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 September 30, 2009




o
            TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934




For the transition period from
______________ to
_______________





Commission
File Number 0-28806





ENERGROUP
HOLDINGS CORPORATION


(Exact
name of registrant as specified in its charter)





Nevada
              
              87-0420774(State
      of Incorporation)
              
              (I.R.S.
      Employer Identification No.)





No.
      9, Xin Yi Street, Ganjingzi District
                Dalian
      City, Liaoning Province, PRC
              
              116039(Address
      of principal executive offices)
              
              (Zip
      Code)





+86
411 867 166 96


(Registrant’s
telephone number, including area code)




Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.


Yes  x  No  o




Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate website, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files.)


Yes  o  No  x




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


Large
      Accelerated filer  o
              Accelerated
      Filer  o
              Non-Accelerated
      Filer  o
              Smaller
      Reporting Company  x




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




As of
September 30, 2009, the Registrant had 21,136,392 shares of Common Stock
outstanding.









ENERGROUP
HOLDINGS CORPORATION





FORM
10-Q





INDEX





Page NumberPART
      I. Financial Information
                  3Item
      1.
                  Financial
      Statements
                  3Consolidated
      Balance Sheets
                  6-7Consolidated
      Statements of Operations
                  8Consolidated
      Statements of Changes in Shareholders’ Equity
                  9Consolidated
      Statements of Cash Flows
                  10-11Notes
      to Consolidated Financial Statements
                  12-34Item
      2.
                  Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
                  35Item
      3.
                  Quantitative
      and Qualitative Disclosures About Market Risk
                  50Item
      4T.
                  Controls
      and Procedures
                  51PART
      II. Other Information
                  51Item
      1.
                  Legal
      Proceedings
                  51Item
      1A.
                  Risk
      Factors
                  51Item
      2.
                  Unregistered
      Sales of Equity Securities and Use of Proceeds
                  51Item
      3.
                  Defaults
      Upon Senior Securities
                  51Item
      4.
                  Submission
      of Matters to a Vote of Security Holders
                  51Item
      5.
                  Other
      Information
                  51Item
      6.
                  Exhibits
                  51Signatures
                  
                  52




2





PART
I.  FINANCIAL INFORMATION





ITEM
      1.
              FINANCIAL
      STATEMENTS


3
  Energroup
Holdings Corporation
 
 Contents
              
              PageReport
      of Registered Independent Public Accounting Firm
              
              5Consolidated
      Balance Sheets
              
              6 -
      7Consolidated
      Statements of Income
              
              8Consolidated
      Statements of Changes in Stockholders’ Equity
              
              9Consolidated
      Statements of Cash Flows
              
              10-11Notes
      to Consolidated Financial Statements
              
              12 –
      34
 
 4
  To:         Board
of Directors and Stockholders
 Energroup
Holdings Corporation
  Report of Registered
Independent Public Accounting Firm
 
 We have
reviewed the accompanying interim consolidated Balance Sheets of Energroup
Holdings Corporation (the “Company”) as of September 30, 2009 and December 31,
2008, and the related statements of income, stockholders’ equity, and cash flows
for the three-month and nine-month periods ended September 30, 2009 and 2008.
These interim consolidated financial statements are the responsibility of the
Company’s management.
 
 We
conducted our review in accordance with the standards of the Public Company
Accounting Oversight Board (United States). A review of interim financial
information consists principally of applying analytical procedures and making
inquiries of persons responsible for financial and accounting matters. It is
substantially less in scope than an audit conducted in accordance with the
standards of the Public Company Accounting Oversight Board, the objective of
which is the expression of an opinion regarding the financial statements taken
as a whole. Accordingly, we do not express such an opinion.
 
 Based on
our review, we are not aware of any material modifications that should be made
to the accompanying interim consolidated financial statements for them to be in
conformity with U.S. generally accepted accounting principles.
 
 South
      San Francisco, California
              
              Samuel
      H. Wong & Co., LLPOctober
      25, 2009
              
              Certified
      Public Accountants
 
 5
 Energroup Holdings
Corporation
 Consolidated Balance
Sheets
 As of September 30, 2009 and
December 31, 2008
 (Stated in US Dollars)
 At
              
              
              AtSeptember
      30,
              
              
              December
      31,ASSETS
              
              Note
              
              
              2009
              
              
              2008Current
      AssetsCash
              
              
              
              
              $
              14,670,937
              
              
              $
              5,695,798Restricted
      Cash
              
              
              2(D),3
              
              
              
              2,175,676
              
              
              
              2,177,091Accounts
      Receivable
              
              
              2(E),4
              
              
              
              30,311,236
              
              
              
              18,661,065Other
      Receivable
              
              
              
              
              
              
              6,378,797
              
              
              
              2,162,412Related
      Party Receivable
              
              
              5
              
              
              
              17,714,847
              
              
              
              10,919,777Inventory
              
              
              2(F),6
              
              
              
              6,305,385
              
              
              
              6,051,109Purchase
      Deposit
              
              
              2(G)
              
              
              
              1,198,540
              
              
              
              1,453,861Prepaid
      Expenses
              
              
              
              
              
              
              36,268
              
              
              
              62,734Prepaid
      Taxes
              
              
              
              
              
              
              274,979
              
              
              
              334,413Deferred
      Tax Asset
              
              
              
              
              
              
              645,171
              
              
              
              643,609Total
      Current Assets
              
              
              
              
              
              
              79,711,836
              
              
              
              48,161,869Non-Current
      AssetsProperty,
      Plant & Equipment, net
              
              
              2(H),7
              
              
              
              24,261,966
              
              
              
              25,794,151Land
      Use Rights, net
              
              
              2(I),8
              
              
              
              13,265,187
              
              
              
              13,430,435Construction
      in Progress
              
              
              2(J)
              
              
              
              6,691,893
              
              
              
              3,262,146Other
      Assets
              
              
              
              
              
              
              -
              
              
              
              34,807TOTAL
      ASSETS
              
              
              
              
              
              $
              123,930,882
              
              
              $
              90,683,408LIABILITIESCurrent
      LiabilitiesBank
      Loans & Notes
              
              
              9
              
              
              $
              16,672,517
              
              
              $
              6,419,422Accounts
      Payable
              
              
              
              
              
              
              4,634,941
              
              
              
              7,695,208Taxes
      Payable
              
              
              
              
              
              
              5,657,814
              
              
              
              2,341,971Other
      Payable
              
              
              
              
              
              
              3,951,402
              
              
              
              2,318,142Accrued
      Liabilities
              
              
              
              
              
              
              2,444,836
              
              
              
              1,724,266Customer
      Deposits
              
              
              2(L)
              
              
              
              4,312,331
              
              
              
              3,258,752Total
      Current Liabilities
              
              
              
              
              
              
              37,673,841
              
              
              
              23,757,761TOTAL
      LIABILITIES
              
              
              
              
              
              $
              37,673,841
              
              
              $
              23,757,761
  See Accompanying Notes to the
Consolidated Financial Statements
  6
  Energroup Holdings
Corporation
 Consolidated Balance
Sheets
 As of September 30, 2009 and December
31, 2008
 (Stated in US Dollars)
  At
              
              
              AtSeptember
      30,
              
              
              December
      31,STOCKHOLDERS’EQUITY
              
              Note
              
              
              2009
              
              
              2008Preferred
      Stock - $0.001 par value 10,000,000 shares authorized; 0 shares issued
      & outstanding at September 30, 2009 and December 31, 2008,
      respectively.
              
              
              
              
              $
              -
              
              
              $
              -Common
      Stock $0.001 par value 21,739,130 shares authorized; 21,136,392 shares
      issued & outstanding at September 30, 2009 and December 31, 2008,
      respectively.
              
              
              
              
              
              21,137
              
              
              
              21,137Additional
      Paid in Capital
              
              
              
              
              
              38,900,380
              
              
              
              26,062,337Statutory
      Reserve
              
              
              2(M),11
              
              
              
              2,077,488
              
              
              
              2,077,488Retained
      Earnings
              
              
              
              
              
              
              39,995,333
              
              
              
              35,275,457Accumulated
      Other Comprehensive Income
              
              
              2(N)
              
              
              
              5,262,704
              
              
              
              3,489,228TOTAL
      STOCKHOLDERS’ EQUITY
              
              
              
              86,257,041
              
              
              
              66,925,647TOTAL
      LIABILITIES ANDSTOCKHOLDERS’
      EQUITY
              
              
              $
              123,930,882
              
              
              $
              90,683,408
  See Accompanying Notes to the
Consolidated Financial Statements
 7
 
 Energroup Holdings
Corporation
 Consolidated
Statements of Income
 For the three and
nine months ended September 30, 2009 and 2008
 (Stated in US Dollars)
  3
      months
              
              
              3
      months
              
              
              9
      months
              
              
              9
      monthsended
              
              
              ended
              
              
              ended
              
              
              endedNote
              
              
              September
      30,
                2009
              
              
              September
      30,
                2008
              
              
              September
      30,
                2009
              
              
              September
      30,
                2008Sales
              
              
              2(O)
              
              
              $
              67,821,080
              
              
              $
              53,725,596
              
              
              $
              156,852,674
              
              
              $
              140,309,218Cost
      of Sales
              
              
              2(P)
              
              
              
              (57,246,206
              )
              
              
              (47,254,631
              )
              
              
              (133,615,742
              )
              
              
              (120,329,483
              )Gross
      Profit
              
              
              
              
              
              
              10,574,874
              
              
              
              6,470,965
              
              
              
              23,236,932
              
              
              
              19,979,735Selling
      Expenses
              
              
              2(Q)
              
              
              
              (706,664
              )
              
              
              (878,893
              )
              
              
              (2,079,027
              )
              
              
              (3,463,947
              )General
      & Adm. Expenses
              
              
              2(R)
              
              
              
              (614,806
              )
              
              
              (734,976
              )
              
              
              (1,885,651
              )
              
              
              (1,881,138
              )Operating
      Income
              
              
              
              
              
              
              9,253,405
              
              
              
              4,857,096
              
              
              
              19,272,254
              
              
              
              14,634,650Other
      Income
              
              
              
              
              
              
              7,204
              
              
              
              680,344
              
              
              
              35,552
              
              
              
              1,420,060Other
      Expenses
              
              
              
              
              
              
              (8,270
              )
              
              
              (413,264
              )
              
              
              (71,978
              )
              
              
              (514,000
              )Interest
      Income
              
              
              
              
              
              
              13,574
              
              
              
              -
              
              
              
              131,139
              
              
              
              279,097Interest
      Expense
              
              
              
              
              
              
              (206,869
              )
              
              
              (587,118
              )
              
              
              (509,464
              )
              
              
              (1,194,197
              )Government
      Subsidy Income
              
              
              
              
              
              
              14
              
              
              
              -
              
              
              
              141,834
              
              
              
              -Release
      of Make Good Shares
              
              
              
              
              
              
              (4,619,816
              )
              
              
              -
              
              
              
              (12,838,043
              )
              
              
              -Earnings
      before Tax
              
              
              
              
              
              
              4,439,242
              
              
              
              4,537,058
              
              
              
              6,161,294
              
              
              
              14,625,611Income
      Tax
              
              
              2(V),13
              
              
              
              (686,232
              )
              
              
              (216,770
              )
              
              
              (1,441,418
              )
              
              
              (449,138
              )Net
      Income
              
              
              
              
              
              $
              3,753,010
              
              
              $
              4,320,288
              
              
              $
              4,719,876
              
              
              $
              14,176,473Earnings
      Per Share
              
              
              2(Y),16Basic
              
              
              
              
              
              $
              0.22
              
              
              $
              0.25
              
              
              $
              0.27
              
              
              $
              0.82Diluted
              
              
              
              
              
              $
              0.18
              
              
              $
              0.20
              
              
              $
              0.22
              
              
              $
              0.67Weighted
      Average Shares OutstandingBasic
              
              
              
              
              
              
              17,272,756
              
              
              
              17,272,756
              
              
              
              17,272,756
              
              
              
              17,272,756Diluted
              
              
              
              
              
              
              21,136,392
              
              
              
              21,182,756
              
              
              
              21,136,392
              
              
              
              21,182,756
  See
Accompanying Notes to the Consolidated Financial Statements
 8
 Energroup Holdings
Corporation
 Consolidated Statements of Changes in
Stockholders’ Equity
 As of September 30, 2009 and December
31, 2008
 (Stated in US Dollars)
 AccumulatedCommon
      Stock
              
              
              Additional
              
              
              
              
              
              
              
              
              OtherShares
              
              
              
              
              
              Paid
      in
              
              
              Statutory
              
              
              Retained
              
              
              ComprehensiveOutstanding
              
              
              Amount
              
              
              Capital
              
              
              Reserve
              
              
              Earnings
              
              
              Income
              
              
              TotalBalance,
      January 1, 2008
              
              
              21,136,392
              
              
              $
              21,137
              
              
              $
              15,440,043
              
              
              $
              751,444
              
              
              $
              29,764,236
              
              
              $
              2,960,951
              
              
              $
              48,937,811Release
      of Shares Placed in Escrow
              
              
              -
              
              
              
              -
              
              
              
              10,622,294
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              10,622,294Net
      Income
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              6,837,265
              
              
              
              -
              
              
              
              6,837,265Appropriations
      of Retained Earnings
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              1,326,044
              
              
              
              (1,326,044
              )
              
              
              -
              
              
              
              -Foreign
      Currency Translation Adjustment
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              528,277
              
              
              
              528,277Balance,
      December 31, 2008
              
              
              21,136,392
              
              
              $
              21,137
              
              
              $
              26,062,337
              
              
              $
              2,077,488
              
              
              $
              35,275,457
              
              
              $
              3,489,228
              
              
              $
              66,925,647Balance,
      January 1, 2009
              
              
              21,136,392
              
              
              $
              21,137
              
              
              $
              26,062,337
              
              
              $
              2,077,488
              
              
              $
              35,275,457
              
              
              $
              3,489,228
              
              
              $
              66,925,647Release
      of Shares Placed in Escrow
              
              
              -
              
              
              
              -
              
              
              
