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 THE


SECURITIES EXCHANGE ACT OF
1934





For
      the quarterly period ended March 31,
2009




or





 ̈           TRANSITIONREPORT PURSUANT TO SECTION 13 OR
15(d) OF THE


SECURITIES 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 May 1, 2009, 27,609,502 shares
of the registrant’s common stock, and 2,094,037 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





PagePart I
                                                
                                                Financial InformationItem
      1.
                                                Unaudited
      Financial Statements:Consolidated
      Balance Sheets as of March 31, 2009 (unaudited) and December 31,
      2008
                                                
                                                2Consolidated
      Statements of Operations and Comprehensive Income (unaudited) for the
      three-month periods ended March 31, 2009 and 2008
                                                
                                                3Consolidated
      Statements of Cash Flows (unaudited) for the three-month periods ended
      March 31, 2009 and 2008
                                                
                                                4Notes
      to Consolidated Financial Statements (unaudited)
                                                
                                                5Item
      2.
                                                Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
                                                
                                                19Item
      3.
                                                Quantitative
      and Qualitative Disclosures About Market Risk
                                                
                                                30Item
      4.
                                                Controls
      and Procedures
                                                
                                                31Part II
                                                
                                                Other InformationItem
      1.
                                                Legal
      Proceedings
                                                
                                                32Item
      1A.
                                                Risk
      Factors
                                                
                                                32Item
      2.
                                                Unregistered
      Sales of Equity Securities and Use of Proceeds
                                                
                                                32Item
      3.
                                                Defaults
      Upon Senior Securities
                                                
                                                32Item
      4.
                                                Submission
      of Matters to a Vote of Security Holders
                                                
                                                32Item
      5.
                                                Other
      Information
                                                
                                                33Item
      6.
                                                Exhibits
                                                
                                                33Signatures
                                                
                                                34










ZHONGPIN
INC.





Part
I - Financial Information





Item
1. Financial Statements





The accompanying unaudited consolidated
balance sheets, statements of operations and comprehensive income, and of cash
flows and related 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 period ended March 31, 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)




March 31, 2009
                  
                  
                  December 31, 2008(Unaudited)ASSETSCurrent
      assetsCash
      and cash equivalents
                  
                  $
                  47,963,950
                  
                  
                  $
                  41,857,166Restricted
      cash
                  
                  
                  14,909,977
                  
                  
                  
                  17,040,201Bank
      notes receivable
                  
                  
                  4,023,903
                  
                  
                  
                  1,268,890Accounts
      receivable, net of allowance for doubtful accounts of $1,495,452
      and $1,215,901
                  
                  
                  27,894,066
                  
                  
                  
                  20,432,752Other
      receivables, net of allowance for doubtful accounts of $136,731 and
      $500,447
                  
                  
                  873,013
                  
                  
                  
                  1,907,243Purchase
      deposits
                  
                  
                  26,938,219
                  
                  
                  
                  10,738,147Inventories
                  
                  
                  25,332,125
                  
                  
                  
                  16,724,217Prepaid
      expenses and deferred charges
                  
                  
                  297,599
                  
                  
                  
                  360,265VAT
      recoverable
                  
                  
                  9,572,278
                  
                  
                  
                  7,432,365Assets
      held for sale
                  
                  
                  622,648
                  
                  
                  
                  623,871Deferred
      tax assets
                  
                  
                  310,446
                  
                  
                  
                  311,055Other
      current assets
                  
                  
                  127,732
                  
                  
                  
                  96,402Total
      current assets
                  
                  
                  158,865,956
                  
                  
                  
                  118,792,574Property,
      plant and equipment (net)
                  
                  
                  196,462,483
                  
                  
                  
                  169,667,998Construction
      in progress
                  
                  
                  17,804,025
                  
                  
                  
                  40,773,039Deferred
      charges
                  
                  
                  219,683
                  
                  
                  
                  231,769Other
      non-current assets
                  
                  
                  411,694
                  
                  
                  
                  412,503Total
      assets
                  
                  $
                  373,763,841
                  
                  
                  $
                  329,877,883LIABILITIES
      AND EQUITYCurrent
      liabilitiesShort-term
      loans
                  
                  $
                  95,261,780
                  
                  
                  $
                  67,893,001Bank
      notes payable
                  
                  
                  18,038,590
                  
                  
                  
                  13,252,180Long-term
      loans - current portion
                  
                  
                  4,534,266
                  
                  
                  
                  145,671Accounts
      payable
                  
                  
                  11,699,457
                  
                  
                  
                  9,528,937Other
      payables
                  
                  
                  8,249,556
                  
                  
                  
                  7,130,384Accrued
      liabilities
                  
                  
                  5,590,452
                  
                  
                  
                  5,055,660Deposits
      from customers
                  
                  
                  3,065,158
                  
                  
                  
                  4,331,774Tax
      payable
                  
                  
                  1,308,200
                  
                  
                  
                  1,382,589Deferred
      tax liabilities
                  
                  
                  94,626
                  
                  
                  
                  94,812Total
      current liabilities
                  
                  
                  147,842,085
                  
                  
                  
                  108,815,008Deposits
      from customers
                  
                  
                  2,427,498
                  
                  
                  
                  2,420,967Capital
      lease obligation
                  
                  
                  3,884,542
                  
                  
                  
                  4,252,743Long-term
      loans
                  
                  
                  19,043,481
                  
                  
                  
                  23,475,174Total
      liabilities
                  
                  
                  173,197,606
                  
                  
                  
                  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; 27,609,592 and
      27,504,918 shares issued and outstanding
                  
                  
                  27,609
                  
                  
                  
                  27,505Additional
      paid in capital
                  
                  
                  105,970,620
                  
                  
                  
                  105,680,772Retained
      earnings
                  
                  
                  75,850,294
                  
                  
                  
                  66,108,995Accumulated
      other comprehensive income
                  
                  
                  18,715,618
                  
                  
                  
                  19,094,590Total
      equity
                  
                  
                  200,566,235
                  
                  
                  
                  190,913,991Total
      liabilities and equity
                  
                  $
                  373,763,841
                  
                  
                  $
                  329,877,883




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




2




ZHONGPIN
INC. AND SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME


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





Three Months Ended
                          March 31,2009
                        
                        
                        2008RevenuesSales
      Revenues
                        
                        $
                        153,849,448
                        
                        
                        $
                        108,727,750Cost
      of sales
                        
                        
                        (134,705,646
                        )
                        
                        
                        (94,536,207
                        )Gross
      Profit
                        
                        
                        19,143,802
                        
                        
                        
