wholly-owned subsidiary, Luoyang Zhongpin Food Company,
Ltd.


15


ZHONGPIN
INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


8.
            LONG-TERM
      BANK LOANS (continued)





In May
2008, Henan Zhongpin entered into a credit agreement with Rabobank Nederland
Shanghai Branch that provided for a three-year term loan of up to RMB 80 million
($11.7 million). On June 10, 2008, the first 50% of the long-term loan was
funded by the bank. The remaining 50% of the long-term loan was drawn down by
Henan Zhongpin on July 10, 2008.  Amounts currently outstanding under
the term loan bear interest at the rate of 7.56% per annum, which is the
interest rate published by the People’s Bank of China on July 10, 2008 for loans
with the same or similar terms. The accrued interest on this loan is payable on
a quarterly basis.  Of the outstanding principal under the long-term
loan, 25% is payable 24 months after the first drawdown date (June 10, 2008),
37.5% is payable 30 months after the first drawdown date and the balance is
payable 36 months after the first drawdown date.




Borrowings
under the term loan agreement are guaranteed by the Company’s subsidiaries,
Anyang Zhongpin Food Company Limited and Zhumadian Zhongpin Food Company
Limited, are secured by the Company’s prepared pork production facilities
located at Changge City, Henan Province and are subject to various financial and
non-financial covenants, including a debt-to-net-worth ratio, a debt-to-EBIDTA
ratio, an interest coverage ratio, a required minimum tangible net worth,
restrictions on investments in fixed assets and financial assets, on
inter-company indebtedness and on consolidated contingent liabilities and a
requirement that a minimum percentage of Henan Zhongpin’s consolidated
EBITDA be generated by Henan Zhongpin and the guarantors. Henan Zhongpin also is
prohibited from paying dividends in an amount in excess of 50% of its retained
earnings during the term of the credit facility.




In April
2008, Henan Zhongpin entered into a loan agreement with China CITIC Bank
pursuant to which Henan Zhongpin borrowed RMB 30 million ($4.4 million). All
amounts borrowed under the loan agreement bear interest at a floating rate that
was based on the prime rate published by the People’s Bank of China for loans
with the same or similar terms on the drawdown date (5.67% per annum on June 30,
2009) and are payable on January 23, 2010.  Borrowings under the loan
agreement are guaranteed by Xuji Group.




In May
2002, Henan Zhongpin entered into a loan agreement with Bank of Communications,
Zhengzhou Branch, which is the intermediary bank for a 40-year term loan in the
amount of $2,504,969 from the Canadian government. Under the terms of the loan
agreement, 58% of the principal amount ($1,452,882) of this loan bears interest
at the fixed rate of 6.02% per annum and remaining principal amount of this loan
is interest free. The loan is repayable in a fixed amount of $145,671, which
includes principal and interest, that is payable on a semi-annual basis
through May 15, 2042. Borrowings under the loan agreement are guaranteed by the
Financing Department, Henan Province.




9.
            EQUITY
      TRANSACTIONS




During
the three-months ended June 30, 2009, warrants to purchase an aggregate of
55,000 shares of the Company’s common stock were exercised on a cashless
basis. In connection with the transactions, the Company issued an aggregate of
20,359 shares of common stock and received no cash proceeds from such issuances.
For cash flow purposes, these transactions were non-cash
transactions.




On April
17, 2009, the Company issued stock purchase options to its 22 employees to
purchase an aggregate of 720,000 shares of the Company’s common stock,
exercisable in accordance with the following:  240,000 options vesting
on April 17, 2010 with an exercise price of $9.51 per share, 240,000 options
vesting on April 17, 2011 with an exercise price equal to the closing price of
the Company’s common stock on April 17, 2010, and 240,000 options vesting on
April 17, 2012 with an exercise price equal to the closing price of the
Company’s common stock on April 17, 2011.  Each tranche of options
expires four years from its respective vesting dates.   For the
three- and six-month periods ended June 30, 2009, options to purchase only
240,000 shares of common stock were considered for stock compensation purposes
in accordance with Statement of Financial Accounting Standard No. 123R,
“Share-Based Payments” (“SFAS No. 123R”).


16


ZHONGPIN
INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


The
Company adopted the fair value recognition provisions of SFAS No 123R, which
requires the measurement and recognition of compensation expense for all
stock-based payment awards made to the Company’s employees and directors,
including stock options and employee stock purchases.  Stock-based
compensation expense for stock options was based on the grant-date fair value
estimated in accordance with the provisions of


SFAS No.
123R.  During the process of estimating the fair value of the
stock options granted and recognizing share-based compensation, the following
assumptions were adopted.




The fair
value for these awards was estimated using the Black-Scholes option pricing
model with the following weighted average assumptions, assuming no expected
dividends:





Six Months Ended June 30,2009
                      
                      
                      2008Expected
      life (years)
                      
                      
                      3
                      
                      
                      
                      —Expected
      volatility
                      
                      
                      39.91
                      %
                      
                      
                      —Risk-free
      interest rate
                      
                      
                      1.36
                      %
                      
                      
                      —Dividend
      yield
                      
                      
                      —
                      %
                      
                      
                      —





The
expected volatilities are based on the historical volatility of the Company’s
common stock.  The observation is made on a weekly
basis.  The observation period covered is consistent with the expected
life of the options.  The expected life of stock options is based on
the minimum vesting period required.  The risk-free rate is consistent
with the expected terms of the stock options and is based on the United States
Treasury yield curve in effect at the time of grant.





During
the three-month periods ended June 30, 2009 and 2008, the stock compensation
expenses were $464,117 and $404,573, respectively, and during the six-month
periods ended June 30, 2009 and 2008 the stock compensation expenses were
$754,034 and $809,145, respectively.




10.
            EARNINGS
      PER SHARE




The
following table shows the computation of basic and diluted net earnings per
share for the periods indicated:




Three Months Ended
                    June 30,
                  
                  
                  Six Months Ended
                    June 30,2009
                  
                  
                  2008
                  
                  
                  2009
                  
                  
                  2008(Unaudited)
                  
                  
                  (Unaudited)
                  
                  
                  (Unaudited)
                  
                  
                  (Unaudited)Numerator:Net
      income attributable to commonshareholder
                  
                  $
                  10,723,448
                  
                  
                  $
                  8,521,809
                  
                  
                  $
                  20,464,747
                  
                  
                  $
                  15,809,570Denominator:Weighted
      average common sharesoutstanding
      – basic
                  
                  
                  29,709,893
                  
                  
                  
                  29,417,845
                  
                  
                  
                  29,694,105
                  
                  
                  
                  29,375,615Dilutive
      effect of stock options
                  
                  
                  195,827
                  
                  
                  
                  405,090
                  
                  
                  
                  158,530
                  
                  
                  
                  465,575Weighted
      average common sharesoutstanding
      – diluted
                  
                  
                  29,905,720
                  
                  
                  
                  29,822,935
                  
                  
                  
                  29,852,635
                  
                  
                  
                  29,841,190Basic
      earnings per share
                  
                  $
                  0.36
                  
                  
                  $
                  0.29
                  
                  
                  $
                  0.69
                  
                  
                  $
                  0.54Diluted
      earnings per share
                  
                  $
                  0.36
                  
                  
                  $
                  0.29
                  
                  
                  $
                  0.69
                  
                  
                  $
                  0.53


17


ZHONGPIN
INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


11.
            GOVERNMENT
      SUBSIDIES




The local
government in Changge City, Henan Province provided Henan Zhongpin with various
subsidies to encourage its research and development activities and its
establishment of a fresh fruit and vegetable production facility in Changge
City, and for other contributions to the local community, such as increasing
employment opportunities. The government subsidies are generally classified as
earmarked (such as research and development activities) or non-earmarked. The
interest subsidies were earmarked to offset the Company’s interest expenses
incurred in relation to the construction of its fruit and vegetable production
facility. All subsidies were accounted for based on evidence that cash has been
received and the earmarked activities have taken place. In accordance with
internationally prevailing practice, subsidies earmarked for research and
development activities were first offset against relevant research and
development expenses incurred, and interest subsidies were offset against the
relevant interest expense incurred. Non-earmarked subsidies are generally
recognized as other income.




Government
subsidies received by the Company during the three-month and six-month periods
ended June 30, 2009 and 2008 were as follows:




Three Months Ended
                  June 30,
                
                
                Six Months Ended
                  June 30,2009
                
                
                2008
                
                
                2009
                
                
                2008Deferred
      subsidies opening balance:Interest
      subsidies
                
                $
                —
                
                
                $
                —
                
                
                $
                —
                
                
                $
                —Earmarked
      subsidies
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —Non-earmarked
      subsidies
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —Total
                
                $
                —
                
                
                $
                —
                
                
                $
                —
                
                
                $
                —Subsidies
      received:Interest
      subsidies
                
                $
                390,767
                
                
                $
                —
                
                
                $
                390,767
                
                
                $
                —Earmarked
      subsidies
                
                
                43,907
                
                
                
                —
                
                
                
                43,907
                
                
                
                —Non-earmarked
      subsidies
                
                
                127,453
                
                
                
                432,339
                
                
                
                222,408
                
                
                
                571,883Total
                
                $
                562,127
                
                
                $
                432,339
                
                
                $
                657,082
                
                
                $
                571,883Subsidies
      recognized:Interest
      subsidies
                
                $
                390,767
                
                
                $
                —
                
                
                $
                390,767
                
                
                $
                —Earmarked
      subsidies
                
                
                43,907
                
                
                
                —
                
                
                
                43,907
                
                
                
                —Non-earmarked
      subsidies
                
                
                127,453
                
                
                
                432,339
                
                
                
                222,408
                
                
                
                571,883Total
                
                $
                562,127
                
                
                $
                432,339
                
                
                $
                657,082
                
                
                $
                571,883Deferred
      subsidies year ending balance:Interest
      subsidies
                
                $
                —
                
                
                $
                —
                
                
                $
                —
                
                
                $
                —Earmarked
      subsidies
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —Non-earmarked
      subsidies
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —Total
                
                $
                —
                
                
                $
                —
                
                
                $
                —
                
                
                $
                —





Subsidies
received and other income recognized are translated at the average exchange
rate. The beginning and ending balances are translated at the year-end exchange
rate.