              12,838,043
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              12,838,043Net
      Income
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              4,719,876
              
              
              
              -
              
              
              
              4,719,876Appropriations
      of Retained Earnings
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Foreign
      Currency Translation Adjustment
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              1,773,476
              
              
              
              1,773,476Balance,
      September 30, 2009
              
              
              21,136,392
              
              
              $
              21,137
              
              
              $
              38,900,380
              
              
              $
              2,077,488
              
              
              $
              39,995,333
              
              
              $
              5,262,704
              
              
              $
              86,257,041
  12
      months
              
              
              9
      monthsended
              
              
              endedNote
              
              
              December
      31,
                2008
              
              
              September
      30,
                2009
              
              
              TotalComprehensive
      Income
              
              
              2(M)Net
      Income
              
              
              
              
              
              $
              6,837,265
              
              
              $
              4,719,876
              
              
              $
              11,557,141Other Comprehensive
      IncomeForeign
      Currency Translation Adjustment
              
              
              
              
              
              
              528,277
              
              
              
              1,773,476
              
              
              
              2,301,753Total
      Comprehensive Income
              
              
              
              
              
              $
              7,365,542
              
              
              $
              6,493,352
              
              
              $
              13,858,894
 See
Accompanying Notes to the Consolidated Financial Statements
 9
  Energroup Holdings
Corporation
 Consolidated Statements of Cash
Flows
 For the three and nine months ended
September 30, 2009 and 2008
 (Stated in US Dollars)
 3
      months
              
              
              3
      months
              
              
              9
      months
              
              
              9
      monthsended
              
              
              ended
              
              
              ended
              
              
              endedSeptember
      30,
                2009
              
              
              September
      30,
                2008
              
              
              September
      30,
                2009
              
              
              September
      30,
                2008Cash
      Flow from Operating ActivitiesCash
      Received from customers
              
              $
              41,789,815
              
              
              $
              45,452,629
              
              
              $
              135,386,459
              
              
              $
              116,666,578Cash
      Paid to Suppliers & Employees
              
              
              (55,737,214
              )
              
              
              (43,761,827
              )
              
              
              (134,780,845
              )
              
              
              (116,525,266
              )Interest
      Received
              
              
              13,574
              
              
              
              315,155
              
              
              
              131,139
              
              
              
              279,097Interest
      Paid (net of amount capitalized)
              
              
              (149,325
              )
              
              
              (356,596
              )
              
              
              105,637
              
              
              
              (242,428
              )Taxes
      Paid
              
              
              -
              
              
              
              (218,362
              )
              
              
              -
              
              
              
              (490,239
              )Miscellaneous
      Receipts
              
              
              9,437
              
              
              
              337
              
              
              
              38,940
              
              
              
              4,672Cash
      Sourced/(Used) in Operating Activities
              
              
              (14,073,713
              )
              
              
              1,431,337
              
              
              
              881,330
              
              
              
              (307,586
              )Cash
      Flows from Investing ActivitiesFunds
      Released from/(Interest Earned in) Escrow Account
              
              
              (548
              )
              
              
              (3,720
              )
              
              
              1,416
              
              
              
              2,015,613Purchases
      of Property, Equipment, and Construction of Plants
              
              
              (117,482
              )
              
              
              (2,042,604
              )
              
              
              (3,642,200
              )
              
              
              (2,689,418
              )Purchase
      of Land Use Rights
              
              
              (15,499
              )
              
              
              (904,031
              )
              
              
              (326,785
              )
              
              
              (904,031
              )Payments/(Withdraw)
      of Deposits
              
              
              -
              
              
              
              (227
              )
              
              
              34,808
              
              
              
              (60,535
              )Cash
      Sourced/(Used) in Investing Activities
              
              
              (133,529
              )
              
              
              (2,950,582
              )
              
              
              (3,932,762
              )
              
              
              (1,638,371
              )Cash
      Flows from Financing ActivitiesProceeds
      from Bank Borrowings
              
              
              5,861,390
              
              
              
              15,004,489
              
              
              
              10,253,095
              
              
              
              6,418,579Repayment
      of Bank Loans
              
              
              -
              
              
              
              (14,988,890
              )
              
              
              -
              
              
              
              (7,383,095
              )Cash
      Sourced/(Used) in Financing Activities
              
              
              5,861,390
              
              
              
              15,599
              
              
              
              10,253,095
              
              
              
              (964,516
              )Net
      Increase/(Decrease) in Cash & Cash Equivalents for the
      Period
              
              
              (8,345,852
              )
              
              
              (1,503,647
              )
              
              
              7,201,663
              
              
              
              (2,910,473
              )Effect
      of Currency Translation
              
              
              70,720
              
              
              
              1,905,294
              
              
              
              1,773,476
              
              
              
              550,999Cash
      & Cash Equivalents at Beginning of Period
              
              
              22,946,069
              
              
              
              11,270,730
              
              
              
              5,695,798
              
              
              
              14,031,851Cash
      & Cash Equivalents at End of Period
              
              $
              14,670,937
              
              
              $
              11,672,377
              
              
              $
              14,670,937
              
              
              $
              11,672,377
  See
Accompanying Notes to the Consolidated Financial Statements
 10
 Energroup Holdings
Corporation
 Reconciliation of Net Income to Cash
Sourced (Used) in Operations
 For the three and nine months ended
September 30, 2009 and 2008
 (Stated in US Dollars)
 3
      months
              
              
              3
      months
              
              
              9
      months
              
              
              9
      monthsended
              
              
              ended
              
              
              ended
              
              
              endedSeptember
      30,
              
              
              September
      30,
              
              
              September
      30,
              
              
              September
      30,2009
              
              
              2008
              
              
              2009
              
              
              2008Net
      Income
              
              $
              3,753,010
              
              
              $
              4,320,288
              
              
              $
              4,719,876
              
              
              $
              14,176,473Adjustments
      to Reconcile Net Income to Net Cash Provided by Operation
      Activities.Release
      of Shares from Escrow
              
              
              4,619,816
              
              
              
              -
              
              
              
              12,838,043
              
              
              
              -Amortization
              
              
              67,427
              
              
              
              74,052
              
              
              
              492,033
              
              
              
              259,312Depreciation
              
              
              584,736
              
              
              
              576,203
              
              
              
              1,744,638
              
              
              
              1,983,977Provision
      for Bad Debt
              
              
              159,028
              
              
              
              -
              
              
              
              117,679
              
              
              
              -Increase
      in Accounts Receivable
              
              
              (15,902,773
              )
              
              
              (10,487,495
              )
              
              
              (11,767,850
              )
              
              
              (27,906,092
              )Increase
      in Other Receivable
              
              
              (5,202,956
              )
              
              
              -
              
              
              
              (4,216,385
              )
              
              
              -Increase
      in Related Party Receivable
              
              
              (5,422,362
              )
              
              
              -
              
              
              
              (6,795,071
              )
              
              
              -Increase
      in Inventory
              
              
              (1,197,330
              )
              
              
              (1,987,668
              )
              
              
              (254,276
              )
              
              
              (4,709,434
              )Decrease
      in Advance to Suppliers
              
              
              397,958
              
              
              
              -
              
              
              
              255,321
              
              
              
              -Decrease/(Increase)
      in Prepaid Expenses
              
              
              (5,847
              )
              
              
              (934,281
              )
              
              
              26,466
              
              
              
              -Decrease/(Increase)
      in Prepaid Taxes
              
              
              91,419
              
              
              
              -
              
              
              
              59,434
              
              
              
              (1,083,731
              )Increase
      in Deferred Tax Asset
              
              
              (679
              )
              
              
              -
              
              
              
              (1,563
              )
              
              
              -Increase/(Decrease)
      in Accounts Payable
              
              
              618,689
              
              
              
              8,298,021
              
              
              
              (3,060,267
              )
              
              
              13,576,079Increase
      in Taxes Payable
              
              
              1,398,295
              
              
              
              -
              
              
              
              3,315,843
              
              
              
              -Increase
      in Other Payable
              
              
              1,496,668
              
              
              
              -
              
              
              
              1,633,260
              
              
              
              -Increase
      in Accrued Liabilities
              
              
              133,405
              
              
              
              394,292
              
              
              
              720,570
              
              
              
              547,767Increase
      in Customer Deposits
              
              
              337,784
              
              
              
              1,177,925
              
              
              
              1,053,579
              
              
              
              2,848,064Total
      of all adjustments
              
              
              (17,826,722
              )
              
              
              (2,888,951
              )
              
              
              (3,838,546
              )
              
              
              (14,484,059
              )$
              (14,073,713
              )
              
              $
              1,431,337
              
              
              $
              881,330
              
              
              $
              (307,586
              )
  See
Accompanying Notes to the Consolidated Financial Statements
  11
 Energroup Holdings
Corporation
 Notes to Consolidated Financial
Statements
 As of September 30, 2009 and December
31, 2008
 1.           The Company and Principal
Business Activities
 
 Energroup
Holdings Corporation (the “Company”) (OTCBB: ENHD) is a holding company
incorporated in the state of Nevada in the United States of America whose
primary business operations are conducted through its three operating
subsidiaries: (1) Dalian Chuming Processed Foods Company Ltd., (“Food Company”)
(2) Dalian Chuming Slaughter and Packaging Pork Company Ltd. (“Meat Company”),
and (3) Dalian Chuming Sales Company Ltd. (“Sales Company”), which are
incorporated in the People’s Republic of China (“PRC”).   The
Company is headquartered in the City of Dalian, Liaoning Province of
China.
 
 The three
operating subsidiaries were spun-off constituents of the former parent company,
Dalian Chuming Group Co., Ltd. (“Group”).  The Company indirectly
holds the three operating subsidiary companies through its wholly owned
intermediary subsidiaries: (A) Precious Sheen Investments Limited (“PSI”), a
British Virgin Islands corporation, and (B) Dalian Chuming Precious Sheen
Investments Consulting Co., Ltd., (“Chuming”), a wholly foreign owned enterprise
incorporated in the PRC.
 
 The
Company’s primary business activities are the production and packing of fresh
pork and also production of processed meat products for distribution and sale to
clients throughout the PRC and Russia.
 
 Corporate
Reorganization
 
 PRC law
currently has limits on foreign ownership of certain companies.  To
enable Chuming to raise equity capital from investors outside of China, it
established an offshore holding company by incorporating Precious Sheen
Investments Limited in the British Virgin Islands in May 2007. On September 26,
2007, Chuming entered into share transfer agreements with Dalian Chuming Group
Co., Ltd., under which Dalian Chuming Group Co., Ltd. agreed to transfer
ownership of three operating subsidiaries (collectively known as “Chuming
Operating Subsidiaries”) to Chuming.  On October 23, 2007, Chuming
completed all required registrations to complete the share transfer, and became
the 100% owner of the Chuming Operating Subsidiaries.  On November 14,
2007 the Dalian Commerce Bureau approved the transfer of Dalian Chuming Group
Co., Ltd’s 68% interest in Chuming to PSI, and upon this transfer, Chuming
became a wholly foreign owned enterprise, with PSI as the 100% owner of Chuming
(including its subsidiaries). On December 13, 2007, the PRC government
authorities issued Chuming a business license formally recognizing it as a
wholly foreign owned enterprise, of which PSI is the sole
shareholder.
 
 The
following is a description of the Chuming Operating Subsidiaries: -
 
 A. Dalian
Chuming Slaughter and Packaging Pork Company Ltd., whose primary business
activity is acquiring, slaughtering, and packaging of pork and
cattle;
 
 B. Dalian
Chuming Processed Foods Company Ltd., whose primary business activity is the
processing of raw and cooked meat products; and
 
 C. Dalian
Chuming Sales Company Ltd., which is responsible for Chuming’s sales, marketing,
and distribution operations.
 
 12
 
 Energroup
Holdings Corporation
 Notes
to Consolidated Financial Statements
 As
of September 30, 2009 and December 31, 2008
 Share
Exchange Transaction
 
 On
December 31, 2007, the Company acquired all of the outstanding shares of PSI in
exchange for the issuance of 16,850,000 restricted shares of our common stock to
the shareholders of PSI, which represented approximately 97.55% of the
then-issued and outstanding common stock of the Company (excluding the shares
issued in the Financing). As a result of that transaction, PSI became our wholly
owned subsidiary and we acquired the business and operations of the three
operation subsidiaries.
 
 The share
exchange transaction has been accounted for as a recapitalization of PSI where
the Company (the legal acquirer) is considered the accounting acquiree and PSI
(the legal acquiree) is considered the accounting acquirer.  As a
result of this transaction, the Company is deemed to be a continuation of
the business of PSI.
 
 Accordingly,
the financial data included in the accompanying consolidated financial
statements for all periods prior to December 31, 2007 is that of the accounting
acquirer (PSI).  The historical stockholders’ equity of the accounting
acquirer prior to the share exchange has been retroactively restated as if the
share exchange transaction occurred as of the beginning of the first period
presented.
 
 2.          
Summary of Significant
Accounting Policies
 
 (A)
              Method
      of Accounting
 
 The
Company maintains its general ledger and journals with the accrual method
accounting for financial reporting purposes.  The financial statements
and notes are representations of management.  Accounting policies
adopted by the Company conform to generally accepted accounting principles in
the United States of America and have been consistently applied in the
presentation of financial statements, which are compiled on the accrual basis of
accounting.
 
 (B)
              Principles
      of Consolidation
 
 The
consolidated financial statements, which include the Company and its
subsidiaries, are compiled in accordance with generally accepted accounting
principles in the United States of America.  All significant
inter-company accounts and transactions have been eliminated.  The
consolidated financial statements include 100% of assets, liabilities, and net
income or loss of those wholly-owned subsidiaries.
 
 The
Company owned the three operating subsidiaries since its
inception.  The Company also owns two intermediary holdings
companies.  As of September 30, 2009, the detailed identities of the
consolidating subsidiaries are as follows: -
 
 Name
      of Company
              
              Place
                of
      Incorporation
              
              Attributable
      Equity
                Interest
              
              Registered
      CapitalPrecious
      Sheen Investments Limited
              
              BVI
              
              100%
              
              USD
      10,000Dalian
      Chuming Precious Sheen Investment Consulting Co., Ltd.
              