                        14,191,543Operating
      expensesGeneral
      and administrative expenses
                        
                        
                        (4,608,286
                        )
                        
                        
                        (3,986,029
                        )Selling
      expenses
                        
                        
                        (2,793,278
                        )
                        
                        
                        (1,984,233
                        )Research
      and development
                        
                        
                        (30,578
                        )
                        
                        
                        (418,632
                        )Amortization
      of loss from sale-leaseback
                        
                        
                        (16,657
                        )
                        
                        
                        —Total
      operating expenses
                        
                        
                        (7,448,799
                        )
                        
                        
                        (6,388,894
                        )Income
      from operations
                        
                        
                        11,695,003
                        
                        
                        
                        7,802,649Other
      income (expense)Interest
      expense
                        
                        
                        (1,499,520
                        )
                        
                        
                        (170,487
                        )Other
      income (expenses)
                        
                        
                        168,073
                        
                        
                        
                        65,893Exchange
      gain (loss)
                        
                        
                        1,333
                        
                        
                        
                        (23,758
                        )Government
      subsidies
                        
                        
                        94,955
                        
                        
                        
                        139,544Total
      other income (expense)
                        
                        
                        (1,235,159
                        )
                        
                        
                        11,192Net
      income before taxes
                        
                        
                        10,459,844
                        
                        
                        
                        7,813,841Provision
      for income taxes
                        
                        
                        (718,545
                        )
                        
                        
                        (526,081
                        )Net
      income after tax
                        
                        $
                        9,741,299
                        
                        
                        $
                        7,287,760Foreign
      currency translation adjustment
                        
                        
                        (378,972
                        )
                        
                        
                        5,939,494Comprehensive
      income
                        
                        $
                        9,362,327
                        
                        
                        $
                        13,227,254Basic
      earnings per common share
                        
                        $
                        0.33
                        
                        
                        $
                        0.25Diluted
      earnings per common share
                        
                        $
                        0.33
                        
                        
                        $
                        0.24Basic
      weighted average shares outstanding
                        
                        
                        29,486,642
                        
                        
                        
                        29,333,384Diluted
      weighted average shares outstanding
                        
                        
                        29,609,028
                        
                        
                        
                        29,852,725




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)




Three Months Ended March 31,2009
                
                
                2008Cash
      flows from operating activities:Net
      income
                
                $
                9,741,299
                
                
                $
                7,287,760Adjustments
      to reconcile net income to net cash provided by (used in)
      operations:Depreciation
                
                
                1,801,235
                
                
                
                883,113Amortization
                
                
                187,858
                
                
                
                145,662Provision
      for allowance for bad debt
                
                
                (102,628
                )
                
                
                —Non-cash
      compensation expense
                
                
                289,917
                
                
                
                404,573Changes
      in operating assets and liabilities:Accounts
      receivable
                
                
                (7,783,530
                )
                
                
                4,513,744Other
      receivables
                
                
                1,378,559
                
                
                
                (2,271,651
                )Purchase
      deposits
                
                
                (16,221,596
                )
                
                
                1,269,671Prepaid
      expense
                
                
                61,962
                
                
                
                (99,329
                )Inventories
                
                
                (8,640,944
                )
                
                
                2,671,624Tax
      refunds receivable
                
                
                (2,154,544
                )
                
                
                1,934,948Other
      current assets
                
                
                (31,519
                )
                
                
                —Deferred
      charges
                
                
                11,632
                
                
                
                (6,585
                )Accounts
      payable
                
                
                2,189,263
                
                
                
                (408,402
                )Other
      payables
                
                
                1,131,977
                
                
                
                1,410,183Research
      and development grants payable
                
                
                —
                
                
                
                10,504Accrued
      liabilities
                
                
                544,581
                
                
                
                1,071,048Taxes
      payable
                
                
                (71,681
                )
                
                
                —Deposits
      from clients
                
                
                (1,258,162
                )
                
                
                4,576,652Deposits
      from clients – Long term portion
                
                
                11,277
                
                
                
                —Net
      cash provided (used) by operating activities
                
                
                (18,915,044
                )
                
                
                23,393,515Cash
      flows from investing activities:Construction
      in progress
                
                
                (2,749,323
                )
                
                
                (23,039,757
                )Additions
      to property and equipment
                
                
                (3,441,307
                )
                
                
                (1,560,363
                )Additional
      to intangible assets
                
                
                —
                
                
                
                (355,111
                )Proceeds
      on disposal of fixed assets
                
                
                —
                
                
                
                18,433Increase
      in restricted cash
                
                
                2,096,882
                
                
                
                —Net
      cash used in investing activities
                
                
                (4,093,748
                )
                
                
                (24,936,798
                )Cash
      flows from financing activities:Proceeds
      repayment from (of) bank notes
                
                
                2,054,947
                
                
                
                (1,395,440
                )Proceeds
      from short-term bank loans
                
                
                52,079,524
                
                
                
                15,768,468Repayment
      of short-term loans
                
                
                (24,576,854
                )
                
                
                (14,518,378
                )Proceeds
      from capital lease obligation
                
                
                (359,875
                )
                
                
                —Proceeds
      from common stock
                
                
                —
                
                
                
                1,236,923Net
      cash provided by financing activities
                
                
                29,197,742
                
                
                
                1,091,573Effects
      of rate changes on cash
                
                
                (82,166
                )
                
                
                1,770,536Increase
      in cash and cash equivalents
                
                
                6,106,784
                
                
                
                1,318,826Cash
      and cash equivalents, beginning of period
                
                
                41,857,166
                
                
                
                48,701,536Cash
      and cash equivalents, end of period
                
                $
                47,963,950
                
                
                $
                50,020,362Supplemental
      disclosures of cash flow information:Cash
      paid for interest
                
                
                1,527,258
                
                
                
                901,674Cash
      paid for income taxes
                
                
                753,430
                
                
                
                424,919




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 Industry Company, Ltd.
                                                                
                                                                Jan.
      17, 2004
                                                                
                                                                18,000,000
      RMB
                                                                
                                                                
                                                                
                                                                100
                                                                %($2,173,913)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 CompanyLimited
                                                                
                                                                April
      26, 2007
                                                                
                                                                5,000,000
      RMB
                                                                  ($647,677)
                                                                
                                                                
                                                                
                                                                100
                                                                %




5




ZHONGPIN
INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


Name
                
                Date
      of
                  Incorporation
                
                Registered
                  Capital
                
                
                Percentage
                  of OwnershipYongcheng
      Zhongpin Food Company Limited
                
                June
      1, 2007
                
                5,000,000
      RMB
                  ($646,836)
                
                
                
                100
                %Tianjin
      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 andAnimal
      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 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 collectibility 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 operations 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 credit-worthy 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 its 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 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 our 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 March 31, 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.