18


ZHONGPIN
INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


12.
            SEGMENT
      REPORTING




Pursuant
to the provisions of SFAS No. 131, the Company operates in only one segment:
meat production. Our fruit
and vegetable operations, both financially and operationally, do not represent a
significant enough portion of our business to constitute a separate segment.However, the Company’s product lines are divided into two divisions: pork
and pork products, and vegetables and fruits.




The pork
and pork products division is involved primarily in the processing of live hogs
into fresh, frozen and processed pork products. The pork and pork products
division markets its products domestically to branded stores and to food
retailers, foodservice distributors, restaurant operators and noncommercial
foodservice establishments, such as schools, hotel chains, healthcare
facilities, the military and other food processors, as well as in certain
international markets on a limited basis.




The
vegetables and fruits division is involved primarily in the processing of fresh
vegetables and fruits. The Company contracts with more than 100 farms in Henan
Province and nearby areas to produce high-quality vegetable varieties and fruits
suitable for export purposes. The proximity of the contracted farms to
operations ensures freshness from harvest to processing. The Company contracts
with those farms to grow more than 20 categories of vegetables and fruits,
including asparagus, sweet corn, broccoli, mushrooms, lima beans and
strawberries.




Sales by Division
                    (U.S. dollars in millions)Three Months Ended
                    June 30,
                  
                  
                  Six Months Ended
                    June 30,2009
                  
                  
                  2008
                  
                  
                  2009
                  
                  
                  2008(Unaudited)
                  
                  
                  (Unaudited)
                  
                  
                  (Unaudited)
                  
                  
                  (Unaudited)Pork
      and Pork Products:Chilled
      pork
                  
                  $
                  83.3
                  
                  
                  $
                  71.9
                  
                  
                  $
                  169.8
                  
                  
                  $
                  127.0Frozen
      pork
                  
                  
                  55.0
                  
                  
                  
                  49.0
                  
                  
                  
                  99.0
                  
                  
                  
                  89.1Prepared
      pork products
                  
                  
                  20.4
                  
                  
                  
                  13.2
                  
                  
                  
                  42.3
                  
                  
                  
                  25.2Vegetables
      and Fruits
                  
                  
                  3.1
                  
                  
                  
                  3.4
                  
                  
                  
                  4.6
                  
                  
                  
                  5.0$
                  161.8
                  
                  
                  $
                  137.5
                  
                  
                  $
                  315.7
                  
                  
                  $
                  246.3Cost
      of SalesPork
      products
                  
                  $
                  140.4
                  
                  
                  $
                  117.5
                  
                  
                  $
                  273.8
                  
                  
                  $
                  210.8Vegetables
      and fruits
                  
                  $
                  2.5
                  
                  
                  $
                  2.9
                  
                  
                  $
                  3.8
                  
                  
                  $
                  4.2Gross
      Profit:Pork
      products
                  
                  
                  11.5
                  %
                  
                  
                  12.4
                  %
                  
                  
                  12.0
                  %
                  
                  
                  12.6
                  %Vegetables
      and fruits
                  
                  
                  19.4
                  %
                  
                  
                  14.7
                  %
                  
                  
                  17.4
                  %
                  
                  
                  16.0
                  %




13.
              SUBSEQUENT
      EVENTS
  The Company evaluated all events or
transactions that occurred after June 30, 2009 up through August 10, 2009, the
date the Company issued these financial statements.  During this
period the Company did not have any material recognizable subsequent
events.


19





Item
2.  Management’s Discussion and Analysis of Financial Condition and
Results of Operations




Disclosure
Regarding Forward-Looking Statements




The
statements contained in this Report with respect to our financial condition,
results of operations and business that are not historical facts are
“forward-looking statements” within the meaning of the Private Securities
Litigation Reform Act of 1995 and Section 21E of the Securities Exchange Act of
1934, as amended (the “Exchange Act”). We intend such forward-looking statements
to be covered by the safe harbor provisions for forward-looking statements
contained in Section 21E of the Exchange Act. Forward-looking statements can be
identified by the use of forward-looking terminology, such as “estimates,”
“projects,” “plans,” “believes,” “expects,” “anticipates,” “intends,” or
the negative thereof or other variations thereon, or by discussions of
strategy that involve risks and uncertainties. Management wishes to caution the
reader of the forward-looking statements that any such statements that are
contained in this Report reflect our current beliefs with respect to future
events and involve known and unknown risks, uncertainties and other factors,
including, but not limited to, economic, competitive, regulatory, technological,
key employee, and general business factors affecting our operations, markets,
growth, services, products, licenses and other factors discussed in our other
filings with the Securities and Exchange Commission, and that these statements
are only estimates or predictions. No assurances can be given regarding the
achievement of future results, as actual results may differ materially as a
result of risks facing our company, and actual events may differ from the
assumptions underlying the statements that have been made regarding anticipated
events.




These
forward-looking statements are subject to numerous assumptions, risks and
uncertainties that may cause our actual results to be materially different from
any future results expressed or implied by us in those statements. Some of these
risks are described in “Risk Factors” in Item 1A of our Annual Report on
Form 10-K for the year ended December 31, 2008 and in Part II, Item 1A of this
Report.




These
risk factors should be considered in connection with any subsequent written or
oral forward-looking statements that we or persons acting on our behalf may
issue. All written and oral forward looking statements made in connection with
this Report that are attributable to our company or persons acting on our behalf
are expressly qualified in their entirety by these cautionary statements. Given
these uncertainties, we caution investors not to unduly rely on our
forward-looking statements. We do not undertake any obligation to review or
confirm analysts’ expectations or estimates or to release publicly any revisions
to any forward-looking statements to reflect events or circumstances after the
date of this Report or to reflect the occurrence of unanticipated events.
Further, the information about our intentions contained in this Report is a
statement of our intention as of the date of this Report and is based upon,
among other things, the existing regulatory environment, industry conditions,
market conditions and prices, the economy in general and our assumptions as of
such date. We may change our intentions, at any time and without notice, based
upon any changes in such factors, in our assumptions or otherwise.




Overview




We are
principally engaged in the meat and food processing and distribution business in
the PRC. Currently, we have 12 processing plants located in Henan, Hebei, Jilin
and Sichuan Provinces and in Tianjin City in the PRC. Our total production
capacity for chilled pork and frozen pork is 1,385.4 metric tons per day, based
on an eight-hour working day, or approximately 498,760 metric tons on an annual
basis. We also have production capacity for prepared meats of 150 metric
tons per eight-hour day, or approximately 54,000 metric tons on an annual basis,
and for fruits and vegetables of 83.3 metric tons per eight-hour day, or
approximately 30,000 metric tons on an annual basis. We use state-of-the-art
equipment in all of our slaughterhouses and processing facilities.




In April
2009, we commenced construction of a new pork production facility located in the
Jinghai Economic Technical Development Area in Tianjin City that is expected to
increase our total annual pork production capacity by 136,000 metric
tons.  The facility has been designed to process approximately 100,000
metric tons of chilled and frozen pork products annually, of which 70% will be
dedicated to chilled pork and 30% to frozen pork. The facility also will include
annual production capacity of approximately 36,000 metric tons of prepared meat
products. Construction of this facility is expected to cost approximately $62.0
million.  Upon completion, this facility will be equipped mostly with
state-of-the-art, imported equipment and machinery.


20





The
construction of the new Tianjin facility also will include a new warehouse and
distribution center and a research and development center, which should improve
our product portfolio, support our cold-chain logistics and help us to
effectively accommodate the newly-added production capacity by facilitating
efficient distribution.




The
production lines for chilled and frozen pork products are expected to come on
line at the end of the first quarter of 2010 and to achieve their target
utilization rate at the end of the third quarter of 2010.  The
prepared meat production line and the new warehouse and distribution center are
expected to come on line in the third quarter of 2010 and to achieve their
target utilization rate at the end of the fourth quarter of 2010.




Without
causing any interruption to our current marketing and distribution program, we
intend to terminate our lease at our existing Tianjin City facility after
production at the new facility begins. With the addition of the new facility and
closure of the existing facility in Tianjin City, our annual chilled and frozen
pork production capacity will reach 545,760 metric tons from the current 498,760
metric tons.




We have
also commenced construction of a new prepared meat production facility in our
industrial park in Changge City, Henan Province, which is expected to cost
approximately $21.0 million. The facility will increase annual prepared meat
production capacity by approximately 36,000 metric tons. This facility will be
equipped with advanced equipment and machinery imported from top-tier
international manufacturers and will produce quick-freeze sausages and other
prepared meat products catering to varying consumer tastes.




The
construction of this facility is expected to be completed and commence
production by the end of the fourth quarter of 2009, and the new facility is
expected to achieve its target utilization rate by the end of the second quarter
of 2010. With the additional prepared meat production capacity from the new
Tianjin and Changge City facilities, our annual prepared meat products capacity
is expected to increase by 133% to approximately 126,000 metric tons from the
current 54,000 metric tons.