              PRC
              
              100%
              
              RMB
      91,009,955Dalian
      Chuming Slaughtering & Pork Packaging  Co.
    Ltd.
              
              PRC
              
              100%
              
              RMB
      10,000,000Dalian
      Chuming Processed Foods Co. Ltd.
              
              PRC
              
              100%
              
              RMB
      5,000,000Dalian
      Chuming Sales Co. Ltd.
              
              PRC
              
              100%
              
              RMB
      5,000,000
 
 13
 
 Energroup
Holdings Corporation
 Notes
to Consolidated Financial Statements
 As
of September 30, 2009 and December 31, 2008
 The
consolidation of these operating subsidiaries into a newly formed holding
company i.e. “the Company” is permitted by United States GAAP: ARB51 paragraph
22 and 23.
 
 (C)
              Use
      of Estimates
 
 The
preparation of financial statements in conformity with generally accepted
accounting principles in the United States 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 the reported amounts of revenues and expenses during the
reporting period. Management makes these estimates using the best information
available at the time the estimates are made; however, actual results could
differ materially from these estimates.
 
 (D)
              Cash
      Equivalents
 
 For
purposes of the statement of cash flows, the Company considers all highly liquid
equity or debt instruments purchased with a maturity of three months or less to
be cash equivalents.
 
 (E)
              Accounts
      Receivable
 
 The
Company extends unsecured, non-interest bearing credit to its customers;
accordingly, the Company carries an allowance for doubtful accounts, which is an
estimate, made by management.  Management makes its estimate based on
prior experience rates and assessment of specific outstanding customer
balances.  Management may extend credit to new customers who have met
the criteria of the Company’s credit policy.
 
 (F)
              Inventory
      Carrying Value
 
 Inventory,
consisting of raw materials in the form of livestock, work in progress, and
finished products, is stated at the lower of cost or market
value.  Finished products are comprised of direct materials, direct
labor and an appropriate proportion of overhead.  Periodic evaluation
is made by management to identify if inventory needs to be written down because
of damage, or spoilage.  Cost is computed using the weighted average
method.
 
 14
 
  Energroup
Holdings Corporation
 Notes
to Consolidated Financial Statements
 As
of September 30, 2009 and December 31, 2008
 (G)
              Purchase
      Deposit
 
 Purchase
deposit represents the cash paid in advance for purchasing raw materials. The
purchase deposit is interest free and unsecured.
 
 (H)
              Property,
      Plant, and Equipment
 
 Property,
Plant, and Equipment are stated at cost.  Repairs and maintenance to
these assets are charged to expense as incurred; major improvements enhancing
the function and/or useful life are capitalized.  When items are sold
or retired, the related cost and accumulated depreciation are removed from the
accounts and any gains or losses arising from such transactions are
recognized.
 
 Property
and equipment are depreciated using the straight-line method over their
estimated useful life with a 5% salvage value.  Their useful lives are
as follows: -
 
 Fixed Asset Classification
              
              Useful LifeLand
      Improvements
              
              10
      yearsBuildings
              
              20
      yearsBuilding
      Improvements
              
              10
      yearsManufacturing
      Machinery & Equipment
              
              10
      yearsOffice
      Equipment
              
              5
      yearsFurniture
      & Fixtures
              
              5
      yearsVehicles
              
              5
      years
 
 (I)
              Land
      Use Rights
 
 Land Use
Rights are stated at cost less accumulated amortization. Amortization is
provided over its useful life, using the straight-line method.  The
useful life of the land use right is 50 years.
 
 (J)
              Construction
      in Progress
 
 Construction
in progress represents the direct costs of design, acquisition, and construction
of buildings, building improvements, and land improvements. These costs are
capitalized in the Construction-in-Progress account until substantially all
activities necessary to prepare the assets for their intended use are completed.
At such point, the Construction-in-Progress account is closed and the
capitalized costs are transferred to their appropriate asset
classification.  No depreciation is provided until the assets are
completed and ready for their intended use.
 
 (K)
              Accounting
      for Impairment of Assets
 
 The
      Company reviews the recoverability of its long-lived assets, such as
      property and equipment, when events or changes in circumstances occur that
      indicate the carrying value of the asset group may not be
      recoverable.  The assessment of possible impairment is based on
      the Company’s ability to recover the carrying value of the asset from the
      expected future cash flows, undiscounted and without interest charges, of
      the related operations.  If these cash flows are less than the
      carrying value of such assets, an impairment loss is recognized for the
      difference between estimated fair value and carrying value.  The
      measurement of impairment requires management to estimate future cash
      flows and the fair value of long-lived
assets.
  15
 Energroup
Holdings Corporation
 Notes
to Consolidated Financial Statements
 As
of September 30, 2009 and December 31, 2008
 (L)
              Customer
      Deposits
 
 Customer
Deposits represents money the Company has received in advance for purchases of
pork and pork products.  The Company considers customer deposits as a
liability until products have been shipped and revenue is earned.
 
 The
Company collects a damage deposit (as a deterrent) recorded in Other Payable
from showcase store operators as a means of enforcing proper use of the
Company’s trademarks.  These are not fees, but deposits that are
carried as current liabilities until and unless an operator violates the
Company’s policies (e.g. misuse of Company brand names, or sale of substandard
or counterfeit products, or unacceptably poor customer service), or if the
proprietor ceases to operate the showcase store.  If no violations
have been committed by the showcase store operator, the deposit is returned to
the operator.  The Company carries the amount of these deposits as a
current liability because the Company will return the deposit immediately to the
operator when the Company ceases to conduct business with the
operator.
 
 (M)
              Statutory
      Reserve
 
 Statutory
reserve refer to the amount appropriated from the net income in accordance with
laws or regulations, which can be used to recover losses and increase capital,
as approved, and, are to be used to expand production or
operations.  PRC laws prescribe that an enterprise operating at a
profit, must appropriate, on an annual basis, from its earnings, an amount to
the statutory reserve to be used for future company development.  Such
an appropriation is made until the reserve reaches a maximum equalling 50% of
the enterprise’s capital.
 
 (N)
              Other
      Comprehensive Income
 
 Comprehensive
      income is defined to include all changes in equity except those resulting
      from investments by owners and distributions to owners.  Among
      other disclosures, all items that are required to be recognized under
      current accounting standards as components of comprehensive income are
      required to be reported in a financial statement that is presented with
      the same prominence as other financial statements.  The
      Company’s current component of other comprehensive income is the foreign
      currency translation adjustment.
 
 (O)
              Recognition
      of Revenue
 
 Revenue
from the sale of pork products, etc., is recognized on the transfer of risks and
rewards of ownership, which generally coincides with the time when the goods are
delivered to customers and the title has passed.
 
 The
Company supplies pork products, equipment, uniforms, and technical support to
the proprietors of showcase stores, who are granted the right to use the
Company’s trademarks to sell pork products.  Start-up fees relating to
uniforms are immaterial and are charged to the showcase store operators merely
to recoup setup costs.  Any funds collected from store operators in
conjunction with initial startup and operation is minimal and
immaterial.  The Company does not charge any fees for providing
equipment to the showcase stores.  The Company provides equipment at
its own cost, and the Company owns all such equipment.  Considering
the foregoing, the Company takes the position that any amount it receives from
the store operators is not material in accordance with Rule 5-03.1 of Regulation
S-X.  In addition, since the Company does not receive any material
franchise fee revenue, SFAS 45 is not applicable.
  16
 Energroup
Holdings Corporation
 Notes
to Consolidated Financial Statements
 As
of September 30, 2009 and December 31, 2008
 (P)
              Cost
      of Sales
 
 The
Company’s cost of sales is comprised of raw materials, factory worker salaries
and related benefits, machinery supplies, maintenance supplies, depreciation,
utilities, inbound freight, purchasing and receiving costs, inspection and
warehousing costs
 
 (Q)
              Selling
      Expense
 
 Selling
expenses are comprised of outbound freight, salary for the sales force, client
entertainment, commissions, depreciation, advertising, and travel and lodging
expenses.
 
 (R)
              General
      & Administrative
 
 General
and administrative costs include executive compensation, quality control, and
general overhead such as the finance department, administrative staff, and
depreciation and amortization expense.
 
 (S)
              Shipping
      and handling
 
 All
shipping and handling are expensed as incurred and are included as a component
of cost of sales.
 
 (T)
              Advertising
      Expense
 
 Costs
related to advertising and promotion expenditures are expensed as incurred
during the year.  Advertising costs are charged to selling
expense.
 
 (U)
              Retirement
      Benefits
 
 Retirement
benefits in the form of contributions under defined contribution retirement
plans to the relevant authorities are charged to the statement of operations as
incurred.
 
 (V)
              Income
      Taxes
 
 The
Company uses the accrual method of accounting to determine and report its
taxable reduction of income taxes for the year in which they are available. The
Company has implemented Statement of Financial Accounting Standards (SFAS) No.
109, Accounting for Income Taxes. Income tax liabilities computed according to
the United States and People’s Republic of China (PRC) tax laws are provided for
the tax effects of transactions reported in the financial statements and
consists of taxes currently due plus deferred taxes related primarily to
differences between the basis of fixed assets and intangible assets for
financial and tax reporting. The deferred tax assets and liabilities represent
the future tax return consequences of those differences, which will be either
taxable or deductible when the assets and liabilities are recovered or settled.
Deferred taxes also are recognized for operating losses that are available to
offset future income taxes. A valuation allowance is created to evaluate
deferred tax assets if it is more likely than not that these items will either
expire before the Company is able to realize that tax benefit, or that future
realization is uncertain.
 
 17
 
 Energroup
Holdings Corporation
 Notes
to Consolidated Financial Statements
 As
of September 30, 2009 and December 31, 2008
 In
respect of the Company’s subsidiaries domiciled and operated in
China:
 
 ·
              Chuming
      and Chuming Operating Subsidiaries are located in the PRC and PSI is
      located in the British Virgin Islands; all of these entities are subject
      to the relevant tax laws and regulations of the PRC and British Virgin
      Islands in which the related entity domiciled.  The maximum tax
      rates of the subsidiaries pursuant to the countries in which they domicile
      are: -
 
 Subsidiary
              
              Country of Domicile
              
              Income Tax RateChuming
      and Chuming Subsidiaries
              
              PRC
              
              25.00%PSI
              
              British
      Virgin Islands
              
              0.00%
 
 ·
              Effective
      January 1, 2008, PRC government implements a new 25% tax rate across the
      board for all enterprises regardless of whether domestic or foreign
      enterprise without any tax holiday which is defined as “two-year exemption
      followed by three-year half exemption” hitherto enjoyed by tax payers. As
      a result of the new tax law of a standard 25% tax rate, tax holidays
      terminated as of December 31, 2007. However, PRC government has
      established a set of transition rules to allow enterprises already started
      tax holidays before January 1, 2008, to continue enjoying the tax holidays
      until being fully utilized.
 
 ·
              Since
      Energroup Holdings Corporation is primarily a holding company without any
      business activities in the United States, the Company shall not be subject
      to income tax.
 
 (W)
              Economic
      and Political Risks
 
 The
Company’s operations are conducted in the PRC. Accordingly, the Company’s
business, financial condition and results of operations may be influenced by the
political, economic and legal environment in the PRC, and by the general state
of the PRC economy.
 
 (X)
              Foreign
      Currency Translation
 
 The
Company maintains its financial statements in the functional
currency.  The functional currency of the Company is the Renminbi
(RMB).  Monetary assets and liabilities denominated in currencies
other than the functional currency are translated into the functional currency
at rates of exchange prevailing at the balance sheet dates. Transactions
denominated in currencies other than the functional currency are translated into
the functional currency at the exchanges rates prevailing at the dates of the
transaction.  Exchange gains or losses arising from foreign currency
transactions are included in the determination of net income for the respective
periods.
 
 18
 
 Energroup
Holdings Corporation
 Notes
to Consolidated Financial Statements
 As
of September 30, 2009 and December 31, 2008
 For
financial reporting purposes, the financial statements of the Company which are
prepared using the functional currency have been translated into United States
dollars.  Assets and liabilities are translated at the exchange rates
at the balance sheet dates and revenue and expenses are translated at the
average exchange rates and stockholders’ equity is translated at historical
exchange rates.  Any translation adjustments resulting are not
included in determining net income but are included in foreign exchange
adjustment to other comprehensive income, a component of stockholders’
equity.
 
 Exchange Rates
              
              9/30/2009
              
              
              12/31/2008
              
              
              9/30/2008Period
      end RMB : US$ exchange rate
              
              
              6.8376
              
              
              
              6.8542
              
              
              
              6.8551Average
      period RMB : US$ exchange rate
              
              
              6.8425
              
              
              
              6.9623
              
              
              
              6.9989
 
 RMB is
not freely convertible into foreign currency and all foreign exchange
transactions must take place through authorized institutions. No representation
is made that the RMB amounts could have been, or could be, converted into US$ at
the rates used in translation.
 
 (Y)
              Earnings
      Per Share
 
 The
Company computes earnings per share (“EPS”) in accordance with Statement of
Financial Accounting Standards No. 128, “Earnings per share” (“SFAS No. 128”),
and SEC Staff Accounting Bulletin No. 98 (“SAB 98”). SFAS No. 128 requires
companies with complex capital structures to present basic and diluted EPS.
Basic EPS is measured as the income or loss available to common shareholders
divided by the weighted average common shares outstanding for the period.
Diluted EPS is similar to basic EPS but presents the dilutive effect on a per
share basis of potential common shares (e.g., contingent shares, convertible
securities, options, and warrants) as if they had been converted at the
beginning of the periods presented, or issuance date, if later. Potential common
shares that have an anti-dilutive effect (i.e., those that increase income per
share or decrease loss per share) are excluded from the calculation of diluted
EPS.)
 
 (Z)
              Recent
      Accounting Pronouncements
 
 In May
2009, the FASB issued SFAS No. 165, “Subsequent Events” (“SFAS 165”). SFAS 165
is intended to establish general standards of accounting for and disclosure of
events that occur after the balance sheet date but before financial statements
are issued or are available to be issued. It requires the disclosure of the date
through which an entity has evaluated subsequent events and the basis for that
date, that is, whether that date represents the date the financial statements
were issued or were available to be issued. SFAS 165 is effective for interim or
annual financial periods ending after June 15, 2009.
 