March 31, 2009
                  
                  
                  December 31, 2008Beginning
      balance
                  
                  $
                  1,716,348
                  
                  
                  $
                  1,341,872Additions
      charged to expense
                  
                  
                  (105,989
                  )
                  
                  
                  374,476Ending
      balance
                  
                  $
                  1,610,359
                  
                  
                  $
                  1,716,348





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.





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
      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 improvement 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
Use Rights





The Chinese government owns all of the
parcels of land on which the Company's plants are built. In the PRC, land use
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 use 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/to related parties
and stockholders are reasonable estimates of their fair value as 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 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 collection of output VAT instead of a
receivable.





Share-Based
Payment





Effective January 1, 2006, the Company
adopted Statement of Financial Accounting Standards No 123(R), “ Share-Based Payments “ (“SFAS
No. 123(R)”). SFAS 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 123(R) 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.
123(R).





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 March 31, 2009 and 2008 were 1,775,827, and 2,170,827,
respectively, which were all 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 March 31, 2009 and 2008
were $30,578 and $418,632, 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. The
adoption of SFAS No. 160 did not have a material impact on the Company’s
financial statements.





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 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 in Cash upon Conversion (Including Partial Cash
Settlement).  FSP APB 14-1 will require entities to separately
account 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 period ended March 31,
2008 have been changed in conformity with the current year presentation of the
consolidated financial statements and the corresponding notes.




3.           INVENTORIES




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




March 31, 2009
                  
                  
                  December 31, 2008(Unaudited)Raw
      materials
                  
                  $
                  5,431,833
                  
                  
                  $
                  4,361,159Low
      value consumables and packing materials
                  
                  
                  1,042,013
                  
                  
                  
                  817,862Work
      in progress
                  
                  
                  1,620,723
                  
                  
                  
                  1,961,693Finished
      goods
                  
                  
                  17,237,556
                  
                  
                  
                  9,583,503$
                  25,332,125
                  
                  
                  $
                  16,724,217




11




ZHONGPIN
INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS




4.           PROPERTY,
PLANT AND EQUIPMENT




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





March 31, 2009
                    
                    
                    December 31, 2008(Unaudited)Plants
      and buildings
                    
                    $
                    105,194,806
                    
                    
                    $
                    86,521,013Machinery
      and equipment
                    
                    
                    60,787,018
                    
                    
                    
                    50,803,893Office
      furniture and equipment
                    
                    
                    2,188,823
                    
                    
                    
                    2,043,418Vehicles
                    
                    
                    2,483,938
                    
                    
                    
                    2,463,388Land
      use rights
                    
                    
                    37,176,210
                    
                    
                    
                    37,249,227Accumulated
      depreciation and amortization
                    
                    
                    (11,368,312
                    )
                    
                    
                    (9,412,941
                    )$
                    196,462,483
                    
                    
                    $
                    169,667,998




The
depreciation and amortization expenses for the three months ended March 31, 2009
and 2008 were $1,989,092 and $1,028,775, respectively.




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




March 31, 2009
                  
                  
                  December 31, 2008(Unaudited)Plants
      and buildings
                  
                  $
                  486,592
                  
                  
                  $
                  487,547Machinery
      and equipment
                  
                  
                  6,080,111
                  
                  
                  
                  6,092,053Accumulated
      depreciation
                  
                  
                  (181,263
                  )
                  
                  
                  (90,809
                  )$
                  6,385,440
                  
                  
                  $
                  6,488,791





5.           CONSTRUCTION
IN PROGRESS




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




Construction Project
                              
                              Date or
                                Estimated Date
                                Put in Service(1)
                              
                              March 31, 2009
                              
                              
                              December 31, 2008Replacement
      and maintenance in Changge industrial park
                              
                              January
      2009
                              
                              $
                              408,635
                              
                              
                              $
                              48,435Waste
      water solution system in Deyang
                              
                              April
      2009
                              
                              
                              —
                              
                              
                              
                              7,329Production
      facility for chilled and frozen pork in Zhumadian
                              
                              April
      2009
                              
                              
                              20,187
                              
                              
                              
                              16,709Production
      facility for chilled and frozen pork in Tianjin
                              
                              April
      2010
                              
                              
                              104,595
                              
                              
                              
                              —Production
      line for prepared pork in Changge industrial plant
                              
                              December
      2008
                              
                              
                              796,018
                              
                              
                              
                              547,225Production
      line for fruits and vegetables in Changge industrial park
                              
                              April
      2009
                              
                              
                              14,651,541
                              
                              
                              
                              13,670,361Production
      facility for chilled and frozen pork in Yongcheng
                              
                              April
      2009
                              
                              
                              —
                              
                              
                              
                              25,434,684Water
      solution Station in Changge industrial plant
                              
                              December
      2008
                              
                              
                              1,823,049
                              
                              
                              
                              1,048,296$
                              17,804,025
                              
                              
                              $
                              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.




12




ZHONGPIN
INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS




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. Over the past three years, the Company constructed
new production facilities 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 expansion of Yanling City, the location of the Yanling
facility is now quite close 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 will
require a large investment. In addition, the Company’s newly-built vegetable and
fruit production facility in Changge City, which is just 50 kilometers away from
Yanling and has an annual production capacity of 30,000 metric tons, was put
into service in April 2009.




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 is reasonable in relation to its current fair value.




In
accordance with SFAS No. 144, this facility has been presented on the balance
sheet as of March 31, 2009 as “assets held for sale” and has been 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 use rights and recorded an
impairment loss as follows:




Carrying
                        Value
                      
                      
                      Impairment
                      
                      
                      Realizable
                        ValuePlant
      and building
                      
                      $
                      683,024
                      
                      
                      $
                      523,982
                      
                      
                      $
                      159,042Machine
      and equipment
                      
                      
                      1,959,224
                      
                      
                      
                      1,672,725
                      
                      
                      
                      286,499Electronic
      percentage
                      
                      
                      8,530
                      
                      
                      
                      8,090
                      
                      
                      
                      440Land
      use rights
                      
                      
                      176,667
                      
                      
                      
                      —
                      
                      
                      
                      176,667Total
                      
                      $
                      2,827,445
                      
                      
                      $
                      2,204,797
                      
                      
                      $
                      622,648




13




ZHONGPIN
INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS




6.           ASSETS
HELD FOR SALE (continued)




Management
believes that 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 of the Yanling facility in this region are
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.