Our
products are sold under the “Zhongpin” brand name. At June 30, 2009, our
customers included 26 international or domestic fast food companies in the PRC,
45 processing factories and 1,679 school cafeterias, factory canteens, army
posts and national departments.  As of that date, we also sold
directly to 3,135 retail outlets, including supermarkets, within the
PRC.




Since
2001, we have been designated by a coalition of eight government ministries, led
by the Ministry of Agriculture, as one of the “leading agricultural industrial
enterprises” in the PRC.




Over the
past five fiscal years, we achieved a compound annual growth rate of 79% in
terms of revenues and 84% in terms of net profits. We have established
distribution networks in 20 provinces and four cities with special legal status
in the North, East, South and Mid-South regions of the PRC, and also have formed
strategic partnerships with leading supermarket chains and the food industry in
the PRC. In addition, we export products to the European Union and
Southeast Asia.




As of
June 30, 2009, we had 6,172 employees, of whom 4,449 were operating personnel,
1,243 were sales personnel, 105 were research and development personnel and 375
were administrative personnel.




Critical
Accounting Policies




Our
discussion and analysis of our financial condition and results of operations are
based on our consolidated financial statements, which have been prepared in
accordance with U.S. generally accepted accounting principles.  The
preparation of these financial statements requires us to make estimates and
judgments that affect the reported amounts of assets, liabilities, revenues and
expenses.  We evaluate, on an on-going basis, our estimates for
reasonableness as changes occur in our business environment.  We base
our estimates on experience, the use of independent third-party specialists, and
various other assumptions that we believe to be reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent from
other sources.  Actual results may differ from these estimates under
different assumptions or conditions.




21





Critical
accounting policies are defined as those that are reflective of significant
judgments, estimates and uncertainties, and potentially result in materially
different results under different assumptions and conditions.  We
believe the following are our critical accounting policies:




Revenue
Recognition.  Revenues generated from the sale of various meat
products and vegetables and fruits are recognized when these products are
delivered to customers in accordance with previously-agreed-upon pricing and
delivery arrangements, and the collectability of these sales is reasonably
assured.  Since the products sold by us are primarily perishable and
frozen food products, the right of return is only for a few days and has been
determined to be insignificant by our management.  Accordingly, no
provision has been made for returnable goods.  Revenues presented on
our consolidated income statements are net of sales taxes.




Accounts
Receivable. During the normal course of business, our policy is to
ask larger customers to make deposits in reasonable and meaningful amounts on a
case-by-case basis.  For certain newly-developed customers, we may
extend unsecured credit.




We
regularly evaluate and monitor the creditworthiness of each of our customers in
accordance with the prevailing practice in the meat industry and based on
general economic conditions in the PRC.  If any particular customer appears
to be delaying or deferring payments for our products, we generally request a
deposit from, or an increase in the deposits of, such customer.  Such
deposits are typically applied against the outstanding accounts receivable of
the applicable customer during the year.  As a result, we did not have
a bad debt allowance provided against any specific customer at June 30,
2009.




We
maintain a general policy of providing 100% allowance for doubtful accounts in
an amount equal to the aggregate amount of those accounts that are not collected
within one year plus an amount equal to 5% of the aggregate amount of accounts
receivable less than one year old.  After all attempts to collect a
receivable have failed, the receivable is written off against
the allowance.




Inventories.  Inventories
are stated at the lower of cost, determined on a weighted average basis, and net
realizable value.  Work-in-progress and finished goods are composed of
direct material, direct labor and an attributable portion of manufacturing
overhead.  Net realizable value is the estimated selling price, in the
ordinary course of business, less estimated costs to complete and
dispose.




Plant, Property
and Equipment.  Plant, properties and equipment are recorded at
cost and are stated net of accumulated depreciation.  Depreciation
expense is determined using the straight-line method over the estimated useful
lives of the assets as follows:




Estimated LifePlants
      and buildings
                
                5-30 yearsMachinery
      and equipment
                
                5-20 yearsOffice
      furniture and equipment
                
                3-5 yearsVehicles
                
                5 years




Maintenance
and repairs are charged directly to expense as incurred, whereas betterments and
renewals are generally capitalized in their respective property
accounts.  When an asset is retired or otherwise disposed of, the cost
and applicable accumulated depreciation are removed and the resulting gain or
loss is recognized and reflected as a line item before operating income
(loss).


22





Results
of Operations




During
2009, we intend to continue to focus on the implementation of our strategic plan
to continue the growth we have experienced in the last five years.  A
new chilled and frozen pork plant in eastern Henan Province with an annual
capacity of approximately 80,000 metric tons was put into operation in January
2009 and a new fruit and vegetable facility in Changge City with an annual
production capacity of 30,000 metric tons was put into operation in April
2009.  Over the next 12 months, we expect to continue to expand our
distribution channel and develop new markets. Through our aggressive marketing
campaign, we also expect to increase our brand awareness and customer loyalty.
We also intend to further streamline our supply chain management to build a
unified, safe and efficient cold-chain logistics system. In addition, working
with China Agriculture University, we have established the Henan Province
Prepared Meat Products Technology Research Center, which has been certified by
the Technology Bureau of Henan Province. We expect the establishment of this
research center to increase our research and development capability. We also
have invested in training and human resources development so that we will be
able to sustain rapid and healthy growth while maintaining a satisfactory profit
margin.








In late
April 2009, the A(H1N1) flu was reported in Mexico, the United States, Europe
and other countries.  In June 2009, the A(H1N1) flu was reported in
the PRC, which adversely affected the pork industry in the PRC, as it has in
other developed countries throughout the world. Pork sales significantly
declined in the PRC due to the fear of consumers of contracting the disease
through pork consumption.  The PRC government has taken steps to ease
the fear of consumers by educating consumers that eating pork will not cause
swine flu and by renaming the swine flu virus “A(H1N1) flu” in an effort to
protect the hog breeding and pork industries.  With these efforts, the
consumption of pork in the PRC recovered approximately two weeks after the
initial reports of A(H1N1) flu in the PRC.









Comparison of Three Months EndedJune 30, 2009 and 2008




Revenue. Total revenue
increased from $137.5 million for the three months ended June 30, 2008 to $161.8
million for the three months ended June 30, 2009, which represented an increase
of $24.3 million, or approximately 18%. The increase in revenues was primarily
due to the higher sales volume of our pork and pork products, which was
partially offset by a decrease in the prices of our pork and pork
products.  The following table presents certain information regarding
our sales by product division for the three months ended June 30, 2009 and
2008.


23


Sales by Division
                    (unaudited)Three Months Ended
                    June 30, 2009
                  
                  
                  Three Months Ended
                    June 30, 2008Metric
                    Tons
                  
                  
                  Sales
                    Revenues
                    (in millions)
                  
                  
                  Average
                    Price/
                    Metric
                    Ton
                  
                  
                  Metric
                    Tons
                  
                  
                  Sales
                    Revenues
                    (in millions)
                  
                  
                  Average
                    Price/
                    Metric
                    TonPork
      and Pork ProductsChilled
      pork
                  
                  
                  52,086
                  
                  
                  $
                  83.3
                  
                  
                  $
                  1,599
                  
                  
                  
                  29,435
                  
                  
                  $
                  71.9
                  
                  
                  $
                  2,443Frozen
      pork
                  
                  
                  36,231
                  
                  
                  
                  55.0
                  
                  
                  
                  1,518
                  
                  
                  
                  20,881
                  
                  
                  
                  49.0
                  
                  
                  
                  2,347Prepared
      pork products
                  
                  
                  10,189
                  
                  
                  
                  20.4
                  
                  
                  
                  2,002
                  
                  
                  
                  5,720
                  
                  
                  
                  13.2
                  
                  
                  
                  2,308Vegetables
      and Fruits
                  
                  
                  2,731
                  
                  
                  
                  3.1
                  
                  
                  
                  1,135
                  
                  
                  
                  4,349
                  
                  
                  
                  3.4
                  
                  
                  
                  782Total
                  
                  
                  101,237
                  
                  
                  $
                  161.8
                  
                  
                  $
                  1,598
                  
                  
                  
                  60,385
                  
                  
                  $
                  137.5
                  
                  
                  $
                  2,277




The pork
market in China is highly fragmented and in the markets in which we
sell our products no single supplier has a significant impact on
the market price of pork or related pork products. We have been pricing our
products based on the value of our brand, the quality of our products, hog
prices in the applicable period and pricing trends for similar products in the
regions in which we operate.




In the
second quarter of fiscal 2009 we increased our sales of chilled pork products by
approximately $11.4 million over the amount of our sales of such products in the
second quarter of 2008. As shown in the above table, our average price during
the second quarter of 2009 was approximately $1,599 per metric ton for chilled
pork whereas our average price during the second quarter of 2008 was $2,443 per
metric ton for chilled pork. Assuming the average price for chilled pork during
the three months ended June 30, 2009 was the same as the average price during
the three months ended June 30, 2008, the impact from the increase in metric
tons of chilled pork sold was $55.3 million. Assuming the number of metric tons
sold in the second quarter of 2009 was the same as the number of metric tons
sold in the second quarter of 2008, the impact from the decrease in prices of
our chilled pork products was negative $24.8 million.
The remaining negative $19.1 million of such increase
resulted from the combination of changes in prices and volume of chilled
pork products sold.