 19
 
 Energroup
Holdings Corporation
 Notes
to Consolidated Financial Statements
 As
of September 30, 2009 and December 31, 2008
 In June
2009, FASB issued FASB Statement No. 166, Accounting for Transfers for Financial
Assets and FASB Statement No. 167, a revision to FASB Interpretation No. 46
(Revised December 2003), Consolidation of Variable Interest
Entities.
 Statement
166 is a revision to FASB Statement No. 140, Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities, and
will require more information about transfers of financial assets, including
securitization transactions, and where entities have continuing exposure to the
risks related to transferred financial assets. It eliminates the concept of a
“qualifying special-purpose entity,” changes the requirements for derecognizing
financial assets, and requires additional disclosures.
 
 Statement
167 is a revision to FASB Interpretation No. 46 (Revised December 2003), Consolidation of Variable Interest
Entities, and changes how a reporting entity determines when an entity
that is insufficiently capitalized or is not controlled through voting (or
similar rights) should be consolidated. The determination of whether a reporting
entity is required to consolidate another entity is based on, among other
things, the other entity’s purpose and design and the reporting entity’s ability
to direct the activities of the other entity that most significantly impact the
other entity’s economic performance.
 
 On July
1, 2009, FASB issued FASB Statement No. 168, The “FASB Accounting Standards
Codification” and the Hierarchy of Generally Accepted Accounting
Principles.  The ASC has become the source of authoritative US
GAAP recognized by the FASB to be applied by nongovernmental entities and
provides that all such guidance carries an equal level of authority. The ASC is
not intended to change or alter existing GAAP. The ASC is effective for interim
and annual periods ending after September 15, 2009.
 
 The
Company is currently evaluating the potential impact, if any, of the adoption of
the above recent accounting pronouncements on its consolidated results of
operations and financial condition.
 
 3.
                Restricted
      Cash
 
 The
restricted cash reflects funds received from the financing transaction described
in Note 18 that is held in an escrow with US Bank in the United
States.  These funds are restricted until the Company has fulfilled
the following criteria: (1) the hiring of a Chief Financial Officer that meets
the approval of the investors, at such point the Company will release $1.5
million from restriction, the Company must satisfy this requirement within 90
days of the closing of the financing transaction, (2) the Company appoints a
Board of Directors that has majority of independent members, at such point $2.0
million will be released from restriction, and (3) appoint a successor auditor,
at which point $500,000 will be released from restriction.  There is
$250,000 in the escrow account that has already been earmarked for investor
relations purposes.
 
 At
September 30, 2009, the Company has yet to fulfill requirement (3). The Company
has requested bids for consideration from auditing firms that were on an
approved list submitted by, Pinnacle Fund, whom was the lead investor in the
Company’s financing transaction in December 2007, detailed in Note 18 – Financing
Transaction.
 
 20
 
  Energroup
Holdings Corporation
 Notes
to Consolidated Financial Statements
 As
of September 30, 2009 and December 31, 2008
 4.
                Accounts
      Receivable
 
 Accounts Receivable at September 30,
2009 and December 31, 2008 consisted of the following: -
  At
              
              
              AtSeptember
      30,
              
              
              December
      31,2009
              
              
              2008Accounts
      Receivable – Trade
              
              $
              30,617,410
              
              
              $
              18,849,560Less:
      Allowance for Doubtful Accounts
              
              
              (306,174
              )
              
              
              (188,495
              )Net
      Accounts Receivable
              
              $
              30,311,236
              
              
              $
              18,661,065
 
 At
              
              
              AtJune
      30,
              
              
              December
      31,Allowance for Bad
      Debts
              
              2009
              
              
              2008Beginning
      Balance
              
              $
              (188,495
              )
              
              $
              (84,723
              )Allowance
      Provided
              
              
              (117,679
              )
              
              
              (103,772
              )Reverse
              
              
              -
              
              
              
              -Ending
      Balance
              
              $
              (306,174
              )
              
              $
              (188,495
              )
 
 During
the second quarter of the 2008 fiscal year, management revised the Company’s
credit policy.  Based on management’s review, the Company began
extending more favorable credit terms to its top tier customers. Those customers
that qualified as top tier were extended approximately 45 to 60 days of
credit.  The Company previously extended one to two days of credit. As
of September 30, 2009, the Company has not had any receivables that were
unrecoverable.
 
 Accounts
receivable aging analysis at September 30, 2009: -
 
 1-30 Days
              
              $
              15,229,12230-60 Days
              
              
              12,465,92261-90 Days
              
              
              2,542,56091-120 Days
              
              
              73,632121-365 Days
              
              
              -Over 365 Days
              
              
              -Total
              
              $
              30,311,236
 
 21
  Energroup
Holdings Corporation
 Notes
to Consolidated Financial Statements
 As
of September 30, 2009 and December 31, 2008
 
 5.
                Related Party
      Receivable
 
 In the
normal course of business which includes the purchases of hogs and other raw
materials, sale of pork and pork products, the Company conducts transactions
with the following related parties: Dalian Chuming Group Co., Ltd (“Group”) and
the Group subsidiaries, that are not consolidated into Energroup Holdings or
Energroup’s subsidiary, Dalian Chuming Precious Sheen Investments Consulting Co.
Ltd. (Chuming): (1) Dalian Chuming Industrial Development Co., Ltd.,
(“Industrial Development Co.”) (2) Dalian Chuming Trading Co., Ltd, (“Trading
Co.”) (3) Dalian Mingxing Livestock Product Co. Ltd., (“Mingxing”) (4) Dalian
Chuming Stockbreeding Combo Development Co., Ltd., (“Combo Development Co.”) (5)
Dalian Chuming Fodder Co., Ltd. (“Fodder Co.”), and (6) Dalian Chuming
Biological Technology Co., Ltd., (“Biological Co.”) and (7) Dalian Huayu Seafood
Food Co., Ltd. (“Huayu”).  The Company and the aforementioned related
parties share common beneficial ownership.  All transactions with
related parties are generally performed at arm’s length.
 
 In the
event that the Company has both receivables from, and payables to the Group it
will, in accordance with FIN 39, setoff the balances in order to arrive at a
single balance that is either due from, or due to the Group.  The
Company’s net receivable balance of $17,714,847at September 30, 2009 is
shown in the following table.
 
 Ref.
                                          
                                          Subsidiary
                                            Due to:
                                          
                                          Nature of Balance
                                          
                                          Related Party
                                          
                                          
                                          Balance
                                          
                                          Description of
                                            TransactionA
                                          
                                          Food
                                          
                                          Sale
      of Products resulting in Trade Receivable from
                                          
                                          Dalian
      Mingxing Livestock Product Co. Ltd.,
                                          
                                          
                                          235,264
                                          
                                          Food
      Co. sold cooked food to Mingxing dating back to
  1/2007.
 Subtotal
      of Related Party Sales
                                          
                                          $
                                          235,264
 B
                                                                                                      
                                                                                                      Food
                                                                                                      
                                                                                                      Loan
      Receivable from
                                                                                                      
                                                                                                      Dalian
      Fodder Co., Ltd.
                                                                                                      
                                                                                                      
                                                                                                      15,346
                                                                                                      
                                                                                                      Food
      Co. advanced prepayment to Fodder Co. for purchase of raw materials dating
      back to 7/2009C
                                                                                                      
                                                                                                      Food
                                                                                                      
                                                                                                      Loan
      Receivable from
                                                                                                      
                                                                                                      Dalian
      Chuming Industrial Development Co., Ltd.
                                                                                                      
                                                                                                      
                                                                                                      18,886,845
                                                                                                      
                                                                                                      Food
      Co. paid bank loan principal and interest on behalf of Industrial Co.
      dating back to 1/2008D
                                                                                                      
                                                                                                      Food
                                                                                                      
                                                                                                      Loan
      Receivable
                                                                                                        From
                                                                                                      
                                                                                                      Dalian
      Chuming Group Co., Ltd.
                                                                                                      
                                                                                                      
                                                                                                      6,193,761
                                                                                                      
                                                                                                      Food
      Co. paid bank loan principal and interest on behalf of Group dating back
      to 9/2009E
                                                                                                      
                                                                                                      Meat
                                                                                                      
                                                                                                      Loan
      Receivable from
                                                                                                      
                                                                                                      Dalian
      Chuming Industrial Development Co., Ltd.
                                                                                                      
                                                                                                      
                                                                                                      37,707,218
                                                                                                      
                                                                                                      Meat
      Co. paid bank loan principal and interest on behalf of Industrial Co.
      dating back to 4/2009F
                                                                                                      
                                                                                                      Meat
                                                                                                      
                                                                                                      Loan
      Receivable from
                                                                                                      
                                                                                                      Dalian
      Chuming Fodder Co., Ltd.
                                                                                                      
                                                                                                      
                                                                                                      2,327,531
                                                                                                      
                                                                                                      Meat
      Co. paid raw materials and utility fees for Fodder Co. dating back to
      7/2008.G
                                                                                                      
                                                                                                      Meat
                                                                                                      
                                                                                                      Loan
      Receivable from
                                                                                                      
                                                                                                      Dalian
      Chuming Stockbreeding Combo Development Co., Ltd.
                                                                                                      
                                                                                                      
                                                                                                      3,130,099
                                                                                                      
                                                                                                      Prepayment
      to Stockbreeding Combo for Purchase of hogs dating back to
      7/2008.H
                                                                                                      
                                                                                                      Meat
                                                                                                      
                                                                                                      Loan
      Receivable from
                                                                                                      
                                                                                                      Dalian
      Chuming Group Co., Ltd.
                                                                                                      
                                                                                                      
                                                                                                      933,582
                                                                                                      
                                                                                                      Meat
      Co. advance prepayment to Group for the purchase of raw materials dating
      back to 7/2009I
                                                                                                      
                                                                                                      Sales
                                                                                                      
                                                                                                      Loan
      Receivable from
                                                                                                      
                                                                                                      Dalian
      Huayu Seafood Co., Ltd.
                                                                                                      
                                                                                                      
                                                                                                      2,616,249
                                                                                                      
                                                                                                      Sales
      Co. help Huayu purchase materials dating back to
9/2008.J
                                                                                                      
                                                                                                      Sales
                                                                                                      
                                                                                                      Loan
      Receivable from
                                                                                                      
                                                                                                      Dalian
      Chuming Group Co., Ltd.
                                                                                                      
                                                                                                      
                                                                                                      9,089,041
                                                                                                      
                                                                                                      Sales
      Co. purchased hogs and paid general and administrative expenses on behalf
      of Group dating back to 7/2008.K
                                                                                                      
                                                                                                      Sales
                                                                                                      
                                                                                                      Loan
      Receivable from
                                                                                                      
                                                                                                      Dalian
      Chuming Stockbreeding Combo Development Co., Ltd.
                                                                                                      
                                                                                                      
                                                                                                      20,311,018
                                                                                                      
                                                                                                      Sales
      Co. paid for Stockbreeding to buy hogs from farmer dating back
      7/2008L
                                                                                                      
                                                                                                      Sales
                                                                                                      
                                                                                                      Loan
      Receivable from
                                                                                                      
                                                                                                      Dalian
      Chuming Industrial Development Co., Ltd.
                                                                                                      
                                                                                                      
                                                                                                      5,593,753
                                                                                                      
                                                                                                      Sales
      Co. purchased materials for Industrial Co. dating back to
      7/2009M
                                                                                                      
                                                                                                      Sales
                                                                                                      
                                                                                                      Loan
      Receivable from
                                                                                                      
                                                                                                      Dalian
      Chuming Fodder Co., Ltd.
                                                                                                      
                                                                                                      
                                                                                                      1,456,814
                                                                                                      
                                                                                                      Sales
      Co. purchased feeding materials for Fodder Co. dating back to
      5/2009
 Subtotal
      of Loans to Related Parties
                                                  
                                                  $
                                                  108,261,257Gross
      Related Party Receivable
                                                  
                                                  $
                                                  108,496,521
 22
 Energroup
Holdings Corporation
 Notes
to Consolidated Financial Statements
 As
of September 30, 2009 and December 31, 2008
  Subsidiary
                    Due from:
                  
                  Nature of Balance
                  
                  Related Party
                  
                  
                  Balance
                  
                  Description of
                    TransactionN
                  
                  Meat
                  
                  Purchase
      of Raw Materials resulting in Trade Payable to
                  
                  Dalian
      Chuming Stockbreeding Combo Development Co., Ltd.
                  
                  
                  8,869,725
                  
                  Meat
      Co. purchased of hogs from Stockbreeding Combo Development Co. dating back
      to 7/2009O
                  
                  Meat
                  
                  Purchase
      of Raw Materials resulting in Trade Payable to
                  
                  Dalian
      Chuming Group Co., Ltd.
                  