7.           SHORT-TERM
BANK LOANS




Short-term
bank loans are due within one year. Of the $95.3 million aggregate principal
amount of short-term bank loans at March 31, 2009, loans in the principal amount
of $59.4 million were secured by the Company’s plants located primarily in Henan
Province, loans in the aggregate principal amount of $2.9 million were
guaranteed by the Company’s subsidiaries, Zhumadian Zhongpin Food Company
Limited and Anyang Zhongpin Food Company Limited, and loans in the aggregate
principal amount of $33.0 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 ranging from 4.86 % to 7.47% per annum.




8.           LONG-TERM
BANK LOANS




Amounts
outstanding under our long-term debt arrangements at March 31, 2009 and December
31, 2008 were as follows:




Bank
                  
                  March 31, 2009
                  
                  
                  December 31, 2008(Unaudited)Canadian
      Government Transfer Loan
                  
                  $
                  1,634,770
                  
                  
                  $
                  1,634,771Rabobank
      Nederland Shanghai
                  
                  
                  11,702,920
                  
                  
                  
                  11,725,906CITIC
      Industrial Bank
                  
                  
                  4,388,596
                  
                  
                  
                  4,397,215Bank
      of Communications
                  
                  
                  5,851,461
                  
                  
                  
                  5,862,953Current
      portion
                  
                  
                  (4,534,266
                  )
                  
                  
                  (145,671
                  )Total
                  
                  $
                  19,043,481
                  
                  
                  $
                  23,475,174




In
December 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 March 31, 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 use rights, property and plant of the Company’s
wholly-owned subsidiary, Luoyang Zhongpin Food Company, Ltd.




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.




14




ZHONGPIN
INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS




8.           LONG-TERM
BANK LOANS (continued)




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 CITIC Industrial 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 March
31, 2009) and are payable on January 23, 2010. The accrued interest on this loan
is payable quarterly on the 20th day of
last month of each quarter since the drawdown date. Borrowings under the loan
agreement are guaranteed by Xuji Group.




In May
2002, Henan Zhongpin entered into a loan agreement with China Communication
Bank, 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 March 31, 2009, an aggregate of 35,163 shares of the
Company’s Series A convertible preferred stock were converted into 35,163
shares of common stock. For cash flow purposes, these transactions were non-cash
transactions.




During
the three months ended March 31, 2009, warrants to purchase an aggregate of
36,388 units were exercised on a cashless basis. Each unit is comprised of two
shares of the Company’s Series A preferred stock and a five-year warrant to
purchase one share of the Company’s common stock with the exercise price of
$5.00 per share. At the time of exercise of the unit warrants, the holders also
exercised the underlying warrants to purchase shares of common stock. In
connection with these transactions, the Company issued an aggregate of 69,511
shares of common stock and received no cash proceeds from such issuances. For
cash flow purposes, these transactions were non-cash transactions.




On March
31, 2009, the Company approved for issuance stock purchase options to its Chief
Financial Officer to purchase a total of 100,000 shares of the Company’s common
stock over the next three years.  Of the 100,000 shares, 33,000 are
exercisable on March 31, 2010 at an exercise price of $8.88 per
share.  In accordance with the current rules related to stock based
compensation, the Company has determined that a grant date has not yet occurred
for the 67,000 options that vest in 2011 and 2012 until the option prices are
set.  The 33,000 options that were priced and vest over the 12 month
period ending March 31, 2010 have a fair value of $83,820, none of which has
been expensed as of March 31, 2009.


The
Company adopted the fair value recognition provisions of Statement of Financial
Accounting Standard No. 123R, Share-Based Payment (“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.




15




ZHONGPIN
INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS




9.           EQUITY
TRANSACTIONS (continued)





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:


Three Months Ended March 31,2009
                      
                      
                      2008Expected
      life (years)
                      
                      
                      3
                      
                      
                      
                      —Expected
      volatility
                      
                      
                      40.33
                      %
                      
                      
                      —
                      %Risk-free
      interest rate
                      
                      
                      1.15
                      %
                      
                      
                      —Dividend
      yield
                      
                      
                      —
                      %
                      
                      
                      —
                      %




The
expected volatilities are based on the historical volatility of the Company’s
common stock.  The observation is made on a daily
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
Federal Reserve data system yield curve in effect at the time of
grant.
 
 During
the three months ended March 31, 2009 and 2008, the stock compensation expenses
were $289,917 and $404,573, respectively.


10.           EARNINGS
PER SHARE




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




Three
      Months Ended
                      March
      31,2009
                    
                    
                    2008(Unaudited)
                    
                    
                    (Unaudited)Numerator:Net
      income attributable to commonshareholder
                    
                    $
                    9,741,299
                    
                    
                    $
                    7,287,760Denominator:Weighted
      average common shares
                      outstanding
      – basic
                    
                    
                    29,486,642
                    
                    
                    
                    29,333,384Dilutive
      effect of stock options
                    
                    
                    122,386
                    
                    
                    
                    519,341Weighted
      average common shares
                      outstanding
      – diluted
                    
                    
                    29,609,028
                    
                    
                    
                    29,852,725Basic
      earnings per share
                    
                    $
                    0.33
                    
                    
                    $
                    0.25Diluted
      earnings per share
                    
                    $
                    0.33
                    
                    
                    $
                    0.24




16




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 months ended March 31, 2009
and 2008 were as follows:




Three Months Ended
                  March 31,2009
                
                
                2008Deferred
      subsidies opening balance:Interest
      subsidies
                
                $
                —
                
                
                $
                —Earmarked
      subsidies
                
                
                —
                
                
                
                —Non-earmarked
      subsidies
                
                
                —
                
                
                
                —Total
                
                $
                —
                
                
                $
                —Subsidies
      received:Interest
      subsidies
                
                $
                —
                
                
                $
                —Earmarked
      subsidies
                
                
                —
                
                
                
                —Non-earmarked
      subsidies
                
                
                94,955
                
                
                
                —Total
                
                $
                94,955
                
                
                $
                —Subsidies
      recognized:Interest
      subsidies
                
                $
                —
                
                
                $
                —Earmarked
      subsidies
                
                
                —
                
                
                
                —Non-earmarked
      subsidies
                
                
                94,955
                
                
                
                —Total
                
                $
                94,955
                
                
                $
                —Deferred
      subsidies year ending balance:Interest
      subsidies
                
                $
                —
                
                
                $
                —Earmarked
      subsidies
                
                
                —
                
                
                
                —Non-earmarked
      subsidies
                
                
                94,955
                
                
                
                —Total
                
                $
                94,955
                
                
                $
                —





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.