In the
second quarter of fiscal 2009 we increased our sales of frozen pork products by
approximately $6.0 million over the amount of our sales of such products in the
second quarter of 2008. Our average price during the second quarter of 2009 was
approximately $1,518 per metric ton for frozen pork whereas our average price
during the second quarter of 2008 was $2,347 per metric ton for frozen pork.
Assuming the average price for frozen pork during the three months ended June
30, 2009 was the same as the average price during the three months ended June
30, 2008, the impact from the increase in metric tons of frozen pork sold was
$36.0 million. Assuming the number of metric tons sold in the second quarter of
2009 was the same as the number of metric tons sold in the second quarter of
2008, the impact from the decrease in prices of our frozen pork products was
negative $17.3 million. The remaining negative $12.7 million of such
increase resulted from the combination of changes in prices and volume of
frozen pork products sold.




In the
second quarter of fiscal 2009 we increased our sales of prepared pork products
by approximately $7.2 million over the amount of our sales of such products in
the second quarter of 2008. Our average price during the second quarter of 2009
was approximately $2,002 per metric ton for prepared pork products whereas our
average price during the second quarter of 2008 was $2,308 per metric ton for
prepared pork products. Assuming the average price for prepared pork products
during the three months ended June 30, 2009 was the same as the average price
during the three months ended June 30, 2008, the impact from the increase in
metric tons of prepared pork products sold was $10.3 million. Assuming the
number of metric tons sold in the second quarter of 2009 was the same as the
number of metric tons sold in the second quarter of 2008, the impact from the
decrease in prices of our prepared pork products was negative $1.8 million. The
remaining negative $1.3 million of such increase resulted from the
combination of changes in prices and volume of prepared pork products
sold.


24


The sales
of meat and vegetable products are closely related to the particular regional
markets in which our distribution channels are located. Therefore, the increase
in metric tons sold for the second quarter of 2009 was partly attributable to
our effort to expand our retail distribution channels. The following table sets
forth the changes in our retail distribution channels:




Numbers
      of Stores and Cities Generating Sales Volume
                    (unaudited)June
      30,
                  
                  
                  Net
                    Change
                  
                  
                  Percentage
                    Change2009
                  
                  
                  2008Stores
      and CountersShowcase
      stores
                  
                  
                  138
                  
                  
                  
                  116
                  
                  
                  
                  22
                  
                  
                  
                  19
                  %Branded
      stores
                  
                  
                  982
                  
                  
                  
                  934
                  
                  
                  
                  48
                  
                  
                  
                  5
                  %Supermarket
      counters
                  
                  
                  2,015
                  
                  
                  
                  1,910
                  
                  
                  
                  105
                  
                  
                  
                  5
                  %Total
                  
                  
                  3,135
                  
                  
                  
                  2,960
                  
                  
                  
                  175
                  
                  
                  
                  6
                  %CitiesFirst-tier
      cities
                  
                  
                  29
                  
                  
                  
                  29
                  
                  
                  
                  0
                  
                  
                  
                  0
                  %Second-tier
      cities
                  
                  
                  113
                  
                  
                  
                  97
                  
                  
                  
                  16
                  
                  
                  
                  16
                  %Third-tier
      cities
                  
                  
                  355
                  
                  
                  
                  300
                  
                  
                  
                  55
                  
                  
                  
                  18
                  %




The
expansion in our distribution channels and geographical coverage has been a
significant factor in the increase in our sales volume. The following table sets
forth our revenues by distribution channel for the second quarter of 2009 and
2008, respectively.




Sales by Distribution Channel
                    (Dollars in millions)
                    (unaudited)Three months ended June 30,
                  
                  
                  Net
                  
                  
                  Percentage2009
                  
                  
                  2008
                  
                  
                  Change
                  
                  
                  ChangeRetail
      channels
                  
                  $
                  71.1
                  
                  
                  $
                  55.7
                  
                  
                  $
                  15.4
                  
                  
                  
                  28
                  %Food
      services
      distributors
                  
                  
                  46.6
                  
                  
                  
                  39.7
                  
                  
                  
                  6.9
                  
                  
                  
                  17
                  %Restaurants
      and noncommercial
                  
                  
                  42.4
                  
                  
                  
                  40.7
                  
                  
                  
                  1.7
                  
                  
                  
                  4
                  %Export
                  
                  
                  1.7
                  
                  
                  
                  1.4
                  
                  
                  
                  0.3
                  
                  
                  
                  21
                  %Total
                  
                  $
                  161.8
                  
                  
                  $
                  137.5
                  
                  
                  $
                  24.3
                  
                  
                  
                  18
                  %




The
increase in sales to different distribution channels was mainly due to the
following factors: (i) our production capacity has increased since our Jilin,
Tianjin, Hebei and Yongcheng production facilities commenced production in late
2008 or early 2009; (ii) we have built up our brand image and recognition
through advertisements on national and local television and through product
promotions; (iii) we have increased the number of stores and other channels
through which we sell our products; and (iv) we believe consumers are placing
increased importance on food safety and are willing to pay higher prices for
safe food products.  As presented in the table above, our most significant
revenue increases were generated from our retail channels and our food services
distributors.  Retail channels are the highest gross profit margin channels
and are the channels through which we build up our brand recognition in the
market.  Our Zhongpin logo and brand name are prominently displayed in
each of the retail stores and supermarket counters that sell our
products.




Costs of Sales. Our cost of
sales increased from $120.4 million for the three months ended June 30, 2008 to
$142.9 million for the three months ended June 30, 2009, which represented an
increase of $22.5 million, or approximately 19%. Our costs of sales primarily
include our costs of raw materials, labor costs and overhead. Of our total cost
of sales, our cost of raw materials typically accounts for approximately 96% to
97%, our overhead typically accounts for 2% to 2.5% and our labor costs
typically accounts for 1% to 1.3%, with slight variations from period to period.
All of our meat products are derived from the same raw materials, which are live
hogs. Our vegetable and fruit products are purchased from farmers located
close to our processing facility in Changge City, Henan Province. As a result,
the purchasing costs of live hogs and vegetables and fruits represent
substantially all of our costs of raw materials.


25




Cost of Sales by Division
                    (unaudited)Three Months Ended
                    June 30, 2009
                  
                  
                  Three Months Ended
                    June 30, 2008Metric
                    Tons
                  
                  
                  Cost of
                    Sales
                    (in millions)
                  
                  
                  Average
                    Price/
                    Metric
                    Ton
                  
                  
                  Metric
                    Tons
                  
                  
                  Cost of
                    Sales
                    (in millions)
                  
                  
                  Average
                    Price/
                    Metric
                    TonPork
      and Pork ProductsChilled
      pork
                  
                  
                  52,086
                  
                  
                  $
                  74.6
                  
                  
                  $
                  1,432
                  
                  
                  
                  29,435
                  
                  
                  $
                  62.9
                  
                  
                  $
                  2,137Frozen
      pork
                  
                  
                  36,231
                  
                  
                  
                  51.1
                  
                  
                  
                  1,410
                  
                  
                  
                  20,881
                  
                  
                  
                  44.0
                  
                  
                  
                  2,107Prepared
      pork products
                  
                  
                  10,189
                  
                  
                  
                  14.7
                  
                  
                  
                  1,443
                  
                  
                  
                  5,720
                  
                  
                  
                  10.6
                  
                  
                  
                  1,853Vegetables
      andFruits
                  
                  
                  2,731
                  
                  
                  
                  2.5
                  
                  
                  
                  915
                  
                  
                  
                  4,349
                  
                  
                  
                  2.9
                  
                  
                  
                  667Total
                  
                  
                  101,237
                  
                  
                  $
                  142.9
                  
                  
                  
                  1,412
                  
                  
                  
                  60,385
                  
                  
                  $
                  120.4
                  
                  
                  
                  1,994




Our gross
profit margin (gross profit divided by sales revenue) decreased from 12.4% for
the three months ended June 30, 2008 to 11.7% for the three months ended June
30, 2009.  The decrease in our gross margin during the second quarter
of 2009 was primarily due to (i) the increase in labor costs as a result of
implementing the new labor law in the PRC, (ii) the increase in our depreciation
expense resulting from the newly-built production facilities that were put into
service over the past year, and (iii) our strategic decision to take steps to
increase our market share and utilization rate.  As a result, our
gross profit margin was lower than the level we would expect to achieve when we
fully integrate our new production facilities and open new regional markets for
our products.  We intend to adjust our production levels and product
mix and the percentages of our sales through our different sales channels in the
coming quarters to increase our gross profit margin.




General and Administrative
Expenses. General and administrative expenses decreased from $5.4 million
for the three months ended June 30, 2008 to $4.2 million for the three months
ended June 30, 2009, which represented a decrease of $1.2 million, or
approximately 22%.  As a percentage of revenues, general and
administrative expenses decreased from 4.0% for the three months ended June 30,
2008 to 2.6% for the three months ended June 30, 2009.




The
decrease in general and administrative expenses during the three months ended
June 30, 2009 was primarily the result of a $0.7 million decrease in advertising
expenses and a $0.4 million decrease in consulting fees, which was partly offset
by a $0.6 million increase in salary expense due to the expansion of our
business.




Selling
Expenses. Selling expenses increased from $2.3 million for the three
months ended June 30, 2008 to $2.8 million for the three months ended June 30,
2009, which represented an increase of $0.5 million, or approximately 22%. The
increase in selling expenses was primarily the result of our increased
sales of pork and pork products and was primarily due to a $0.2 million increase
in transportation fees and a $0.4 million increase in salaries. As a
percentage of revenues, selling expenses remained the same at 1.7% for the
three months ended June 30, 2008 and 2009.