                  
                  47,322,320
                  
                  Purchase
      of hogs from Group dating back to
7/2008.
  Subtotal
      of Purchases from Related Parties
              
              
              
              $
              56,192,046 P
                                                    
                                                    Food
                                                    
                                                    Loan
      Payable to
                                                    
                                                    Dalian
      Chuming Group Co., Ltd.
                                                    
                                                    
                                                    583
                                                    
                                                    Food
      borrowed from Group to purchase materials dating back to
      4/2009.Q
                                                    
                                                    Food
                                                    
                                                    Loan
      Payable to
                                                    
                                                    Dalian
      Chuming Stockbreeding Combo Development Co., Ltd.
                                                    
                                                    
                                                    2,047,502
                                                    
                                                    Stockbreeding
      Combo Development Co. bought raw materials for Food Co. dating back to
      4/2009R
                                                    
                                                    Food
                                                    
                                                    Loan
      Payable to
                                                    
                                                    Dalian
      Mingxing Livestock Product Co., Ltd.
                                                    
                                                    
                                                    1,569
                                                    
                                                    Food
      Co. borrowed funds from Mingxing for operations purpose dating back to
      12/2008S
                                                    
                                                    Food
                                                    
                                                    Loan
      Payable to
                                                    
                                                    Dalian
      Huayu Seafood Co., Ltd.
                                                    
                                                    
                                                    2,907,515
                                                    
                                                    Food
      Company collected customer deposits on behalf of Huayu Co. dating back to
      7/2009T
                                                    
                                                    Meat
                                                    
                                                    Loan
      Payable to
                                                    
                                                    Dalian
      Chuming Group Co., Ltd.
                                                    
                                                    
                                                    12,260,724
                                                    
                                                    Group
      loaned to Meat Co. dating back to 4/2009U
                                                    
                                                    Meat
                                                    
                                                    Loan
      Payable to
                                                    
                                                    Dalian
      Huayu Seafood Co., Ltd.
                                                    
                                                    
                                                    2,072,830
                                                    
                                                    Huayu
      Co. loaned to Meat Co. dating back to 7/2009V
                                                    
                                                    Meat
                                                    
                                                    Loan
      Payable to
                                                    
                                                    Dalian
      Mingxing Livestock Product Co., Ltd.
                                                    
                                                    
                                                    610,521
                                                    
                                                    Mingxing
      Co. paid the operation expense on behalf of Meat Co., dating back to
      7/2009W
                                                    
                                                    Sales
                                                    
                                                    Loan
      Payable to
                                                    
                                                    Dalian
      Mingxing Livestock Product Co. Ltd.,
                                                    
                                                    
                                                    915,251
                                                    
                                                    Sales
      Co. collected bank loans on behalf of Mingxing dating back to
      8/2008X
                                                    
                                                    Sales
                                                    
                                                    Loan
      Payable to
                                                    
                                                    Dalian
      Chuming Fodder Co., Ltd.
                                                    
                                                    
                                                    3,259,311
                                                    
                                                    Fodder
      Co. bought materials on behalf of Sales Co. dating back to
      4/2009Y
                                                    
                                                    WFOE
                                                    
                                                    Loan
      Payable to
                                                    
                                                    Dalian
      Chuming Group Co.
                                                    
                                                    
                                                    10,513,823
                                                    
                                                    Group
      loaned funds to WFOE (includes funds transferred from Meat for US
      RTO.)
  Subtotal
      of Loans from Related Parties
                    
                    $
                    34,589,629Gross
      Related Party Payable
                    
                    $
                    90,781,674Setoff Related Party
      Receivable (Receivables have been set-off against
      payables)
                    
                    $
                    17,714,847
  23
 Energroup
Holdings Corporation
 Notes
to Consolidated Financial Statements
 As
of September 30, 2009 and December 31, 2008
 A.
                The
      Food Company sold USD 235 thousand (RMB 1.6 million) cooked food to
      Mingxing Company on credit.
 
 B.
              Food
      Company prepaid USD 15 thousand (RMB 104 thousand) to Fodder Company in
      third quarter of 2009 for the purchase of raw
    materials.
 
 C.
              Food
      Company paid USD 18.8 million (RMB 129 million) bank loan principal and
      interest on behalf of Industrial Development
  Company.
 
 D.
              Food
      Company paid USD 6.2 million (RMB 42 million) bank loan principal and
      interest on behalf of Chuming
Group.
 
 E.
              Meat
      Co. paid USD 37.7 million (RMB 257.8 million) bank loan principal and
      interest on behalf Industrial Development
  Company.
 
 F.
                Meat
      Co. paid USD 2 million (RMB 16 million) raw materials and utility fees for
      Fodder Company.
 
 G.
              The
      prepayment of USD 3.1 million (RMB 21.4 million) from Meat Company to the
      Stockbreeding Combo Development Company was for the purchase of
      hogs.
 
 H.
              Meat
      Company advanced 933 thousand (RMB 6.4 million) to Chuming Group for the
      purchase of raw materials.I.
              Sales
      Company bought USD 2.6 million (RMB 17.9 million) raw materials for Huayu
      Seafood Company.J.
              The
      balance of USD 9.1 million (RMB 62 million) receivable from Chuming Group
      to Sales Company was for the payments of hogs and operation
      expense.
  K.
              Sales
      Company help the Combo Development Company to pay USD 20 million (RMB 140
      million) to local farmers for the purchase of
  hogs.L.
              Sales
      Company purchased USD 5.6 million (RMB 38 million) materials for
      Industrial Development Company.
  M.
              The
      receivable of USD 1.5 million (RMB 10 million) due from Fodder Company to
      Sales Company is primary for the purchase of feeding
      materials.
 
 N.
              The
      balance of USD 8.9 million (RMB 61 million) payment owed by the Meat
      Company to Chuming Stockbreeding Combo Development Company was for the
      purchase of hogs.
 
 O.
              The
      Group sold hogs to Meat Co. for 47.3 million (RMB 323.6
      million).P.
              Chuming
      Group purchased USD 583 (RMB 4 thousand) materials for Food
      Company
  Q.
              Stockbreeding
      Combo Development Company purchased USD 2 million (RMB 14 million) for
      Food Company.
 
 R.
              Mingxing
      Livestock Company paid USD 1.6 thousand (RMB 10.7 thousand) daily
      operation expenses on behalf of Food Company.S.
              Food
      Company collected USD 2.9 million (RMB 19.9 million) customer deposits on
      behalf of Huayu Seafood Company.T.
              Meat
      Company borrowed USD 12.2 million (RMB 83.8 million) operation funds from
      Chuming Group.
  U.
              Meat
      Company borrowed USD 2.1 million (RMB 14 million) operation funds from
      Huayu Seafood Company.
 
 V.
              Mingxing
      Livestock Company paid USD 611 thousand (RMB 4.1 million) general and
      administrative expenses for Meat
Company.
 
 W.
              Sales
      Company collected USD 915 thousand (RMB 6.3 million) bank loans on behalf
      of Mingxing Livestock
Company.
 
 X.
              Fodder
      Company bought USD 3.3 million (RMB 22.3 million) materials on behalf of
      Sales Company.
 
 Y.
              The
      outstanding payable balance of USD 10.5 million (RMB 70 million) due to
      the Group has been transferred to the books of
    Chuming.
 
 The
related party receivable balance detailed above, and the related transactions
that comprise that balance were integral and material to the Company’s
operations.  The Company was reliant on transactions with the above
related parties in order to conduct its business normally.  The
Company acknowledges that it has the responsibility to comply with paragraph c
of SFAS 57 which calls for the dollar amounts of transactions for each of the
periods for which income statements are presented and the effects of any change
in the method of establishing the terms from that used in the preceding
period.  The Company’s accounting system in the past was manual and
accordingly is not able to, from a cost benefit perspective, summarize and
provide further detail on the related party transactions. Also, the Company’s
current accounting department does not have sufficient staff in order to perform
and exercise to further detail the related party payables and receivables beyond
what has been provided above; however the Company is taking steps to update its
accounting systems and methods to provide fuller detail regarding these
transactions for future periods.  The Company does represent that the
balances disclosed above are both accurate and reliable within acceptable
thresholds of materiality.
 
 The
Company’s related party receivables and payables in the period presented were in
the form of either short-term loans bearing no interest, or trade payables and
receivables relating to the purchase of raw materials, supplies or products for
which payment was due within a short period of time.  Management
believes that the net receivables from related parties are fully
recoverable.
 
 Of the
$17,714,847 netreceivable owed by the
Group to the Company, $4,387,504 has been securitized by bank drafts issued by
the bank on behalf of Chuming Stockbreeding Combo. Development Co., Ltd. of the
Group to the Company.  These notes are collateralized by deposits at
the bank by Chuming Stockbreeding Combo.  The drafts can be endorsed
and discounted to the bank for cash; however the Company currently intends to
hold these drafts until maturity.
  24
 Energroup
Holdings Corporation
 Notes
to Consolidated Financial Statements
 As
of September 30, 2009 and December 31, 2008
 
 6.
              Inventory
 
 At
              
              
              AtSeptember
      30,
              
              
              December
      31,2009
              
              
              2008Raw
      Materials
              
              $
              2,404,890
              
              
              $
              867,549Work
      in Progress
              
              
              599,912
              
              
              
              241,738Finished
      Goods
              
              
              3,300,583
              
              
              
              4,941,822$
              6,305,385
              
              
              $
              6,051,109
 
 7.           Property, Plant &
Equipment
 
 AccumulatedAt
      September 30, 2009:
              
              Cost
              
              
              Depreciation
              
              
              NetBuildings
              
              $
              21,660,465
              
              
              $
              (4,055,819
              )
              
              $
              17,604,646Manufacturing
      Equipment
              
              
              10,070,179
              
              
              
              (4,113,899
              )
              
              
              5,956,280Office
      Equipment
              
              
              236,429
              
              
              
              (183,245
              )
              
              
              53,185Vehicles
              
              
              938,180
              
              
              
              (630,378
              )
              
              
              307,802Furniture
      & Fixture
              
              
              606,546
              
              
              
              (266,493
              )
              
              
              340,053$
              33,511,800
              
              
              $
              (9,249,834
              )
              
              $
              24,261,966
  AccumulatedAt
      December 31, 2008:
              
              Cost
              
              
              Depreciation
              
              
              NetBuildings
              
              $
              21,604,325
              
              
              $
              (3,607,219
              )
              
              $
              17,997,105Manufacturing
      Equipment
              
              
              10,061,608
              
              
              
              (3,132,725
              )
              
              
              6,928,883Office
      Equipment
              
              
              195,577
              
              
              
              (150,670
              )
              
              
              44,907Vehicles
              
              
              913,816
              
              
              
              (477,265
              )
              
              
              436,551Furniture
      & Fixture
              
              
              524,020
              
              
              
              (137,315
              )
              
              
              386,705$
              33,299,346
              
              
              $
              (7,505,196
              )
              
              $
              25,794,151
 
 Depreciation expense for the nine
months ended September 30, 2009 was $1,744,638.
  25
 Energroup
Holdings Corporation
 Notes
to Consolidated Financial Statements
 As
of September 30, 2009 and December 31, 2008
  8.
              Land Use
      Right
 
 The
Company had the following intangible assets outstanding at September 30, 2009
and December 31, 2008, respectively:-
 
 At
              
              
              AtSeptember
      30,
              
              
              December
      31,2009
              
              
              2008Land
      Use Rights, at Cost
              
              $
              14,734,288
              
              
              $
              14,407,503Less: Accumulated
      Amortization
              
              
              (1,469,101
              )
              
              
              (977,068
              )$
              13,265,187
              
              
              $
              13,430,435
 
 Amortization expense for the nine
months ended September 30, 2009 was $492,033
 
 9.
              Bank
      Loans
 
 At
September 30, 2009, the Company had the following short-term loans
outstanding:-
 
 Bank
              
              Interest
      Rate
              
              Due
      Date
              
              AmountBank
      of China
              
              
              6.1586
              %
              10/26/2009
              
              $
              4,387,504Bank
      of Huaxie
              
              
              6.372
              %
              3/3/2010
              
              
              4,387,504Bank
      of China
              
              
              7.326
              %
              10/17/2009
              
              
              2,047,503Shanghai
      Pufa Development Bank
              
              
              5.841
              %
              7/16/2010
              
              
              5,850,006$
              16,672,517
 
 The loan
provided by the Bank of China is secured by the Meat Company’s land use rights,
which have been appraised at a fair market value of $5,605,611 (RMB
41,000,000).
  26
  Energroup
Holdings Corporation
 Notes
to Consolidated Financial Statements
 As
of September 30, 2009 and December 31, 2008
 10.
              Capitalization
 
 As a
result of a reverse-merger on December 31, 2007 that was consummated via a share
exchange, and a concurrent equity financing, in the form of a private placement
by issuing common stock to ten accredited investors, the Company’s
capitalization is now reflected by the table shown below:
 
 Name
      of Shareholder
              
              Number
      of Shares
              
              
              Common
      Stock Capital
              
              
              Additional
      Paid in Capital
              
              
              Equity
      %Operating
      Companies Founders
              
              
              14,688,948
              
              
              $
              14,689
              
              
              $
              25,856,416
              
              
              
              69.50
              %PRE-RTO
      Shell Shareholders
              
              
              422,756
              
              
              
              423
              
              
              
              -
              
              
              
              2.00
              %Advisors
      & Consultants
              
              
              2,161,052
              
              
              
              2,161
              
              
              
              -
              
              
              
              10.22
              %Private
      Investors
              
              
              3,863,636
              
              
              
              3,864
              
              
              
              13,043,964
              
              
              
              18.28
              %21,136,392
              
              
              $
              21,137
              
              
              $
              38,900,380
              
              
              
              100.00
              %
 
 
 11.
              Commitments of
      Statutory Reserve
 
 In
compliance with PRC laws, the Company is required to appropriate a portion of
its net income to its statutory reserve up to a maximum of 50% of an
enterprise’s registered capital in the PRC.  The Company had future
unfunded commitments, as provided below.
 
 At
              
              
              AtSeptember
      30,
              
              
              December
      31,2009
              
              
              2008PRC
      Registered Capital
              
              $
              15,566,849
              
              
              $
              15,566,849-
      Statutory Reserve Ceilingbased
      on 50% ofRegistered
      Capital
              
              
              7,783,424
              
              
              
              7,783,424Less: - Retained
      Earningsappropriated
      toStatutory
      Reserve
              
              
              (2,077,488
              )
              
              
              (2,077,488
              )Reserve
      CommitmentOutstanding
              
              $
              5,705,936
              
              
              $
              5,705,936
  27
 Energroup
Holdings Corporation
 Notes
to Consolidated Financial Statements
 As
of September 30, 2009 and December 31, 2008
 12.
              Advertising
      Costs
 
 Advertising
expenses were $163,029 and $1,546,948 for the nine months ended September 30,
2009 and 2008, respectively.
  13.
              Income
      Taxes
 
 The
Company’s different operating subsidiaries are subject to different income tax
regulations under PRC law.
 
 The
operating subsidiary, Meat, has been given special tax-free status by the PRC
government because of the Company standing as leader in its industry in Dalian;
therefore, no provision for income tax in the PRC was made for period ended
September 30, 2009.
 