17




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 (fruit and vegetable segment is not material enough to compete
with meat production). 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
              March
      31,2009
            
            
            2008(Unaudited)
            
            
            (Unaudited)Pork
      and Pork Products:Chilled
      pork
            
            $
            86.3
            
            
            $
            55.0Frozen
      pork
            
            
            44.0
            
            
            
            40.2Prepared
      pork products
            
            
            22.0
            
            
            
            12.0Vegetables
      and Fruits
            
            
            1.5
            
            
            
            1.5$
            153.8
            
            
            $
            108.7Cost
      of Sales:Pork
      products
            
            $
            133.5
            
            
            $
            93.2Vegetables
      and fruits
            
            
            1.2
            
            
            
            1.3Gross
      Profit:Pork
      products
            
            
            12.3
            %
            
            
            13.1
            %Vegetables
      and fruits
            
            
            20.0
            %
            
            
            13.3
            %





18




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.




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 utilize state-of-the-art
equipment in all of our abattoirs 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 $62 million. Upon
completion, this facility will be equipped mostly with state-of-the-art,
imported equipment and machinery.




19


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 $21
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 production at this facility is expected to commence, 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.




In April
2009, we began production at a new fruit and vegetable processing facility in
Changge City that has an annual production capacity for fruits and vegetables of
30,000 metric tons.  As a result of our increased production capacity
for fruits and vegetables, we plan to discontinue outsourcing from certain of
our OEM partners, which currently provide an annual production capacity of 2,880
metric tons.  We also transferred the existing fruit and vegetable
production at our Industrial Park in Changge City, which had an annual
production capacity of 12,600 metric tons, to the newly-built fruit and
vegetable processing facility in Changge City.  With the capacity from
the new facility and further consolidation of our existing capacity, our annual
fruit and vegetable production capacity has increased 138% to 30,000 metric tons
from 12,600 metric tons.




Our
products are sold under the “Zhongpin” brand name. At March 31, 2009, our
customers included 23 international or domestic fast food companies in the PRC,
42 processing factories and 1,672 school cafeterias, factory canteens, army
posts and national departments. At such date, we also sold directly to 3,097
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
March 31, 2009, we had 6,138 employees, of whom 4,425 were operating personnel,
1,236 were sales personnel, 105 were research and development personnel and 372
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.


20




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 March 31,
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 betterment 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).


21




Results
of Operations




In fiscal
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.




Hog and
pork prices decreased approximately 20% in the first quarter of 2009 primarily
because the supply of hogs was higher than the demand in the market. The
imbalance in supply and demand was due to the seasonal decline in market demand
following the Chinese New Year as well as an over supply of hogs.  We
expect the weak demand for hogs to continue into the second quarter of 2009
primarily due to the recent outbreak of swine flu.  In late April
2009, swine flu was reported in Mexico, the United States and Europe and in
other countries throughout the world.  While no cases of swine flu
have yet been reported in the PRC, the threat of an outbreak of swine flu in the
PRC has already affected the pork industry in the PRC, as it has in other
developed countries throughout the world, and pork sales have recently 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 “H1N1 flu” in an effort to protect the hog and
pork industries. With these efforts, we anticipate that the consumption of pork
in the PRC will recover in the near future.




In the
remaining quarters of fiscal 2009, we continue to expect steady growth in sales
of our pork and pork products.  The recent decline in the price of
live hogs has caused a number of hog breeders to lose confidence in the industry
and to terminate their breeding operations.  We expect this trend to
start to affect the over-supply of live hogs during the second quarter of
2009.  As more hog breeders leave the market, we anticipate a change
in the supply of live hogs and increasing prices for hogs and pork products in
the second half of the year.  Based on our results for the first
quarter of fiscal 2009, we remain confident in our ability to reach our
forecasted results. We also expect to increase our market share in the meat and
meat products segment of our target markets over the remaining quarters of this
fiscal year.




Comparison of Three Months Ended
March 31, 2009 and 2008




Revenue. Total revenue
increased from $108.7 million for the three months ended March 31, 2008 to
$153.8 million for the three months ended March 31, 2009, which represented an
increase of $45.1 million, or approximately 41%. The increase in revenues was
primarily due to increases in the sales volume of our pork and pork products,
which was 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 March 31, 2009 and
2008.




22




Sales by Division
                    (unaudited)ThreeMonthsEnded
                    March31,2009
                  
                  
                  ThreeMonthsEnded
                    March
      31,2008Metric
                    Tons
                  
                  
                  Sales
                    Revenues
                    (inmillions)
                  
                  
                  Average
                    Price/
                    Metric
                    Ton
                  
                  
                  Metric
                    Tons
                  
                  
                  Sales
                    Revenues
                    (inmillions)
                  
                  
                  Average
                    Price/
                    Metric
                    TonPork
      and Pork ProductsChilled
      pork
                  
                  
                  43,499
                  
                  
                  $
                  86.3
                  
                  
                  $
                  1,984
                  
                  
                  
                  24,119
                  
                  
                  $
                  55.0
                  
                  
                  $
                  2,280Frozen
      pork
                  
                  
                  24,077
                  
                  
                  
                  44.0
                  
                  
                  
                  1,827
                  
                  
                  
                  18,487
                  
                  
                  
                  40.2
                  
                  
                  
                  2,175Prepared
      pork products
                  
                  
                  9,530
                  
                  
                  
                  22.0
                  
                  
                  
                  2,308
                  
                  
                  
                  5,668
                  
                  
                  
                  12.0
                  
                  
                  
                  2,117Vegetables
      and Fruits
                  
                  
                  2,645
                  
                  
                  
                  1.5
                  
                  
                  
                  567
                  
                  
                  
                  2,281
                  
                  
                  
                  1.5
                  
                  
                  
                  658Total
                  
                  
                  79,751
                  
                  
                  $
                  153.8
                  
                  
                  $
                  1,929
                  
                  
                  
                  50,555
                  
                  
                  $
                  108.7
                  
                  
                  $
                  2,150




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 first quarter of fiscal 2009 we increased
our sales of chilled pork products by approximately $31.3 million over the
amount of our sales of such products in the first quarter of 2008. As shown in
the above table, our average price during the first quarter of 2009 was
approximately $1,984 per metric ton for chilled pork whereas our average price
during the first quarter of 2008 was $2,280 per metric ton for chilled pork.
Assuming the average price for chilled pork during the three months ended
March 31, 2009 was the same as the average price during the three months
ended March 31, 2008, the impact from the increase in metric tons of chilled
pork sold was $44.2 million. Assuming the number of metric tons sold in the
first quarter of 2009 was the same as the number of metric tons sold in the
first quarter of 2008, the impact from the decrease in prices of our chilled
pork products was negative $7.1 million. The remaining negative $5.8
million of such increase resulted from the combination of changes in prices
and volume of chilled pork products sold.