Interest Expense(net of interest income). Interest expense net of
interest income increased from $0.6 million for the three months ended June 30,
2008 to $1.3 million for the three months ended June 30, 2009, which represented
an increase of $0.7 million, or approximately 117%. The increase in interest
expense was primarily the result of an increase of $10.4 million in short-term
bank loans and an increase of $26.4 million in long-term bank
loans.


26


Other Income and Government
Subsidies.  Other income and government subsidies decreased
from $0.3 million for the three months ended June 30, 2008 to $0.2 million for
the three months ended June 30, 2009.  This decrease was primarily the
result of a decrease in government subsidies.  The changes in
government subsidies are discussed in Note 11 of Notes to Consolidated Financial
Statements.




Gain on disposal of asubsidiary.On June 30, 2009,
an unaffiliated company purchased the equity of our former subsidiary, Henan
Zhongpin Industry Company Limited, for RMB 8.4 million ($1.2 million), which
resulted in a gain of approximately $0.7 million.  As discussed in
Note 6 of Notes to Consolidated Financial Statements, this subsidiary held
the assets of our former production facilities in Yanling City, Henan Province,
for which we had adopted a plan of disposition during 2008.




Income Taxes. The effective
tax rate in the PRC on income generated from the sale of prepared products is
25% and there is no income tax on income generated from the sale of raw
products, including raw meat products and raw fruits and vegetable products. The
increase of $0.4 million in the provision for income taxes for the three months
ended June 30, 2009 over the three months ended June 30, 2008 resulted from the
increase in revenue from prepared meat products.




Comparison ofSixMonths EndedJune 30, 2009 and 2008




Revenue. Total revenue
increased from $246.3 million for the six months ended June 30, 2008 to $315.7
million for the six months ended June 30, 2009, which represented an increase of
$69.4 million, or approximately 28%. The increase in revenues was primarily due
to increases in the sales volume of our pork and pork products, which was partly
offset by a decrease in the prices of our pork and pork products.  The
following table presents certain information regarding our sales by product
division for the six months ended June 30, 2009 and 2008.




Sales by Division
                    (unaudited)Six Months Ended
                    June 30, 2009
                  
                  
                  Six Months Ended
                    June 30, 2008Metric
                    Tons
                  
                  
                  Sales
                    Revenues
                    (in
      millions)
                  
                  
                  Average
                    Price/
                    Metric
                    Ton
                  
                  
                  Metric
                    Tons
                  
                  
                  Sales
                    Revenues
                    (in
      millions)
                  
                  
                  Average
                    Price/
                    Metric
                    TonPork
      and Pork ProductsChilled
      pork
                  
                  
                  95,585
                  
                  
                  $
                  169.8
                  
                  
                  $
                  1,776
                  
                  
                  
                  53,554
                  
                  
                  $
                  127.0
                  
                  
                  $
                  2,371Frozen
      pork
                  
                  
                  60,308
                  
                  
                  
                  99.0
                  
                  
                  
                  1,642
                  
                  
                  
                  39,369
                  
                  
                  
                  89.1
                  
                  
                  
                  2,263Prepared
      pork products
                  
                  
                  19,719
                  
                  
                  
                  42.3
                  
                  
                  
                  2,145
                  
                  
                  
                  11,389
                  
                  
                  
                  25.2
                  
                  
                  
                  2,213Vegetables
      and Fruits
                  
                  
                  5,376
                  
                  
                  
                  4.6
                  
                  
                  
                  856
                  
                  
                  
                  6,629
                  
                  
                  
                  5.0
                  
                  
                  
                  754Total
                  
                  
                  180,988
                  
                  
                  $
                  315.7
                  
                  
                  $
                  1,744
                  
                  
                  
                  110,941
                  
                  
                  $
                  246.3
                  
                  
                  $
                  2,220




The pork
market in China is highly fragmented and in the markets in which we
sell our products no single supplier has a significant impact on
the market price of pork or related pork products. We have been pricing our
products based on the value of our brand, the quality of our products, hog
prices in the applicable period and pricing trends for similar products in the
regions in which we operate.


27




In the
first half of fiscal 2009 we increased our sales of chilled pork products by
approximately $42.8 million over the amount of our sales of such products
in the first half of 2008. As shown in the above table, our average price during
the first half of 2009 was approximately $1,776 per metric ton for chilled pork
whereas our average price during the same period of 2008 was $2,371 per metric
ton for chilled pork. Assuming the average price for chilled pork during the six
months ended June 30, 2009 was the same as the average price during the six
months ended June 30, 2008, the impact from the increase in metric tons of
chilled pork sold was $99.7 million. Assuming the number of metric tons sold in
the first half of 2009 was the same as the number of metric tons sold in the
first half of 2008, the impact from the decrease in prices of our chilled pork
products was negative $31.9 million. The remaining negative $25.0
million of such increase resulted from the combination of changes in prices
and volume of chilled pork products sold.




In the
first half of fiscal 2009 we increased our sales of frozen pork products by
approximately $9.9 million over the amount of our sales of such products in the
same period of 2008. Our average price during the first half of 2009 was
approximately $1,642 per metric ton for frozen pork whereas our average price
during the first half of 2008 was $2,263 per metric ton for frozen pork.
Assuming the average price for frozen pork during the six months ended June 30,
2009 was the same as the average price during the six months ended June 30,
2008, the impact from the increase in metric tons of frozen pork sold was $47.4
million. Assuming the number of metric tons sold in the first half of 2009 was
the same as the number of metric tons sold in the first half of 2008, the impact
from the decrease in prices of our frozen pork products was negative $24.4
million. The remaining negative $13.1 million of such increase
resulted from the combination of changes in prices and volume of frozen
pork products sold.




In the
first half of fiscal 2009 we increased our sales of prepared pork products by
approximately $17.1 million over the amount of our sales of such products in the
same period of 2008. Our average price during the first half of 2009 was
approximately $2,145 per metric ton for prepared pork products whereas our
average price during the first half of 2008 was $2,213 per metric ton for
prepared pork products. Assuming the average price for prepared pork products
during the six months ended June 30, 2009 was the same as the average price
during the six months ended June 30, 2008, the impact from the increase in
metric tons of prepared pork products sold was $18.4 million. Assuming the
number of metric tons sold in the first half of 2009 was the same as the number
of metric tons sold in the same period of 2008, the impact from the decrease in
prices of our prepared pork products was negative $0.8 million. The remaining
negative $0.5 million of such increase resulted from the combination of
changes in prices and volume of prepared pork products sold.




The
following table shows our revenues by distribution channel for the first half of
2009 and 2008, respectively.




Sales
      by Distribution Channel
                    (Dollars
      in millions)
                    (unaudited)Six
      Months Ended June 30,
                  
                  
                  Net
                    Change
                  
                  
                  Percentage
                    of Change2009
                  
                  
                  2008Retail
      channels
                  
                  $
                  139.4
                  
                  
                  $
                  100.5
                  
                  
                  $
                  38.9
                  
                  
                  
                  39
                  %Food
      services
      distributors
                  
                  
                  92.1
                  
                  
                  
                  67.4
                  
                  
                  
                  24.7
                  
                  
                  
                  37
                  %Restaurants
      and noncommercial
                  
                  
                  82.0
                  
                  
                  
                  74.7
                  
                  
                  
                  7.3
                  
                  
                  
                  10
                  %Export
                  
                  
                  2.2
                  
                  
                  
                  3.7
                  
                  
                  
                  (1.5
                  )
                  
                  
                  (41
                  )%Total
                  
                  $
                  315.7
                  
                  
                  $
                  246.3
                  
                  
                  $
                  69.4
                  
                  
                  
                  28
                  %






28




During
the six months ended June 30, 2009, revenues from export sales decreased to $2.2
million, which represented a decline of $1.5 million, or approximately 41%, as
compared with the six months ended June 30, 2008. The decrease in export
sales was primarily due to the reduction of our export sales efforts during the
2009 period because we could achieve higher gross profit margins during that
period by selling our pork products domestically in the PRC.




Costs of Sales. Our cost of
sales increased from $215.0 million for the six months ended June 30, 2008 to
$277.6 million for the six months ended June 30, 2009, which represented an
increase of $62.6 million, or approximately 29%. Our costs of sales primarily
include our costs of raw materials, labor costs and overhead. Of our total cost
of sales, our cost of raw materials typically accounts for approximately 96% to
97%, our overhead typically accounts for 2% to 2.5% and our labor costs
typically accounts for 1% to 1.3%, with slight variations from period to period.
All of our meat products are derived from the same raw materials, which are live
hogs. Our vegetable and fruit products are purchased from farmers located close
to our processing facility in Changge City, Henan Province. As a result, the
purchasing costs of live hogs and vegetables and fruits represent substantially
all of our costs of raw materials.