 The
Company’s operating subsidiary, Food, has made provision for income taxes for
the nine months ended September 30, 2009 of $1,441,418.
 
 The
Company’s operating subsidiary, Sales, has not made provision for income tax in
2009 as it has incurred operating losses during the nine months
period.
 
 After
adjusting for special tax-free status and net operating loss, the consolidated
taxable earnings were determined, and the results were as follows:
-
 
 i.
              
              2008
              
              Tax
      expense
              
              (520,089)ii.
              
              2007
              
              Tax
      expense
              
              (967,539)iii.
              
              2006
              
              Tax
      benefit
              
              1,609
 
 Beginning
December 31, 2007, the Company’s foreign subsidiaries became subject to U.S.
income tax liability; however, the tax is deferred until foreign source income
is repatriated to the Company and the Company has not currently determined when
foreign source income will be repatriated.  Accordingly, the company
has not made any provisions for U.S. income tax liability.
 
 On March
16, 2007, the PRC government passed new tax legislation that repealed
preferential tax treatment for foreign investment enterprises in the PRC and
enacted new tax regulations. Under such regulations, with certain exceptions,
both domestic and foreign enterprises will be taxed at a standard enterprise
income tax rate of 25%.  The Company’s two operating subsidiaries,
Food, and Sales are subject to the 25% income tax rate beginning January 1,
2008.  Based on current PRC legislation, Meat should be expected to
continue benefiting from a tax holiday.
  28
 Energroup
Holdings Corporation
 Notes
to Consolidated Financial Statements
 As
of September 30, 2009 and December 31, 2008
 14.
              Commitments
 
 It is
company policy to develop plant facilities based on availability of cash
resources without incurring capital commitments.  Therefore, the
Company did not have any capital commitments existing at September 30,
2009.
 
 On
December 19, 2007, the Company entered into a hog purchase agreement whereby the
Dalian Chuming Group Co., Ltd will provide at fair market price a minimum number
of hogs to the Company.  At September 30, 2009, the Company expects
minimum quantities of hogs detailed in the following table:-
 
 Year
              
              Hogs
              
              
              Price
      Per Hog
              
              
              Amount2009
      (October to December)
              
              
              124,824
              
              
              $
              187.13
              
              
              $
              23,358,3152010
              
              
              800,000
              
              
              $
              205.84
              
              
              
              164,674,737$
              188,033,052
 
 The
Company believes that the fair market price of the hogs will increase by 10%
each year.  The assumption of 10% reflects that Company expectations
in regards to inflation, and the rising costs of inputs in breeding
livestock.
  15.
              Operating
      Segments
 
 The
Company individually tracks the performance of its three operating subsidiaries
Meat Company, Food Company, and Sales Company. Meat Company is primarily engaged
in the slaughter and processing of pork livestock for wholesale and retail
distribution. Food Company is primarily engaged in the production of pork-based
food products, such as sausages and cured meats, for retail distribution. Sales
Company is primarily engaged in the sale and distribution of products produced
by Food Company and Meat Company.
 
 The chief
operating decision maker is the Chief Executive Officer of the
Company.  He evaluates each operating segment on the following
measures of profit or loss: gross profit, operating income, and earnings before
taxes, and net income. When he makes decisions on the strategic plans of each
operating segment, he considers the foregoing measures of profit or loss and
their impact on the overall performance of the Company as a whole.
 
 Below is
a presentation of the Company’s results of operations and financial position for
its operating subsidiaries at September 30, 2009 and 2008 and for the periods
then ended. The Company has also provided reconciling adjustments with the
Company and its intermediate holding companies Dalian Chuming Precious Sheen
Investments Consulting Ltd. (“Chuming WFOE”) and Precious Sheen Investments Ltd
(PSI).
  29
 Energroup
Holdings Corporation
 Notes
to Consolidated Financial Statements
 As
of September 30, 2009 and December 31, 2008
 Results of
      Operations
              
              
              
              
              
              
              
              
              
              
              WFOE,For
      the period ended
              
              Meat
              
              
              Food
              
              
              Sales
              
              
              PSI,
      &September
      30, 2009
              
              Company
              
              
              Company
              
              
              Company
              
              
              Eliminations
              
              
              TotalSales
              
              $
              147,991,969
              
              
              $
              24,184,096
              
              
              $
              25,724,571
              
              
              $
              (41,047,962
              )
              
              $
              156,852,674Cost
      of Sales
              
              
              129,915,408
              
              
              
              17,675,199
              
              
              
              27,073,097
              
              
              
              (41,047,962
              )
              
              
              133,615,742Gross
      Profit
              
              
              18,076,560
              
              
              
              6,508,897
              
              
              
              (1,348,526
              )
              
              
              -
              
              
              
              23,236,932Operating
      Expense
              
              
              (962,072
              )
              
              
              (627,660
              )
              
              
              (2,105,482
              )
              
              
              (269,463
              )
              
              
              (3,964,678
              )Operating
      (Loss)/Profit
              
              
              17,114,488
              
              
              
              5,881,237
              
              
              
              (3,454,008
              )
              
              
              (269,463
              )
              
              
              19,272,254Other
      Income (Expense)
              
              
              (129,147
              )
              
              
              (115,566
              )
              
              
              (29,779
              )
              
              
              (12,836,469
              )
              
              
              (13,110,961
              )Earnings
      before Tax
              
              
              16,985,341
              
              
              
              5,765,671
              
              
              
              (3,483,787
              )
              
              
              (13,105,932
              )
              
              
              6,161,294(Income
      Tax Expense)
              
              
              -
              
              
              
              (1,441,418
              )
              
              
              -
              
              
              
              -
              
              
              
              (1,441,418
              )Net
      Income
              
              $
              16,985,341
              
              
              $
              4,324,253
              
              
              $
              (3,483,787
              )
              
              $
              (13,105,932
              )
              
              $
              4,719,876
 
 Eliminated
      Intercompany Sales of Products SoldSold
      From:
              
              Sold
      To:
              
              AmountFood
      Company
              
              Sales
      Company
              
              $
              5,854,487Meat
      Company
              
              Sales
      Company
              
              
              20,292,333Meat
      Company
              
              Food
      Company
              
              
              14,901,142$
              41,047,962
  Financial
      Position
              
              
              
              
              
              
              
              
              
              
              WFOE,At
              
              Meat
              
              
              Food
              
              
              Sales
              
              
              PSI,
      &September
      30, 2009
              
              Company
              
              
              Company
              
              
              Company
              
              
              Eliminations
              
              
              TotalCurrent
      Assets
              
              $
              155,707,886
              
              
              $
              40,871,873
              
              
              $
              44,559,272
              
              
              $
              (161,427,196
              )
              
              $
              79,711,836Non
      Current Assets
              
              
              25,153,643
              
              
              
              18,805,949
              
              
              
              258,786
              
              
              
              669
              
              
              
              44,219,046Total
      Assets
              
              
              180,861,529
              
              
              
              59,677,822
              
              
              
              44,818,058
              
              
              
              (161,426,527
              )
              
              
              123,930,882Current
      Liabilities
              
              
              108,685,613
              
              
              
              49,435,520
              
              
              
              51,909,253
              
              
              
              (172,356,544
              )
              
              
              37,673,841Total
      Liabilities
              
              
              108,685,613
              
              
              
              49,435,520
              
              
              
              51,909,253
              
              
              
              (172,356,544
              )
              
              
              37,673,841Net
      Assets
              
              
              72,175,915
              
              
              
              10,242,303
              
              
              
              (7,091,195
              )
              
              
              10,930,017
              
              
              
              86,257,041Total
      Liabilities&
      Net Assets
              
              $
              180,861,529
              
              
              $
              59,677,822
              
              
              $
              44,818,058
              
              
              $
              (161,426,527
              )
              
              $
              123,930,882
  30
 Energroup
Holdings Corporation
 Notes
to Consolidated Financial Statements
 As
of September 30, 2009 and December 31, 2008
 Results
      of Operations
              
              
              
              
              
              
              
              
              
              
              WFOE,For
      the period ended
              
              Meat
              
              
              Food
              
              
              Sales
              
              
              PSI,
      &September
      30, 2008
              
              Company
              
              
              Company
              
              
              Company
              
              
              Eliminations
              
              
              TotalSales
              
              $
              128,208,596
              
              
              $
              16,185,747
              
              
              $
              62,110,427
              
              
              $
              (66,195,551
              )
              
              $
              140,309,218Cost
      of Sales
              
              
              111,689,686
              
              
              
              13,481,540
              
              
              
              61,353,808
              
              
              
              (66,195,551
              )
              
              
              120,329,483Gross
      Profit
              
              
              16,518,909
              
              
              
              2,704,207
              
              
              
              756,618
              
              
              
              -
              
              
              
              19,979,735Operating
      Expense
              
              
              (1,943,752
              )
              
              
              (973,602
              )
              
              
              (2,124,161
              )
              
              
              (303,569
              )
              
              
              (5,345,085
              )Operating
      (Loss)/Profit
              
              
              14,575,157
              
              
              
              1,730,605
              
              
              
              (1,367,543
              )
              
              
              (303,569
              )
              
              
              14,634,650Other
      Income (Expense)
              
              
              690,654
              
              
              
              (505,527
              )
              
              
              124,584
              
              
              
              (318,751
              )
              
              
              (9,040
              )Earnings
      before Tax
              
              
              15,265,811
              
              
              
              1,225,078
              
              
              
              (1,242,959
              )
              
              
              (622,320
              )
              
              
              14,625,611(Income
      Tax Expense)
              
              
              (214,321
              )
              
              
              (234,817
              )
              
              
              -
              
              
              
              -
              
              
              
              (449,138
              )Net
      Income
              
              $
              15,051,491
              
              
              $
              990,261
              
              
              $
              (1,242,959
              )
              
              $
              (622,320
              )
              
              $
              14,176,473
 
 Eliminated
      Intercompany Sales of Products SoldSold
      From:
              
              Sold
      To:
              
              AmountFood
      Company
              
              Sales
      Company
              
              $
              10,914,340Meat
      Company
              
              Sales
      Company
              
              
              44,347,880Meat
      Company
              
              Food
      Company
              
              
              10,933,331$
              66,195,551
 
 Financial
      Position
              
              
              
              
              
              
              
              
              
              
              WFOE,At
              
              Meat
              
              
              Food
              
              
              Sales
              
              
              PSI,
      &December
      31, 2008
              
              Company
              
              
              Company
              
              
              Company
              
              
              Eliminations
              
              
              TotalCurrent
      Assets
              
              $
              74,713,237
              
              
              $
              21,126,826
              
              
              $
              41,826,291
              
              
              $
              (89,504,485
              )
              
              $
              48,161,869Non
      Current Assets
              
              
              22,624,642
              
              
              
              19,570,329
              
              
              
              325,480
              
              
              
              1,088
              
              
              
              42,521,539Total
      Assets
              
              
              97,337,879
              
              
              
              40,697,155
              
              
              
              42,151,771
              
              
              
              (89,503,397
              )
              
              
              90,683,408Current
      Liabilities
              
              
              42,293,137
              
              
              
              34,796,536
              
              
              
              45,747,946
              
              
              
              (99,079,858
              )
              
              
              23,757,761Total
      Liabilities
              
              
              42,293,137
              
              
              
              34,796,536
              
              
              
              45,747,946
              
              
              
              (99,079,858
              )
              
              
              23,757,761Net
      Assets
              
              
              55,044,742
              
              
              
              5,900,619
              
              
              
              (3,596,175
              )
              
              
              9,576,462
              
              
              
              66,925,647Total
      Liabilities&
      Net Assets
              
              $
              97,337,879
              
              
              $
              40,697,155
              
              
              $
              42,151,771
              
              
              $
              (89,503,396
              )
              
              $
              90,683,408
  31
 
 Energroup
Holdings Corporation
 Notes
to Consolidated Financial Statements
 As
of September 30, 2009 and December 31, 2008
 16.
              Earnings Per
      Share
 
 Components
of basic and diluted earnings per share were as follows: -
 
 For
      nine
              
              
              For
      ninemonths
      ended
              
              
              months
      endedSeptember
      30,
              
              
              September
      30,2009
              
              
              2008Net
      Income (A)
              
              $
              4,719,876
              
              
              $
              14,176,473Basic
      Weighted Average Shares Outstanding (B)
              
              
              17,272,756
              
              
              
              17,272,756Dilutive
      Shares:-Addition to Common Stock from
      Exercise of Placement Warrants
              
              
              -
              
              
              
              46,364-Addition to Common Stock from
      Contingent Shares Held in Escrow (Please refer to Note 18)
              
              
              3,863,636
              
              
              
              3,863,636Diluted
      Weighted Average Shares Outstanding: (C)
              
              
              21,136,392
              
              
              
              21,182,756Earnings
      Per Share:-Basic
    (A)/(B)
              
              $
              0.27
              
              
              $
              0.82-Diluted
      (A)/(C)
              
              $
              0.22
              
              
              $
              0.67Weighted
      Average Shares Outstanding:-Basic
              
              
              17,272,756
              
              
              
              17,272,756-Diluted
              
              
              21,136,392
              
              
              
              21,182,756
  17.
              Concentration of
      Risk
 
 (A)
              Demand
      risk
 
 The
Company had concentrations of risk in demand for its products because its sales
were made to a small number of customers.
 
 (B)
              Supply
      Risk
 
 The
Company is subject to concentration of supply shortage risk because it purchases
its materials for resale from a few select vendors. The Company’s availability
of supply is correlated with the few select vendors’ ability to meet the market
demand.  In 2007, the entire industry in the PRC faced a shortage in
the supply of hogs.
  32
 Energroup
Holdings Corporation
 Notes
to Consolidated Financial Statements
 As
of September 30, 2009 and December 31, 2008
 18.           Financing
Transaction
 
 On
December 31, 2007, the Company, a Nevada corporation (“Energroup” or the
“Company”), acquired Precious Sheen Investments Ltd. (“PSI”) in a reverse
take-over transaction, by executing a Share Exchange Agreement (“Exchange
Agreement”) by and among Energroup, PSI, and all of the shareholders of PSI’s
issued and outstanding share capital (the “PSI Shareholders”). PSI owned 100% of
the equity in Chuming WFOE. Chuming WFOE is a holding company for the following
three operating subsidiaries: (i) Meat Company, (ii) Food Company, and (iii)
Sales Company, each of which is a limited liability company headquartered in,
and organized under the laws of, China (also referred to elsewhere as the
“Chuming Operating Subsidiaries”).
 