In the
first quarter of fiscal 2009 we increased our sales of frozen pork products by
approximately $3.8 million over the amount of our sales of such products in the
first quarter of 2008. Our average price during the first quarter of 2009 was
approximately $1,827 per metric ton for frozen pork whereas our average price
during the first quarter of 2008 was $2,175 per metric ton for frozen pork.
Assuming the average price for frozen pork during the three months ended March
31, 2009 was the same as the average price during the three months ended March
31, 2008, the impact from the increase in metric tons of frozen pork sold was
$12.2 million. Assuming the number of metric tons sold in the first quarter of
2009 was the same as the number of metric tons sold in the first quarter of
2008, the impact from the decrease in prices of our frozen pork products was
negative $6.4 million. The remaining negative $2.0 million of such increase
resulted from the combination of changes in prices and volume of frozen
pork products sold.




In the
first quarter of fiscal 2009 we increased our sales of prepared pork products by
approximately $10.0 million over the amount of our sales of such products in the
first quarter of 2008. Our average price during the first quarter of 2009 was
approximately $2,308 per metric ton for prepared pork products whereas our
average price during the first quarter of 2008 was $2,117 per metric ton for
prepared pork products. Assuming the average price for prepared pork products
during the three months ended March 31, 2009 was the same as the average price
during the three months ended March 31, 2008, the impact from the increase in
metric tons of prepared pork products sold was $8.2 million. Assuming the number
of metric tons sold in the first quarter of 2009 was the same as the number of
metric tons sold in the first quarter of 2008, the impact from the increase in
prices of our prepared pork products was $1.1 million. The remaining $0.7
million of such increase resulted from the combination of changes in prices
and volume of prepared pork products sold.


23




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 first quarter of 2009 was partly attributable to our
effort to expand our distribution channels. The following table sets forth the
changes in our distribution channels:




Numbers of Stores and Cities Generating Sales Volume
                  (unaudited)March 31,
                
                
                Net
                  Change
                
                
                Percentage
                  of Change2009
                
                
                2008Showcase
      stores
                
                
                135
                
                
                
                114
                
                
                
                21
                
                
                
                18
                %Branded
      stores
                
                
                970
                
                
                
                929
                
                
                
                41
                
                
                
                4
                %Supermarket
      counters
                
                
                1,992
                
                
                
                1,903
                
                
                
                89
                
                
                
                5
                %Second-tier
      cities
                
                
                111
                
                
                
                95
                
                
                
                16
                
                
                
                17
                %Third-tier
      cities
                
                
                337
                
                
                
                293
                
                
                
                44
                
                
                
                15
                %




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 first quarter of 2009 and
2008, respectively.




Sales by Distribution Channel
                  (unaudited)March 31,
                
                
                Net
                  Change
                
                
                Percentage
                  of Change2009
                
                
                2008Retail
      channels
                
                $
                68.3
                
                
                $
                44.8
                
                
                $
                23.5
                
                
                
                52
                %Food
      services distributors
                
                
                45.5
                
                
                
                27.6
                
                
                
                17.9
                
                
                
                65
                %Restaurants
      and noncommercial
                
                
                39.5
                
                
                
                34.0
                
                
                
                5.5
                
                
                
                16
                %Export
                
                
                0.5
                
                
                
                2.3
                
                
                
                (1.8
                )
                
                
                (78
                )%Total
                
                $
                153.8
                
                
                $
                108.7
                
                
                $
                45.1
                
                
                
                41
                %




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 China Central TV and local television and promotion;
(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.




During
the three months ended March 31, 2009, revenues from export sales decreased to
$0.5 million, which represented a decline of $1.8 million, or approximately
negative 78%, as compared to the three months ended March 31, 2008. The decrease
in export sales was primarily due to the reduction of our export sales efforts
during the 2009 period due to the higher gross profit margins we could achieve
during that period by selling our pork products domestically in the
PRC.


24


Costs of Sales. Our cost of
sales increased from $94.5 million for the three months ended March 31, 2008 to
$134.7 million for the three months ended March 31, 2009, which represented an
increase of $40.2 million, or approximately 43%. 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. The increase in our cost of sales was
consistent with our increase in sales revenue.




Cost of Sales by Division
                    (unaudited)ThreeMonthsEnded
                    March31,2009
                  
                  
                  ThreeMonthsEnded
                    March31,2008Metric
                    Tons
                  
                  
                  CostofSales
                    (inmillions)
                  
                  
                  Average
                    Price/
                    Metric
                    Ton
                  
                  
                  Metric
                    Tons
                  
                  
                  Costof
                    Sales
                    (inmillions)
                  
                  
                  Average
                    Price/
                    Metric
                    TonPork
      and Pork ProductsChilled
      pork
                  
                  
                  43,499
                  
                  
                  $
                  76.7
                  
                  
                  $
                  1,763
                  
                  
                  
                  24,119
                  
                  
                  $
                  47.8
                  
                  
                  $
                  1,982Frozen
      pork
                  
                  
                  24,077
                  
                  
                  
                  39.9
                  
                  
                  
                  1,657
                  
                  
                  
                  18,487
                  
                  
                  
                  35.8
                  
                  
                  
                  1,936Prepared
      pork products
                  
                  
                  9,530
                  
                  
                  
                  16.9
                  
                  
                  
                  1,773
                  
                  
                  
                  5,668
                  
                  
                  
                  9.6
                  
                  
                  
                  1,694Vegetables
      andFruits
                  
                  
                  2,645
                  
                  
                  
                  1.2
                  
                  
                  
                  454
                  
                  
                  
                  2,281
                  
                  
                  
                  1.3
                  
                  
                  
                  570Total
                  
                  
                  79,751
                  
                  
                  $
                  134.7
                  
                  
                  
                  1,689
                  
                  
                  
                  50,555
                  
                  
                  $
                  94.5
                  
                  
                  
                  1,869




Our gross
profit margin (gross profit divided by sales revenue) decreased from 13.1% for
the three months ended March 31, 2008 to 12.4% for the three months ended March
31, 2009. The slight decrease in our gross margin during the first 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 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 increased from $4.0 million
for the three months ended March 31, 2008 to $4.6 million for the three months
ended March 31, 2009.  As a percentage of revenues, general and
administrative expenses decreased from 3.7% for the three months ended March 31,
2008 to 3.0% for the three months ended March 31, 2009.