Cost of Sales by Division
                    (unaudited)Six Months Ended June 30, 2009
                  
                  
                  Six Months Ended June 30, 2008Metric
                    Tons
                  
                  
                  Cost of
                    Sales
                    (in millions)
                  
                  
                  Average
                    Price/
                    MetricTon
                  
                  
                  Metric
                    Tons
                  
                  
                  Cost of
                    Sales
                    (in millions)
                  
                  
                  Average
                    Price/
                    Metric
                    TonPork
      and Pork ProductsChilled
      pork
                  
                  
                  95,585
                  
                  
                  $
                  151.2
                  
                  
                  $
                  1,582
                  
                  
                  
                  53,554
                  
                  
                  $
                  110.8
                  
                  
                  $
                  2,069Frozen
      pork
                  
                  
                  60,308
                  
                  
                  
                  91.1
                  
                  
                  
                  1,511
                  
                  
                  
                  39,369
                  
                  
                  
                  79.9
                  
                  
                  
                  2,030Prepared
      pork products
                  
                  
                  19,719
                  
                  
                  
                  31.5
                  
                  
                  
                  1,597
                  
                  
                  
                  11,389
                  
                  
                  
                  20.1
                  
                  
                  
                  1,765Vegetables
      and Fruits
                  
                  
                  5,376
                  
                  
                  
                  3.8
                  
                  
                  
                  707
                  
                  
                  
                  6,629
                  
                  
                  
                  4.2
                  
                  
                  
                  634Total
                  
                  
                  180,988
                  
                  
                  $
                  277.6
                  
                  
                  
                  1,534
                  
                  
                  
                  110,941
                  
                  
                  $
                  215.0
                  
                  
                  
                  1,938




Our gross
profit margin (gross profit divided by sales revenue) decreased from 12.7% for
the six months ended June 30, 2008 to 12.1% for the six months ended June 30,
2009. The slight decrease in our gross margin during the first half of 2009 was
primarily due to (i) the increase in labor costs as a result of implementing the
new labor law in the PRC, (ii) the increase in our depreciation expense
resulting from the newly-built production facilities that were put into service
over the past year, and (iii) our strategic decision to take steps to increase
our market share and utilization rate.  As a result, our gross profit
margin was lower than the level we would expect to achieve when we fully
integrate our new production facilities and open new regional markets for our
products.  We intend to adjust our production levels and product mix
and the percentages of our sales through our different sales channels in the
coming quarters to increase our gross profit margin.




General and Administrative
Expenses. General and administrative expenses decreased from $9.4 million
for the six months ended June 30, 2008 to $8.8 million for the six months ended
June 30, 2009, which represented a decrease of $0.6 million, or approximately
6%.   As a percentage of revenues, general and administrative
expenses decreased from 3.8% for the six months ended June 30, 2008 to 2.8% for
the six months ended June 30, 2009.








29


Selling
Expenses. Selling expenses increased from $4.3 million for the six
months ended June 30, 2008 to $5.6 million for the six months ended June 30,
2009, which represented an increase of $1.3 million, or approximately 30%. The
increase in selling expenses was primarily due to the increase in sales of
pork and pork products and was primarily due to a $0.3 million increase in
promotional fees and a $0.6 million increase in salaries. As a percentage
of revenues, selling expenses remained the same at 1.8% for the six months
ended June 30, 2008 and 2009.




Interest Expense(net of interest income). Interest expense net of
interest income increased from $0.8 million for the six months ended June 30,
2008 to $2.8 million for the six months ended June 30, 2009, which represented
an increase of $2.0 million, or approximately 250%. The increase in interest
expense was primarily the result of a $10.4 million increase in short-term bank
loans and a $26.4 million increase in long-term bank loans.




Other Income and Government
Subsidies. Other income and government subsidies decreased from $0.5
million for the six months ended June 30, 2008 to $0.5 million for the six
months ended June 30, 2009.  This decrease was primarily due to lower
government subsidies.




Gain on disposal of asubsidiary.As discussed
above, on June 30, 2009, an unaffiliated company purchased the equity of our
former subsidiary, Henan Zhongpin Industry Company Limited, for RMB 8.4 million
($1.2 million), which resulted in a gain of approximately $0.7
million.




Income Taxes. The effective
tax rate in the PRC on income generated from the sale of prepared products is
25% and there is no income tax on income generated from the sale of raw
products, including raw meat products and raw fruits and vegetable products. The
increase of $0.6 million in the provision for income taxes for the six months
ended June 30, 2009 over the six months ended June 30, 2008 resulted from the
increase in revenue from prepared meat products.




Segment
Information




Under
generally accepted accounting principles in the United States, we operate in
only one segment: meat production.  Our fruit and vegetable
operations, both financially and operationally, do not represent a significant
enough portion of our business to constitute a separate
segment.  However, our product lines have been divided into two
divisions: pork and pork products, and vegetables and fruits.




Our pork
and pork products division is involved primarily in the processing of live
market hogs into fresh, frozen and processed pork products. Our pork and pork
products division markets its products domestically to our branded stores, food
retailers, foodservice distributors, restaurant operators and noncommercial
foodservice establishments, such as schools, hotel chains, healthcare
facilities, the military and other food processors, as well as to international
markets.




Our
vegetables and fruits division is involved primarily in the processing of fresh
vegetables and fruits. We contract with more than 100 farms in Henan Province
and nearby areas to produce high-quality vegetable varieties and fruits suitable
for export purposes. The proximity of the contracted farms to our operations
ensures freshness from harvest to processing. We contract to grow more than 20
categories of vegetables and fruits, including asparagus, sweet corn, broccoli,
mushrooms, lima beans, strawberries and capsicum.


30


The
following tables set forth our sales volume and the production volume in metric
tons by product division for the three-month and six-month periods ended June
30, 2009 and 2008.




Sales by Division
                    (in metric tons)Three Months Ended
                    June 30,
                  
                  
                  Six Months Ended
                    June 30,2009
                  
                  
                  2008
                  
                  
                  2009
                  
                  
                  2008(Unaudited)
                  
                  
                  (Unaudited)
                  
                  
                  (Unaudited)
                  
                  
                  (Unaudited)Pork
      and Pork ProductsChilled
      pork
                  
                  
                  52,086
                  
                  
                  
                  29,435
                  
                  
                  
                  95,585
                  
                  
                  
                  53,554Frozen
      pork
                  
                  
                  36,231
                  
                  
                  
                  20,881
                  
                  
                  
                  60,308
                  
                  
                  
                  39,369Prepared
      pork
      products
                  
                  
                  10,189
                  
                  
                  
                  5,720
                  
                  
                  
                  19,719
                  
                  
                  
                  11,389Vegetable
      and
      Fruits
                  
                  
                  2,731
                  
                  
                  
                  4,349
                  
                  
                  
                  5,376
                  
                  
                  
                  6,629Total
                  
                  
                  101,237
                  
                  
                  
                  60,385
                  
                  
                  
                  180,988
                  
                  
                  
                  110,941




Production by Division
                    (in metric tons)Three Months Ended
                    June 30,
                  
                  
                  Six Months Ended
                    June 30,2009
                  
                  
                  2008
                  
                  
                  2009
                  
                  
                  2008(Unaudited)
                  
                  
                  (Unaudited)
                  
                  
                  (Unaudited)
                  
                  
                  (Unaudited)Pork
      and Pork ProductsChilled
      pork
                  
                  
                  52,508
                  
                  
                  
                  29,581
                  
                  
                  
                  95,838
                  
                  
                  
                  53,798Frozen
      pork
                  
                  
                  40,796
                  
                  
                  
                  22,774
                  
                  
                  
                  70,245
                  
                  
                  
                  41,159Prepared
      pork products
                  
                  
                  10,647
                  
                  
                  
                  5,794
                  
                  
                  
                  21,373
                  
                  
                  
                  11,481Vegetable
      and Fruits
                  
                  
                  3,110
                  
                  
                  
                  4,331
                  
                  
                  
                  5,506
                  
                  
                  
                  6,877Total
                  
                  
                  107,061
                  
                  
                  
                  62,480
                  
                  
                  
                  192,962
                  
                  
                  
                  113,315




Additional
Operating Data




In
assessing our existing operations and planning our future growth and the
development of our business, management considers, among other factors, our
revenue growth and growth in sales volume by market segment, as well as our
sales by distribution channel and geographic market coverage.  The
following table sets forth information with respect to the number of products we
offered, the number of stores in our retail network and the number of provinces
and cities in the PRC in which we offered and sold our products at June 30, 2009
and December 31, 2008, 2007 and 2006.


31




December 31,June 30,
      2009
                  
                  
                  2008
                  
                  
                  2007
                  
                  
                  2006Number
      of
      products
                  
                  
                  326
                  
                  
                  
                  314
                  
                  
                  
                  270
                  
                  
                  
                  229Number
      of retail
      stores
                  
                  
                  3,135
                  
                  
                  
                  3,061
                  
                  
                  
                  2,939
                  
                  
                  
                  2,721Expansion
      of Market CoverageNumber
      of
      Provinces
                  
                  
                  24
                  
                  
                  
                  24
                  
                  
                  
                  24
                  
                  
                  
                  24Number
      of first-tier
      cities
                  
                  
                  29
                  
                  
                  
                  29
                  
                  
                  
                  29
                  
                  
                  
                  29Number
      of second-tier
      cities
                  
                  
                  113
                  
                  
                  
                  106
                  
                  
                  
                  93
                  
                  
                  
                  75Number
      of third-tier
      cities
                  
                  
                  355
                  
                  
                  
                  324
                  
                  
                  
                  287
                  
                  
                  
                  226




Liquidity
and Capital Resources




At June
30, 2009 and December 31, 2008, we had cash and cash equivalents of $26.3
million and $41.9 million, respectively. At June 30, 2009, we had working
capital of approximately negative $14.4 million. However,
at such date, we had available lines of credit of $206.8 million, which we
believe will be sufficient to finance our working capital needs.


We have
established and implemented corporate policies to manage our cash flows
generated by our operating activities.  We have established strict
credit policies to manage the credit we give to our customers, and we give
different credit terms to different types of customers in different sales
channels.  For supermarket customers, the credit terms are generally
two to four weeks.  For showcase stores and branded stores, the credit
terms are generally cash sales within one week.  For food
distributors, the credit terms are generally two weeks.  For
restaurants and non-commercial customers, the credit terms are from one week to
one month.  These credit terms are subject to negotiation if requested
by our customers, but any adjustment must be approved by designated
management.  In general, we ask for credit terms from our
suppliers.  We generally pay for the hogs we purchase within one week
after the hogs pass our health and quality examinations.