 As a
result of the reverse take-over transaction, PSI’s Shareholders became
Energroup’s controlling shareholders and PSI became Energroup’s wholly-owned
subsidiary. As a result of PSI becoming Energroup’s wholly-owned subsidiary,
Energroup acquired the business and operations of Chuming and the Chuming
Operating Subsidiaries.
 
 Under the
Exchange Agreement, Energroup completed the acquisition of all of the issued and
outstanding shares of PSI through the issuance of 16,850,000 restricted shares
of common stock of Energroup to PSI’s Shareholders. Immediately prior to the
Exchange Agreement transaction, the Company had 422,756 shares of common stock
issued and outstanding. Immediately after the issuance of the shares to PSI’s
Shareholders, the Company had 17,272,756 shares of common stock issued and
outstanding. The 422,756 shares of PSI were cancelled and 17,272,756 shares of
Energroup were issued to reflect this reverse take-over
transaction.
 
 Concurrently
with the Exchange Agreement, Energroup also entered into a Securities Purchase
Agreement (the “Purchase Agreement”) pursuant to which Energroup agreed to issue
and sell 3,863,635 shares of its common stock to ten accredited investors for an
aggregate purchase price of $17,000,000 or $4.40 per share (the “Financing”).
The closing of the Financing coincided with the Closing of the reverse take-over
transaction.
 
 In
connection with the sales of securities to accredited investors under the
securities purchase agreement, Hunter Wise Financial Group, LLC (the “Placement
Agent”), was compensated with a commission of $1,190,000 which is equal to 7.00%
of the aggregate purchase price and a warrant to purchase the 386,364 shares of
the Company’s common stock at an exercise price of $4.40 per
share.  At December 31, 2007, the Company had adequate authorized
capital to issue common shares upon the exercise of the warrant.
 
 At
September 30, 2009, the total number of shares outstanding, on a fully diluted
basis, is shown in the following table:
 
 i.
              
              Common
      shares outstanding prior to offering of securities
              
              
              17,272,756ii.
              
              Common
      shares issued under securities purchase agreement
              
              
              3,863,636iii.
              
              Common
      shares issuable upon exercise of placement agent warrants
              
              
              386,36421,522,756
  33
 
 Energroup
Holdings Corporation
 Notes
to Consolidated Financial Statements
 As
of September 30, 2009 and December 31, 2008
 Concurrent
with the Company’s financing transaction, the Company agreed to register for
resale the common shares that were sold under the securities purchase
agreement.  Pursuant to filing a Form S-1 registration statement with
the U.S. Securities and Exchange Commission, the Company entered into a
Registration Rights Agreement with the Investors.  The agreement calls
for liquidated damages to be paid by the Company, if in the event the
registration statement is not declared effective within 135 days of the closing
of the financing transaction.  The liquidated damages will be 1% of
the total financing amount in cash per month for each month after the 135 days
period.  The agreement states a maximum penalty of $1.70 million or
10% of the financing amount. At December 31, 2007, the Company accounted for the
liability under the registration rights agreement in accordance with FASB Staff
Position No. EITF 00-19-2 Accounting for Registration Payment
Arrangements.  Under such accounting treatment, the liquidated
damages are accounted for as a reduction of the proceeds.  In
asserting the most conservative position, the Company has accrued the maximum
liability of $1.7 million and is carrying that balance in the accrued
liabilities account. In the event that the registration becomes effective in a
timeframe that is earlier than February 15, 2009, the portion that is not
legally owed, or in the event that investors waive any liquidating damages, the
accrual will be reversed and the funds will be added back to the Company’s
additional paid in capital.
 
 In
connection with a make good agreement related to the financing transaction on
December 31, 2007, the Company’s Chairman and CEO, Mr. Shi Huashan placed in
escrow 3,863,636 shares, which were beneficially owned by him.  These
shares are to be released back to him if the Company meets the following
earnings targets of $15.9 million, and $20.9 million in after-tax net income for
the years ended December 31, 2008, and 2009 respectively. In the event that the
Company does not meet the aforementioned financial targets, the escrowed shares
will be released, on a pro-rata basis, to the investors in the financing
transaction.  In accordance with SFAS 128, Earnings per Share, for the
sake of calculating the Company’s earnings per share, the Company has accounted
for the 3,863,636 escrowed shares as contingently issuable shares as such they
are not included in the weighted average basic shares outstanding but are
included in the weighted average diluted shares outstanding.  Please
refer to Note 16.
 
 In
accordance with Topic 5.T of the Staff Accounting Bulletins (SAB 79), the
Company expects to record a compensatory expense for the shares upon their
release from escrow.  Whether the shares are released to the
accredited investors or released to Mr. Shi the Company will record an expense
with a corresponding credit to the Company’s contributed paid in
capital.  The Company anticipates that compensatory expense to be
recognized in future operating periods could be in a range between $17.0 million
to $29.2 million.  The Company approximates this range based on the
per share offering price of $4.40 at December 31, 2007 and a potential future
stock price of $7.57 based on a $20.0 million net income (short of the target of
$20.9 million net income) with a price-to-earnings ratio of 8.0, which is
comparable to the valuation used in the offering at December 31,
2007.
 
 For the
year ended December 31, 2008, the Company recorded an expense for the expected
release of shares deposited in the escrow account. The Company expects that
1,931,818 shares will be released.  The amount of expense recorded was
$10,622,294.  The impact on earnings per share, on a basic and diluted
basis, was $0.61 and $0.50, respectively. Simultaneously, for the nine months
ended September 30, 2009, the Company expects that 1,448,864 shares will be
released and have recorded the expense of $12,838,043. The impact on earnings
per share, on a basic and diluted basis, was $0.75 and $0.61,
respectively.
  34




ITEM
      2.
              MANAGEMENT’S
      DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS





Note
Regarding Forward-Looking Statements





This
quarterly report on Form 10-Q and other reports filed by Registrant from time to
time with the Securities and Exchange Commission (collectively the “Filings”)
contain or may contain forward-looking statements and information that are based
upon beliefs of, and information currently available to, Registrant’s management
as well as estimates and assumptions made by Registrant’s management. Readers
are cautioned not to place undue reliance on these forward-looking statements,
which are only predictions and speak only as of the date hereof. When used in
the filings, the words “anticipate”, “believe”, “estimate”, “expect”, “future”,
“intend”, “plan”, or the negative of these terms and similar expressions as they
relate to Registrant or Registrant’s management identify forward-looking
statements. Such statements reflect the current view of Registrant with respect
to future events and are subject to risks, uncertainties, assumptions, and other
factors (including the risks contained in the section of this report entitled
“Risk Factors”) relating to Registrant’s industry, Registrant’s operations and
results of operations, and any businesses that Registrant may acquire. Should
one or more of these risks or uncertainties materialize, or should the
underlying assumptions prove incorrect, actual results may differ significantly
from those anticipated, believed, estimated, expected, intended, or
planned.





Although
Registrant believes that the expectations reflected in the forward-looking
statements are reasonable, Registrant cannot guarantee future results, levels of
activity, performance, or achievements. Except as required by applicable law,
including the securities laws of the United States, the Registrant does not
intend to update any of the forward-looking statements to conform these
statements to actual results. Readers are urged to carefully review and consider
the various disclosures made throughout the entirety of this quarterly report,
which attempt to advise interested parties of the risks and factors that may
affect our business, financial condition, results of operations, and
prospects.





In
this Form 10-Q, references to “we”, “our”, “us”, “our company”, “Energroup” or
the “Registrant” refer to Energroup Holdings Corporation, a Nevada
corporation.





OVERVIEW





Headquartered
in the City of Dalian, Liaoning Province of the People’s Republic of China (the
“PRC” or “China”), we are a meat processing company primarily involved in the
slaughtering, processing, packaging and distribution of pork and pork products.
We also process and sell seafood, such as minced fillet products, which
accounted for a small portion of our revenue (approximately 7.86%) in the third
quarter of 2009.





We are
the first pork producer in China to receive “Green Food” certification from
China’s Ministry of Agriculture. Green Food is an innovative certification
program unique to China that is awarded to food processors who produce using
environmentally sustainable methods and meet certain high technical standards of
quality control, safety, and product quality, and generate low levels of
pollution. The Green Food certification is based on standards defined by the
Codex Alimentarius Commission (“CAC”), a joint body of the United Nations Food
and Agriculture Organization and the World Health Organization. We also received
ISO 9001:2000 certification that covers our production, research and development
and sales activities.


35





Currently
we have a wholesale and retail distribution network and sell either directly or
indirectly across northeast China, including supermarkets and
hypermarkets.





As of
September 30, 2009, we had 732 employees, of whom 387 were operating personnel,
256 were sales personnel, 39 were research and development personnel and 50 were
administrative personnel.





Dalian
Precious Sheen Investments Consulting Co., Ltd., or Chuming WFOE, is our holding
company established in China for our three PRC operating subsidiaries,
collectively referred to elsewhere in this report as the “Chuming Operating
Subsidiaries”:





1.
            Dalian
      Chuming Slaughter and Packaging Pork Company Ltd. ( “Meat Company”), whose
      primary business activity is acquiring, slaughtering and packaging of pork
      and cattle;2.
            Dalian
      Chuming Processed Foods Company Ltd. ( “Food Company”), whose primary
      business activity is the processing of raw and cooked meat products;
      and3.
            Dalian
      Chuming Sales Company Ltd. (“Sales Company”), which is responsible for our
      sales, marketing and distribution
operations.




The
Chuming Operating Subsidiaries are spin-off constituents of a former parent
company, Dalian Chuming Group Co., Ltd., or the “Group.” Our primary business
activities are the production and packing of fresh pork and production of
processed meat products for distribution and sale to clients throughout the
PRC.  Chuming WFOE was incorporated in China as a wholly foreign owned
enterprise in December 2007. Chuming WFOE is 100% owned by Precious Sheen
Investments Limited (“PSI”), a holding company established in the British Virgin
Islands in May 2007.





Pork is
widely regarded as China’s most important source of meat and is consumed at a
much higher rate than other categories of meat. We believe that increasing
levels of consumption of pork products in China is linked to the rapid
development of the Chinese economy, urbanization and strong income
growth.





Aside
from increasing aggregate consumption, based on management’s research, pork
consumption patterns in recent years have shown two main characteristics. The
first is that per capita pork is consumed at higher rates in the urban areas of
China as opposed to rural areas, although the rate of growth in these urban
consumption rates is relatively slight. The second is that consumers’
consumption preferences appear to have shifted from frozen meat to fresh meat,
and from fat meat to lean meat, with a tendency toward high quality cuts.
Management believes these trends continue to be very favorable to our business
which is based on mechanized meat processing and sales to urban
consumers.





Our
total sales volume was 82,585 metric tons in the third quarter of
2009, 27,697 metric tons in the second quarter of 2009, 18,512 metric tons in
the first quarter of 2009, 18,007 metric tons in the fourth quarter of
2008.





Due to a
shortage in supply, live hog prices rose significantly in 2008. Retail pork
prices are an important component of China’s Consumer Price Index (CPI), a key
inflation indicator. In order to moderate increases in the CPI and maintain the
living standard of its lower-income population, the Chinese government (as it
pertains to the pork industry) has implemented a number of policies to encourage
pork production.  The average pork price has declined somewhat from
the first quarter of 2009, mainly because of perceptions arising from the
appearance of swine flu in late April and early May.  In June 2009,
the Chinese government purchased and placed in storage large quantities of pork
products in order to adjust the pork price in an effort to cause it to rebound
to a reasonable level.  As a result of this action, the prices of pork
have been rising since July 2009, and have risen to a level higher than the
prices seen during the first quarter of 2009.  The prices are
continuing to trend higher.


36





In China,
the pork processing industry remains fragmented, and we believe, inefficient. As
smaller players experience pressure from margin compression and stricter
government regulations, we believe scaled pork processors, like ourselves, will
be positioned to make acquisitions on favorable terms in order to capture market
share, gain scale, secure raw material, and access more customers. We expect
that the combined factors of stricter hygiene regulations, increasing
competition from well-financed players, and struggling meat suppliers, will
induce industry consolidation in the coming years. We believe we are in a strong
position to continue to take advantage of the Chinese government’s support for
leading pork producers, these market consolidation trends, and the emerging hog
supply situation. Management believes that this is a long-term
trend.





Given the
current competitive market conditions, we constantly strive to impose strict
quality control in our products and utilize state-of-art slaughtering and
cutting lines (which are imported from Stork Co. of the Netherlands), to ensure
our product quality, increase awareness of our brand and develop customer
loyalty. Our research suggests that consumers in China are increasingly
conscious of food safety and nutrition, and they are using their purchasing
power to demand safer and higher quality food products for their
families.





We place
a very high priority on food safety and integrity. For the feeds which are used
for our hogs, we control and monitor our feed sources by acquiring feeds only
from qualified suppliers who are licensed in the nation or the province, and
then carry out comprehensive tests to ensure quality. All of our production
lines have also passed the Hazard Analysis and Critical Control Point (HACCP)
test, which is certified by Moody International Certification Ltd. Management
anticipates that companies such as ours, with quality meat processing and modern
logistics systems, will benefit as they capture market share and build consumer
brand loyalty.





Management
believes that we need to broaden our geographic sales network and diversify our
customer base. Our distribution network has been expanded to all three
northeastern provinces where we have established our branches in the cities of
Harbin and Daqing, Heilongjiang Province, and the City of Changchun, Jilin
Province.  A broader customer base can not only mitigate our reliance
on certain big customers, but also bring us more opportunities. We believe a
broader market for our products can increase demand for our products, reduce our
vulnerability to market changes, and provide additional areas of growth in the
future.