The
increase in general and administrative expenses during the three months ended
March 31, 2009 was primarily the result of a $0.7 million increase in salary
expense due to the expansion of our business, which required us to hire more
employees, and certain salary increases that were implemented in 2008 to bring
our compensation levels more in line with industry and regional
standards.  The increase in salary expense was offset, in part, by a
$0.6 million decrease in advertising expenses.




Selling
Expenses. Selling expenses increased from $2.0 million for the three
months ended March 31, 2008 to $2.8 million for the three months ended March 31,
2009, which represented an increase of $0.8 million, or approximately 40%. The
increase in selling expenses was primarily the result of our increased
sales of pork and pork products and was primarily due to a $0.4 million increase
in promotion fees and a $0.4 million increase in salaries. As a percentage
of revenue, selling expenses remained the same at 1.8% for the three months
ended March 31, 2008 and 2009.


25




Interest Expense(net of interest income). Interest expense net of
interest income increased from $0.2 million for the three months ended March 31,
2008 to $1.5 million for the three months ended March 31, 2009, which
represented an increase of $1.3 million, or approximately 550%. The increase in
interest expense was primarily the result of an increase of $44.4 million in
short-term bank loans.




Other Income, Exchange Gain and
Government Subsidies. Other income, exchange gain and government
subsidies increased from $0.2 million for the three months ended March 31, 2008
to $0.3 million for the three months ended March 31, 2009. This increase was
primarily the result of an increase in other income.




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 $0.2 million in the provision for income taxes for the three months
ended March 31, 2009 over the three months ended March 31, 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.




The
following tables set forth our sales volume and the production volume in metric
tons by product division for the three-month periods ended March 31, 2009 and
2008.




Sales by Division
                    (in metric tons)ThreeMonthsEnded
                    March31,2009
                  
                  
                  2008
                  
                  
                  Net Change
                    2009/2008
                  
                  
                  % Change
                    2009/2008(Unaudited)
                  
                  
                  (Unaudited)Pork
      and Pork ProductsChilled
      pork
                  
                  
                  43,499
                  
                  
                  
                  24,119
                  
                  
                  
                  19,380
                  
                  
                  
                  80
                  %Frozen
      pork
                  
                  
                  24,077
                  
                  
                  
                  18,487
                  
                  
                  
                  5,590
                  
                  
                  
                  30
                  %Prepared
      pork products
                  
                  
                  9,530
                  
                  
                  
                  5,668
                  
                  
                  
                  3,862
                  
                  
                  
                  68
                  %Vegetable
      and Fruits
                  
                  
                  2,645
                  
                  
                  
                  2,281
                  
                  
                  
                  364
                  
                  
                  
                  16
                  %Total
                  
                  
                  79,751
                  
                  
                  
                  50,555
                  
                  
                  
                  29,196
                  
                  
                  
                  58
                  %


26




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 March 31,
2009 and December 31, 2008, 2007 and 2006.




March
      31, 2009
                          
                          
                          December
      31,2008
                          
                          
                          2007
                          
                          
                          2006No.
      of products
                          
                          
                          322
                          
                          
                          
                          314
                          
                          
                          
                          270
                          
                          
                          
                          229No.
      of retail stores
                          
                          
                          3,097
                          
                          
                          
                          3,061
                          
                          
                          
                          2,939
                          
                          
                          
                          2,721Expansion
      of Market CoverageNo.
      of Provinces
                          
                          
                          24
                          
                          
                          
                          24
                          
                          
                          
                          24
                          
                          
                          
                          24No.
      of first-tier cities
                          
                          
                          29
                          
                          
                          
                          29
                          
                          
                          
                          29
                          
                          
                          
                          29No.
      of second-tier cities
                          
                          
                          111
                          
                          
                          
                          106
                          
                          
                          
                          93
                          
                          
                          
                          75No.
      of third-tier cities
                          
                          
                          337
                          
                          
                          
                          324
                          
                          
                          
                          287
                          
                          
                          
                          226




Liquidity
and Capital Resources




At March
31, 2009 and December 31, 2008, we had cash and cash equivalents of $48.0
million and $41.9 million, respectively. At March 31, 2009, our working capital
was approximately $11.0 million.




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
three months ended March 31, 2009, net cash used by operating activities was
$18.9 million, which represented a decrease of $42.4 million as compared to
the net cash provided by operating activities of $23.4 million for the same
period of the prior year. Of the $42.3 million decrease, net income accounted
for negative $2.5 million, non-cash items accounted for negative $0.7
million and changes in operating assets and liabilities accounted for $45.5
million. Of the non-cash items, depreciation and amortization accounted for $0.9
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 $45.5
million, as compared to the positive cash flow of $14.7 million from changes in
operating assets and liabilities for the same period of the prior year. Of the
$45.5 million decrease, $11.3 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 quarter of 2009 to take advantage of lower hog prices
during that period. The price of hogs dropped approximately 20% in the first
quarter and we expect such prices to increase again by the middle 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, $12.3 million was attributable to the change of cash
flow from accounts receivable due to the fact that the revenue in the three
months ended March 31, 2009 was significantly increased compared to same period
last year; $17.4 million was attributable to the change of cash flow from
purchase deposits due to the fact that we paid more purchase deposits in the
first quarter of 2009 compared to the same period of 2008 due primarily to our
increased purchases of live hogs and, to a lesser extent, increased deposits
relating to our efforts to encourage the development of third-party
hog breeding farms.


27




Net cash
used in investing activities was $4.1 million for the three months ended March
31, 2009, which represented a decrease of $20.8 million as compared to the net
cash of $24.9 million used by investing activities for the same period of the
prior year. We spent $20.3 million less on the costs of construction for new
production facilities during the current period and $1.9 million more on
equipment and machinery.




Net cash
provided by financing activities was $29.2 million during the three months ended
March 31, 2009, an increase of $28.1 million compared to the net cash provided
by financing activities of $1.1 million for the same period of the prior year.
We received $26.3 million more in net proceeds from short-term bank loans and
$3.5 million more in the net proceeds of bank notes during the current
period.




At March
31, 2009, Henan Zhongpin had short-term bank and governmental loans in the
aggregate amount of $95.3 million with interest rates ranging from 4.86 % to
7.47% per annum, as follows.