For the
six months ended June 30, 2009, net cash provided by operating activities was
$7.0 million, which represented a decrease of $24.8 million as compared to the
net cash provided by operating activities of $31.8 million for the same period
of 2008.  The decrease was primarily due to a $30.3 million decline in
cash flow from operating assets and liabilities, which was offset in part by a
$4.7 million increase in net income and a $0.9 million increase in non-cash
items.  Of the non-cash items, depreciation and amortization accounted
for $2.1 million of change due to the fact that more plants, equipment and
machinery were put into use.




Cash flow
from changes in operating assets and liabilities decreased approximately $30.3
million, as compared to the positive cash flow of $12.5 million from changes in
operating assets and liabilities for the same period of the prior year. Of the
$30.3 million decrease, $12.3 million was attributable to the change of cash
flow from inventories due to the fact that we intentionally built up our
inventories in the first half of 2009 to take advantage of lower hog prices
during that period. The price of hogs dropped approximately 25% in the first
half of 2009 and we expect such prices to increase again during the second half
of 2009.  As a result, we increased our lower-cost inventories to
potentially benefit the operating results of our future quarters.  Of
the remaining decrease, $12.0 million was attributable to the change of cash
flow from accounts receivable due to the fact that (i) the revenue in the
six months ended June 30, 2009 was significantly increased compared to same
period last year and (ii) we sold more through our wholesaler and food
service distributors channel and the turnover rate of the accounts receivable
for this channel is a little higher than for our other channels.  In
addition, $5.1 million of the decrease was attributable to the change in cash
flow from deposits from customers due to the fact that we received less
deposits from customers in the first half of 2009 compared to the same period of
2008 due primarily to our efforts to encourage our sales in this
period.








32




Net cash
provided by financing activities was $28.3 million during the six months ended
June 30, 2009, a decrease of $1.9 million compared to the net cash provided
by financing activities of $30.2 million for the same period of the prior
year.  We had net repayments of $6.1 million for short-term bank
loans and received $4.7 million in net proceeds from long-term bank loans
during the current period.




At June
30, 2009, Henan Zhongpin had short-term bank and governmental loans in the
aggregate amount of $82.1 million with interest rates ranging from 4.86% to
7.29% per annum, as shown below.




Bank
                    
                    Amount
                      Borrowed
                    
                    
                    InterestRate
                    
                    MaturityDateAgriculture
      Bank of China
                    
                    $
                    4,391,165
                    
                    
                    
                    5.58
                    %
                    12/21/20095,708,514
                    
                    
                    
                    5.31
                    
                    01/04/20101,024,605
                    
                    
                    
                    5.31
                    
                    01/21/20105,415,770
                    
                    
                    
                    5.31
                    
                    03/12/20107,757,725
                    
                    
                    
                    5.31
                    
                    03/30/2010Industrial
      and Commercial Bank of China
                    
                    
                    2,195,582
                    
                    
                    
                    4.86
                    %
                    08/17/2009Rabobank
      Nederland Shanghai
                    
                    
                    2,927,443
                    
                    
                    
                    5.31
                    %
                    05/28/2010Shanghai
      Pudong Development Bank of China
                    
                    
                    2,195,582
                    
                    
                    
                    5.31
                    %
                    03/15/2010731,861
                    
                    
                    
                    5.31
                    
                    03/16/20101,463,722
                    
                    
                    
                    5.31
                    
                    03/16/20101,463,722
                    
                    
                    
                    5.31
                    
                    03/18/20103,220,188
                    
                    
                    
                    5.31
                    
                    03/22/20105,562,142
                    
                    
                    
                    5.31
                    
                    03/25/2010Agriculture
      Development Bank of China
                    
                    
                    7,318,609
                    
                    
                    
                    5.31
                    %
                    11/18/20095,123,026
                    
                    
                    
                    4.86
                    
                    11/24/20092,195,582
                    
                    
                    
                    4.86
                    
                    11/25/2009China
      CITIC Bank
                    
                    
                    3,659,305
                    
                    
                    
                    5.31
                    %
                    03/25/2010China
      Merchants Bank
                    
                    
                    5,854,887
                    
                    
                    
                    5.31
                    %
                    06/04/20102,927,443
                    
                    
                    
                    5.31
                    
                    06/22/2010Guangdong
      Development Bank
                    
                    
                    4,391,165
                    
                    
                    
                    7.29
                    %
                    09/17/2009China
      Construction Bank
                    
                    
                    4,391,165
                    
                    
                    
                    5.31
                    %
                    06/10/2010Xuchang
      Merchants Bank
                    
                    
                    2,195,582
                    
                    
                    
                    4.86
                    %
                    11/18/2009City
      Finance – short-term
                    
                    
                    29,274
                    
                    
                    
                    
                    
                    ExtendableTotal
                    
                    $
                    82,144,059




33




In June
2009, Henan Zhongpin entered into a mutual guarantee agreement with Henan
Huanghe Enterprises Group Co., Ltd. (“Huanghe Group”), a group corporation
based in Henan Province that is not affiliated with our company or with any of
our subsidiaries. Under the agreement, Henan Zhongpin agreed to guarantee bank
loans of Huanghe Group in an amount up to $8.8 million and Huanghe Group agreed
to guarantee Henan Zhongpin’s bank loans in an amount up to $8.8 million. The
agreement expires in June 2010.  At the expiration of the
agreement, each party will remain obligated under its guarantee for any loans
that are outstanding on the date of expiration of the
agreement.   At June 30, 2009, Henan Zhongpin had
outstanding guarantees for $8.8 million of Huanghe Group’s bank
loans.  All of the bank loans guaranteed by Henan Zhongpin will mature
within the next 12 months.




In April
2008, Henan Zhongpin entered into a mutual guarantee agreement with Xuji Group
Co., Ltd., a group corporation based in Henan Province that is not affiliated
with our company or with any of our subsidiaries. Under the agreement, Henan
Zhongpin agreed to guarantee bank loans of Xuji Group in an amount up to $44.2
million and Xuji Group agreed to guarantee Henan Zhongpin's bank loans in
an amount up to $44.2 million. The agreement expired in March
2009.  At the expiration of the agreement, each party remained
obligated under its guarantee for any loans that were outstanding on the date of
expiration of the agreement.  At June 30, 2009, Henan Zhongpin had
outstanding guarantees for $4.4 million of Xuji Group’s bank loans.




In June
2009, Henan Zhongpin entered into a loan agreement with China Construction Bank
pursuant to which Henan Zhongpin borrowed RMB 50 million ($7.3 million). All
amounts borrowed under the loan agreement bear interest at a floating rate that
is based on the prime rate published by the People’s Bank of China for loans
with the same or similar terms on the drawdown date (5.4% per annum on June 30,
2009) and are payable on June 10, 2011.  Borrowings under the loan
agreement are guaranteed by the land usage right, property and plant of Henan
Zhongpin.




In May
2009, Henan Zhongpin entered into a loan agreement with China Minsheng Bank
pursuant to which Henan Zhongpin borrowed RMB 50 million ($7.3 million). All
amounts borrowed under the loan agreement bear interest at a floating rate that
is based on the prime rate published by the People’s Bank of China for loans
with the same or similar terms on the drawdown date (5.4% per annum on June 30,
2009) and are payable on May 6, 2011. Borrowings under the loan agreement are
guaranteed by our wholly-owned subsidiary, Yongcheng Zhongpin Food Company
Limited.




In
November 27, 2008, Henan Zhongpin entered into a loan agreement with Bank of
Communications pursuant to which Henan Zhongpin borrowed RMB 40 million ($5.9
million). All amounts borrowed under the loan agreement bear interest at a
floating rate that is based on the prime rate published by the People’s Bank of
China (5.94% per annum on June 30, 2009) and are payable on November 27,
2010.  The accrued interest on this loan is payable quarterly on the
20th day of last month of each quarter.   Borrowings under the
loan agreement are secured by the land usage right, property and plant of our
wholly-owned subsidiary, Luoyang Zhongpin Food Co., Ltd.




On
November 5, 2008, Henan Zhongpin entered into a sale-leaseback agreement with
CMB Finance Lease Company (“CMB Finance”) pursuant to which we sold to CMB
Finance equipment with a book net value of $6.6 million for $4.6 million and
leased such equipment back. The lease payments for this equipment are paid on a
monthly basis over a three-year period and consist of a fixed payment based upon
a 36-month amortization of the purchase price plus an interest component
that is based upon the rate announced from time to time by the People’s Bank of
China for three-year loans.  At June 30, 2009, the monthly rental fee
under the agreement was $138,761, which included an interest component
calculated at the rate of 5.4% per annum. Henan Zhongpin has the right at the
end of the lease term to repurchase all of the equipment for a nominal purchase
price.


34


In May
2008, Henan Zhongpin entered into a credit agreement with Rabobank Nederland
Shanghai Branch that provided for a three-year term loan of up to RMB 80 million
($11.7 million). On June 10, 2008, the first 50% of the long-term loan was
funded by the bank. The remaining 50% of the long-term loan was drawn down by
Henan Zhongpin on July 10, 2008. Amounts currently outstanding under the
long-term loan bear interest at the rate of 7.56% per annum, which was the
interest rate published by the People’s Bank of China on July 10, 2008 for loans
with the same or similar terms. The accrued interest on this loan is payable on
a quarterly basis. Of the outstanding principal under the long-term loan, 25% is
payable 24 months after the first drawdown date (June 10, 2008), 37.5% is
payable 30 months after the first drawdown date and the balance is payable 36
months after the first drawn down date.




Borrowings
under the term loan agreement are guaranteed by our subsidiaries, Anyang
Zhongpin Food Co., Ltd. and Zhumadian Zhongpin Food Ltd., are secured by
mortgages on our prepared pork production facilities located in Changge City,
Henan Province and are subject to various financial and non-financial covenants,
including a debt to net worth ratio, a debt to EBITDA ratio, an interest
coverage ratio, a required minimum tangible net worth, restrictions on
investments in fixed assets and financial assets, on inter-company indebtedness
and on consolidated contingent liabilities and a requirement that a minimum
percentage of Henan Zhongpin’s consolidated EBITDA be generated by Henan
Zhongpin and the guarantors. Henan Zhongpin also is prohibited from paying
dividends in an amount in excess of 50% of its retained earnings during the term
of the credit facility.




In April
2008, Henan Zhongpin entered into a loan agreement with China CITIC Bank
pursuant to which Henan Zhongpin borrowed RMB 30 million ($4.4 million). All
amounts borrowed under the loan agreement bear interest at a floating rate that
is based on the prime rate published by the People’s Bank of China (5.67% on
June 30, 2009) and are payable on January 23, 2010. Borrowings under the
loan agreement are guaranteed by Xuji Group.




In May
2002, Henan Zhongpin entered into a loan agreement with Bank of Communications,
Zhengzhou Branch, which is the intermediary bank for a 40-year term loan in the
amount of $2,504,969 from the Canadian government. Under the terms of the loan
agreement, 58% of the principal amount ($1,452,882) of this loan bears interest
at the fixed rate of 6.02% per annum and remaining principal amount of this loan
is interest free. The loan is repayable in a fixed amount of $145,671, which
includes both principal and interest, that is payable on a semi-annual basis
through May 15, 2042. Borrowings under the loan agreement are guaranteed by the
Financing Department, Henan Province.




We
believe our existing cash and cash equivalents, together with our available
lines of credit ($206.8 million at June 30, 2009), will be sufficient to finance
our investment in new facilities, operating requirements and anticipated capital
expenditures of approximately $62.8 million over the next 12 months. We intend
to use such funds over the next 12 months to fund our capacity expansion and the
construction of supporting facilities and to supplement our working capital
requirements to enable us to strengthen our market position and accelerate our
growth. However,
if market conditions are favorable, we may also consider issuing additional
long-term debt or equity securities to provide additional funds for such
purposes.


Inflation
and Seasonality




While demand for our products in
general is relatively high before the Chinese New Year in January or February
each year and lower thereafter, we do not believe our operations have been
materially affected by inflation or seasonality.




Item
3.   Quantitative and Qualitative Disclosures About Market
Risk




Disclosures About Market
Risk. We may be exposed to changes in financial market conditions in the
normal course of business. Market risk generally represents the risk that losses
may occur as a result of movements in interest rates and equity prices. We
currently do not use financial instruments in the normal course of business that
are subject to changes in financial market conditions.


35




Currency Fluctuations and Foreign
Currency Risk. Substantially all of our operations are conducted in the
PRC, with the exception of our export business and limited overseas purchases of
raw materials.  Most of our sales and purchases are conducted within
the PRC in RMB, which is the official currency of the PRC.  As a
result, the affect of the fluctuations of exchange rates is considered minimal
to our business operations.




Substantially all of our revenues and
expenses are denominated in RMB. However, we use the U.S. dollar for financial
reporting purposes. Conversion of RMB into foreign currencies is regulated by
the People’s Bank of China through a unified floating exchange rate system.
Although the PRC government has stated its intention to support the value of the
RMB, there can be no assurance that such exchange rate will not again become
volatile or that the RMB will not devalue significantly against the U.S. dollar.
Exchange rate fluctuations may adversely affect the value, in U.S. dollar terms,
of our net assets and income derived from our operations in the
PRC.




Interest Rate Risk. We do not
have significant interest rate risk as the interest we pay on substantially all
of our debt obligations is calculated at a fixed rate in accordance with the
terms of such indebtedness.




Credit Risk. We have not
experienced significant credit risk, as most of our customers are long-term
customers with superior payment records. Our receivables are monitored regularly
by our credit managers.




Item
4.   Controls and Procedures




Our management, with the participation
of our chief executive officer and chief financial officer, has evaluated the
effectiveness of our disclosure controls and procedures (as such term is defined
in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the
“Exchange Act”)) as of the end of the period covered by this
report.  Based on such evaluation, our chief executive officer and
chief financing officer concluded that, as of the end of such period, our
disclosure controls and procedures were effective to ensure that information
that we are required to disclose in reports that we file or submit under the
Exchange Act were recorded, processed, summarized and reported within the time
periods specified in SEC rules and forms.




There were no changes in our internal
control over financial reporting (as such term is defined in Rules 13a-15(f) and
15d-15(f) under the Exchange Act) during the fiscal quarter to which this report
relates that have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.


36




Part
II – Other Information




Item
1.   Legal Proceedings




None.




Item
1A.  Risk Factors




During the six months ended June 30,
2009, there were no material changes to the risk factors previously disclosed in
our Annual Report on Form 10-K for the year ended December 31, 2008, except as
follows:




The
recent outbreak of swine influenza (swine flu) could adversely affect our
business, results of operations and financial condition.




An occurrence of a serious animal
disease, such as swine influenza (swine flu), a respiratory disease of pigs
caused by influenza viruses, or any outbreak of other epidemics in the PRC
affecting animals or humans might result in material disruptions to our
operations, material disruptions to the operations of our customers or
suppliers, a decline in the supermarket or food retail industry or slowdown in
economic growth in the PRC and surrounding regions, any of which could have a
material adverse effect on our operations and turnover.  There have
recently been confirmed cases of human infection of swine flu in the United
States and Mexico, among other countries, that, in some cases, have led to human
deaths.  On June 11, 2009, the World Health Organization (WHO) raised
its flu alert level to level 6, the highest level, which indicates a pandemic,
although the WHO maintains that the severity of the pandemic is
moderate.  According to the WHO, as of July 6, 2009, there were 2,040
reported cases of human infections (but no deaths) with the H1N1 virus in the
PRC.  According to the U.S. Center for Disease Control and Prevention,
swine flu cannot be contracted by humans through eating properly-handled and
cooked pork or pork products.  In addition, our procurement and
production facilities have not been affected by swine flu and we are not aware
of any recent cases of swine flu anywhere in the PRC.  However, there
can be no assurance that our facilities or products will not be affected by
swine flu or similar influenzas in the future, or that the market for pork
products in the PRC will not decline as a result of fear of such
disease.  If either case should occur, our business, results of
operations and financial condition would be adversely and materially
affected.




Item
2.   Unregistered Sales of Equity Securities and Use of
Proceeds




(a)           None.




(b)           Not
Applicable.




(c)           None.




Item
3.   Defaults Upon Senior Securities




Not Applicable.




Item
4.   Submission of Matters to a Vote of Security
Holders




On June 15, 2009, we held our Annual
Meeting of Stockholders (the “Meeting”) in which the shareholders:





1.   Elected Xianfu Zhu,
Baoke Ben, Min Chen, Raymond Leal and Yaoguo Pan as directors for a term of one
year; and





2.   Ratified the
appointment of BDO Guangdong Dahua Delu CPAs (“BDO”) as our independent
registered public accounting firm for the fiscal year ending December 31,
2009.





The shares were voted at the Meeting as
follows:


37





For
                  
                  
                  Withheld(1) 
      Election of DirectorsXianfu
      Zhu
                  
                  
                  25,572,212
                  
                  
                  
                  137,831Baoke
      Ben
                  
                  
                  25,504,599
                  
                  
                  
                  208,444Min
      Chen
                  
                  
                  25,541,101
                  
                  
                  
                  171,942Raymond
      Leal
                  
                  
                  25,635,734
                  
                  
                  
                  77,309Yaoguo
      Pan
                  
                  
                  25,632,476
                  
                  
                  
                  80,567For
                  
                  
                  Against
                  
                  Abstain
                  
                  Broker Non-Vote(2) 
      Ratification of Auditors
                  
                  
                  25,637,712
                  
                  
                  
                  13,087
                  
                  62,244
                  
                  —




Item
5.   Other Information




None.




Item
6.   Exhibits




The exhibits required by this item are
set forth on the Exhibit Index attached hereto.


38




Signatures




Pursuant to the requirements of the
Securities Exchange Act of 1934, we have duly caused this report to be signed on
our behalf by the undersigned thereunto duly authorized.




Date:  August
      10, 2009
                Zhongpin
      Inc.(Company)By:
                /s/ Xianfu ZhuXianfu
      ZhuChief
      Executive OfficerBy:
                /s/ Feng WangFeng
      WangChief
      Financial Officer




39




Exhibit
Index




Exhibit
                  Number
                
                Exhibit Title31.1*
                
                Certification
      of our Chief Executive Officer pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002.31.2*
                
                Certification
      of our Chief Financial Officer pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002.32.1*
                
                Certification
      of our Chief Executive Officer pursuant to Section 906 of the
      Sarbanes-Oxley Act of 2002.32.2*
                
                Certification
      of our Chief Financial Officer pursuant to Section 906 of the
      Sarbanes-Oxley Act of
2002.


______________________





*           Filed
herewith




40