Bank
                                                                    
                                                                    Amount
                                                                      Borrowed
                                                                    
                                                                    
                                                                    Interest Rate
                                                                    
                                                                    Maturity DateAgriculture
      Bank of China
                                                                    
                                                                    
                                                                    4,388,596
                                                                    
                                                                    
                                                                    
                                                                    5.58
                                                                    %
                                                                    12/21/20095,705,174
                                                                    
                                                                    
                                                                    
                                                                    5.31
                                                                    
                                                                    01/04/20101,024,006
                                                                    
                                                                    
                                                                    
                                                                    5.31
                                                                    
                                                                    01/21/20105,412,601
                                                                    
                                                                    
                                                                    
                                                                    5.31
                                                                    
                                                                    03/12/20107,753,185
                                                                    
                                                                    
                                                                    
                                                                    5.31
                                                                    
                                                                    03/30/2010Industrial
      and Commercial Bank of China
                                                                    
                                                                    
                                                                    2,194,298
                                                                    
                                                                    
                                                                    
                                                                    4.86
                                                                    %
                                                                    08/17/2009Rabobank
      Nederland Shanghai
                                                                    
                                                                    
                                                                    2,925,730
                                                                    
                                                                    
                                                                    
                                                                    5.31
                                                                    %
                                                                    05/28/2009Shanghai
      Pudong Development Bank of China
                                                                    
                                                                    
                                                                    2,194,298
                                                                    
                                                                    
                                                                    
                                                                    5.31
                                                                    %
                                                                    03/15/20102,194,298
                                                                    
                                                                    
                                                                    
                                                                    5.31
                                                                    
                                                                    03/16/20101,462,865
                                                                    
                                                                    
                                                                    
                                                                    5.31
                                                                    
                                                                    03/18/20103,218,303
                                                                    
                                                                    
                                                                    
                                                                    5.31
                                                                    
                                                                    03/22/20105,558,888
                                                                    
                                                                    
                                                                    
                                                                    5.31
                                                                    
                                                                    03/25/2010Agriculture
      Development Bank of China
                                                                    
                                                                    
                                                                    5,120,028
                                                                    
                                                                    
                                                                    
                                                                    7.47
                                                                    %
                                                                    04/27/200914,628,651
                                                                    
                                                                    
                                                                    
                                                                    7.47
                                                                    
                                                                    05/28/20097,314,326
                                                                    
                                                                    
                                                                    
                                                                    5.31
                                                                    
                                                                    11/18/2009Bank
      of China
                                                                    
                                                                    
                                                                    8,045,758
                                                                    
                                                                    
                                                                    
                                                                    4.86
                                                                    %
                                                                    06/19/2009China
      Merchants Bank
                                                                    
                                                                    
                                                                    4,388,596
                                                                    
                                                                    
                                                                    
                                                                    5.31
                                                                    %
                                                                    05/20/20092,925,730
                                                                    
                                                                    
                                                                    
                                                                    5.31
                                                                    
                                                                    06/27/2009Guangdong
      Development Bank
                                                                    
                                                                    
                                                                    4,388,596
                                                                    
                                                                    
                                                                    
                                                                    7.29
                                                                    %
                                                                    09/17/2009China
      Minsheng Bank
                                                                    
                                                                    
                                                                    4,388,596
                                                                    
                                                                    
                                                                    
                                                                    6.21
                                                                    %
                                                                    04/07/2009




28




Bank
                
                Amount
                  Borrowed
                
                
                Interest Rate
                
                Maturity DateCity
      Finance – short-term
                
                
                29,257
                
                
                
                
                
                ExtendableTotal
                
                $
                95,261,780




In April
2008, Henan Zhongpin entered into a mutual guarantee agreement with Xuji Group
Co., Ltd., a group corporation based in Henan Province, PRC that is not
affiliated with our company or with any of our subsidiaries. Pursuant to 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.  Upon 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 March 31, 2009, Henan
Zhongpin had outstanding guarantees for $36.6 million of Xuji Group’s bank
loans.  All of the bank loans guaranteed by Henan Zhongpin will mature
within the next 12 months.




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 CITIC Industrial 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
March 31, 2009) and are payable on January 23, 2010. The accrued interest on
this loan is payable quarterly on the 20th day of the last month of the quarter.
Borrowings under the loan agreement are guaranteed by Xuji Group.




In May
2002, Henan Zhongpin entered into a loan agreement with China Communication
Bank, 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.




On
November 5, 2008, we 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. Our 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 March 31, 2009, our monthly rental fee under the agreement
was $138,696, which included an interest component calculated at the rate of
5.4% per annum. We have the right at the end of the lease term to repurchase all
of the equipment for a nominal purchase price.


29




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 March 31, 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 use right, property and plant of our
wholly-owned subsidiary, Luoyang Zhongpin Food Co., Ltd.





We
believe our existing cash and cash equivalents, together with our available
lines of credit ($171.5 million at March 31, 2009), will be sufficient to
finance our investment in new facilities, operating requirements and anticipated
capital expenditures of approximately $93.5 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.




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.




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.


30




Item
      4.
            Controls
      and Procedures




The
Company maintains disclosure controls and procedures that are designed to ensure
that information required to be disclosed in the reports the Company files or
submits under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), is recorded, processed, summarized and reported within the time periods
specified in the Securities and Exchange Commission's ("SEC") rules and forms,
and that such information is accumulated and communicated to the Company's
management, including its chief executive officer ("CEO") and chief financial
officer ("CFO"), as appropriate, to allow timely decisions regarding required
financial disclosure.
 
 Our
management, with the participation of our CEO and CFO, 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 Exchange Act) as of the end of the
period covered by this report.  Based on such evaluation, our CEO and
CFO 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, and to allow timely decisions regarding required financial
disclosure.
  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.


31





Part
II – Other Information





Item
      1.
            Legal
      Proceedings





None.





Item 1A.
            Risk
      Factors





During
the three months ended March 31, 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:





While
the PRC has not recently been directly affected by swine influenza (swine flu),
the recent outbreak of swine flu in other countries 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. In late April 2009, the World Health
Organization raised its flu alert level to 5, the second highest level, which
indicates a pandemic is imminent.  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





Not
Applicable.


32





Item 5.
            Other
      Information





(a)           None.





(b)           None.





Item 6.
            Exhibits





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


33





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.





Zhongpin
      Inc.(Company)Date:  May
      11, 2009By:
              /s/ Xianfu ZhuXianfu
      ZhuChief
      Executive OfficerBy:
              /s/ Feng WangFeng
      WangChief
      Financial Officer


34


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




35