Our top
five customers accounted for 35.6% for our total sales for the quarter ended
September 30, 2009. We plan to position our business to diversify our customer
base, which is expected to lower this percentage gradually in the
future.





Management
presently anticipates continued growth in volume of
sales.  Nevertheless, our ability to meet increased customer demand
and maintain profitability will however continue to depend on factors such as
our production capacity, availability of working capital, input costs, as well
as the other factors described throughout this report.





CRITICAL
ACCOUNTING POLICIES AND ESTIMATES





Our
management’s discussion and analysis of our financial condition and results of
operations are based on our combined financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States. The preparation of these financial statements requires us to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date
of the financial statements as well as the reported net sales and expenses
during the reporting periods. On an ongoing basis, we evaluate our estimates and
assumptions. We base our estimates on historical experience and on various other
factors that we believe are reasonable under the circumstances, the results of
which form the basis for making judgments about the carrying value of assets and
liabilities that are not readily apparent from other sources. Actual results may
differ from these estimates under different assumptions or
conditions.





While our
significant accounting policies are more fully described in Note 2 to our
combined financial statements included in this report, we believe that the
following accounting policies are the most critical to aid you in fully
understanding and evaluating this management discussion and
analysis:


37





Method
of Accounting





We
maintain our general ledger and journals with the accrual method accounting for
financial reporting purposes. The financial statements and notes are
representations of management. Accounting policies adopted by us conform to
generally accepted accounting principles in the United States of America and
have been consistently applied in the presentation of financial statements,
which are compiled on the accrual basis of accounting.





Principles
of Consolidation





The
consolidated financial statements, which include the Company and its
subsidiaries, are compiled in accordance with generally accepted accounting
principles in the United States of America. All significant inter-company
accounts and transactions have been eliminated. The consolidated financial
statements include 100% of assets, liabilities, and net income or loss of those
wholly-owned subsidiaries.




Our
founders have directly or indirectly owned the three operating subsidiaries
since their inception. We also own two intermediary holding companies. As of
September 30, 2009, the detailed identities of the consolidating subsidiaries
are as follows:





Name of Company
                  
                  Place of
                    Incorporation
                  
                  Attributable
                    Equity
                    Interest
                  
                  Registered
                    CapitalPrecious
      Sheen Investments Limited
                  
                  BVI
                  
                  100%
                  
                  USD
      10,000Dalian
      Chuming Precious Sheen Investment Consulting Co., Ltd.
                  
                  PRC
                  
                  100%
                  
                  RMB
      91,009,955Dalian
      Chuming Slaughtering & Pork Packaging Co. Ltd.
                  
                  PRC
                  
                  100%
                  
                  RMB
      10,000,000Dalian
      Chuming Processed Foods Co. Ltd.
                  
                  PRC
                  
                  100%
                  
                  RMB
      5,000,000Dalian
      Chuming Sales Co. Ltd.
                  
                  PRC
                  
                  100%
                  
                  RMB
      5,000,000





The
consolidation of these operating subsidiaries into a newly formed holding
company i.e. “the Company” is permitted by United States GAAP: ARB51 paragraph
22 and 23.





Use
of Estimates





The
preparation of financial statements in conformity with generally accepted
accounting principles in the United States 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 the reported amounts of revenues and expenses during the
reporting period. Management makes these estimates using the best information
available at the time the estimates are made; however, actual results could
differ materially from these estimates.





Accounts
Receivable





We extend
unsecured, non-interest bearing credit to our customers; accordingly, we carry
an allowance for doubtful accounts, which is an estimate, made by management.
Management makes its estimate based on prior experience rates and assessment of
specific outstanding customer balances.  Management may extend credit
to new customers who have met the criteria of our revised credit
policy.


38





Inventory
Carrying Value





Inventory,
consisting of raw materials in the form of livestock, work in progress, and
finished products, is stated at the lower of cost or market value. Finished
products are comprised of direct materials, direct labor and an appropriate
proportion of overhead. Periodic evaluation is made by management to identify if
inventory needs to be written down because of damage, or spoilage. Cost is
computed using the weighted average method.





Property,
Plant, and Equipment





Property,
Plant, and Equipment are stated at cost. Repairs and maintenance to these assets
are charged to expense as incurred; major improvements enhancing the function
and/or useful life are capitalized. When items are sold or retired, the related
cost and accumulated depreciation are removed from the accounts and any gains or
losses arising from such transactions are recognized.





Property
and equipment are depreciated using the straight-line method over their
estimated useful life with a 5% salvage value. Their useful lives are as
follows:





Fixed Asset Classification
                  
                  Useful
                    LifeLand
      Improvements
                  
                  10
      yearsBuildings
                  
                  20
      yearsBuilding
      Improvements
                  
                  10
      yearsManufacturing
      Machinery & Equipment
                  
                  10
      yearsOffice
      Equipment
                  
                  5
      yearsFurniture
      & Fixtures
                  
                  5
      yearsVehicles
                  
                  5
      years




Land
Use Rights





Land Use
Rights are stated at cost less accumulated amortization. Amortization is
provided over its useful life, using the straight-line method. The useful life
of the land use right is 50 years.





Customer
Deposits





Customer
Deposits represents money we have received in advance for purchases of pork and
pork products. We consider customer deposits as a liability until products have
been shipped and revenue is earned. We collect a damage deposit (as a deterrent)
recorded on other payable from showcase store operators as a means of enforcing
the proper use of our trademark. We carry the amount of these deposits as a
current liability because we will return the deposit to the operator when we
cease to conduct business with the operator.





Statutory
Reserve





Statutory
reserve refers to the amount appropriated from the net income in accordance with
laws or regulations, which can be used to recover losses and increase capital,
as approved, and, are to be used to expand production or operations. PRC laws
prescribe that an enterprise operating at a profit, must appropriate, on an
annual basis, from its earnings, an amount to the statutory reserve to be used
for future company development. Such an appropriation is made until the reserve
reaches a maximum equaling 50% of the enterprise’s registered
capital.


39





Earnings
Per Share





We
compute earnings per share (“EPS”) in accordance with Statement of Financial
Accounting Standards No. 128, “Earnings per share” (“SFAS No. 128”), and SEC
Staff Accounting Bulletin No. 98 (“SAB 98”). SFAS No. 128 requires companies
with complex capital structures to present basic and diluted EPS. Basic EPS is
measured as the income or loss available to common shareholders divided by the
weighted average common shares outstanding for the period. Diluted EPS is
similar to basic EPS but presents the dilutive effect on a per share basis of
potential common shares (e.g., contingent shares, convertible securities,
options, and warrants) as if they had been converted at the beginning of the
periods presented, or issuance date, if later. Potential common shares that have
an anti-dilutive effect (i.e., those that increase income per share or decrease
loss per share) are excluded from the calculation of diluted EPS.





Recent
Accounting Pronouncements





See Note
2(Z) to the consolidated financial statements included in Item 1 of this
Quarterly Report of Form 10-Q for discussions on recently issued accounting
announcements. We are currently evaluating the potential impact, if any, of the
adoption of the above recent accounting pronouncements on our consolidated
results of operations and financial condition.




RESULTS
OF OPERATIONS





Comparison
of Three Months Ended September 30, 2009 and September 30, 2009.





The following table sets forth the
results of our operations for the periods indicated as a percentage of net
sales:





Quarter
      Ended
                                              September
      30,
                                            
                                            %
      of
                                            
                                            
                                            Quarter
      Ended
                                              September
      30,
                                            
                                            %
      of2009
                                            
                                            Sales
                                            
                                            
                                            2008
                                            
                                            SalesSales
                                            
                                            $
                                            67,821,080
                                            
                                            100
                                            %
                                            
                                            $
                                            53,725,596
                                            
                                            100
                                            %Cost
      of Sales
                                            
                                            
                                            (57,246,206)
                                            
                                            84.41
                                            %
                                            
                                            
                                            (47,254,631)
                                            
                                            87.96
                                            %Gross
      Profit
                                            
                                            
                                            10,574,874
                                            
                                            15.59
                                            %
                                            
                                            
                                            6,470,965
                                            
                                            12.04
                                            %Selling
      Expenses
                                            
                                            
                                            (706,664)
                                            
                                            1.04
                                            %
                                            
                                            
                                            (878,893)
                                            
                                            1.64
                                            %General
      & Administrative Expenses
                                            
                                            
                                            (614,806)
                                            
                                            0.91
                                            %
                                            
                                            
                                            (734,976)
                                            
                                            1.37
                                            %Total
      Operating Expense
                                            
                                            
                                            (1,321,470)
                                            
                                            1.95
                                            %
                                            
                                            
                                            (1,613,869)
                                            
                                            3.01
                                            %Operating
      Income / (Loss)
                                            
                                            
                                            9,253,405
                                            
                                            13.64
                                            %
                                            
                                            
                                            4,857,096
                                            
                                            9.04
                                            %Other
      Income (Expense)
                                            
                                            
                                            (4,814,163)
                                            
                                            7.10
                                            %
                                            
                                            
                                            (320,037)
                                            
                                            0.60
                                            %Earnings
      Before Tax
                                            
                                            
                                            4,439,242
                                            
                                            6.55
                                            %
                                            
                                            
                                            4,537,058
                                            
                                            8.44
                                            %(Income
      Tax Expense) / Deferred Tax Benefit
                                            
                                            
                                            (686,232)
                                            
                                            1.01
                                            %
                                            
                                            
                                            (216,770)
                                            
                                            0.40
                                            %Net
      Income
                                            
                                            $
                                            3,753,010
                                            
                                            5.53
                                            %
                                            
                                            $
                                            4,320,288
                                            
                                            8.04
                                            %Earnings
      Per ShareBasic
                                            
                                            $
                                            0.22
                                            
                                            
                                            
                                            
                                            $
                                            0.25Diluted
                                            
                                            
                                            0.18
                                            
                                            
                                            
                                            
                                            
                                            0.20Weighted
      Average Shares OutstandingBasic
                                            
                                            
                                            17,272,756
                                            
                                            
                                            
                                            
                                            
                                            17,272,756Diluted
                                            
                                            
                                            21,136,392
                                            
                                            
                                            
                                            
                                            
                                            21,182,756




Sales. Our sales include
revenues from sales of our fresh pork, frozen pork, and processed food products.
During the quarter ended September 30, 2009, we had sales of $67,821,080 as
compared to sales of $53,725,596 for the quarter ended September 30, 2008, an
increase of approximately 26.24%. Our sales for our various product categories
in the third quarter of 2009 are summarized as follows:


40





Sales by product category, in
                      dollars:
                    
                    Third
                      Quarter
                      2009
                      (amount)
                    
                    
                    % of Total
                      Sales
                    
                    
                    Third
                      Quarter
                      2008
                      (amount)
                    
                    
                    % of
                      Total Sales
                    
                    
                    % of
                      increase
                      from
                      2008 to 2009Fresh
      Pork
                    
                    $
                    48,102,469
                    
                    
                    
                    70.90
                    %
                    
                    $
                    42,858,853
                    
                    
                    
                    79.80
                    %
                    
                    
                    12.23
                    %Frozen
      Pork
                    
                    
                    8,244,934
                    
                    
                    
                    12.20
                    %
                    
                    
                    4,618,716
                    
                    
                    
                    8.60
                    %
                    
                    
                    78.51
                    %Processed
      Food Products
                    
                    
                    11,473,677
                    
                    
                    
                    16.90
                    %
                    
                    
                    6,248,027
                    
                    
                    
                    11.60
                    %
                    
                    
                    83.64
                    %Total
      Sales
                    
                    $
                    67,821,080
                    
                    
                    
                    100
                    %
                    
                    
                    53,725,596
                    
                    
                    
                    100
                    %
                    
                    
                    26.24
                    %





Sales by product category, by
                      weight of product (metric tons):
                    
                    Third
                      Quarter
                      2009
                      (Weight in
                      tons)
                    
                    
                    % of
                      Total Sales
                    
                    
                    Third
                      Quarter
                      2008
                      (Weight in
                      tons)
                    
                    
                    % of
                      Total Sales
                    
                    
                    % of change
                      from
                      2008 to 2009Fresh
      Pork
                    
                    
                    28,322
                    
                    
                    
                    77.86
                    %
                    
                    
                    18,681
                    
                    
                    
                    79.53
                    %
                    
                    
                    51.61
                    %Frozen
      Pork
                    
                    
                    4,196
                    
                    
                    
                    11.54
                    %
                    
                    
                    2,190
                    
                    
                    
                    9.32
                    %
                    
                    
                    91.60
                    %Processed
      Food Products
                    
                    
                    3,858
                    
                    
                    
                    10.61
                    %
                    
                    
                    2,619
                    
                    
                    
                    11.15
                    %
                    
                    
                    47.31
                    %Total
      Sales
                    
                    
                    36,376
                    
                    
                    
                    100
                    %
                    
                    
                    23,490
                    
                    
                    
                    100
                    %
                    
                    
                    54.86
                    %





In the
third quarter of 2009, we raised our average per-kilogram sale price for
processed food products and decreased our average per-kilogram sale prices for
fresh pork and frozen pork to our customers. These changes were inline with
changes in the market price for these products. In the third quarter of 2009,
our sales volume of fresh pork, frozen pork and processed food products (by
weight) increased as compared to the third quarter of 2008, with the frozen pork
category continuing experiencing the highest growth in sales volume by weight.
We also increased our sales of fresh pork by weight in the third quarter of 2009
as compared with the same period in the prior year.   For processed
food products, our sales by weight increased by 47.31%, but because of higher
per-kilogram prices, our sales revenue for this product category increased by
83.64%. Management attributes the increases in sales revenue in our product
categories to the continuing strength in consumer demand for our products in the
periods presented.





The
following table shows the change in the average price per kilogram for our
product to consumers in the quarter ending September 30, 2009, as compared to
the same quarter last year:





Average Per-Kilogram Price to Customers (in $US)Third
                      quarter of
                      2009
                    
                    
                    Third
                      quarter of
                      2008
                    
                    % change
                    
                    
                    Change in
                      PriceFresh
      Pork
                    
                    $
                    1.70
                    
                    
                    $
                    2.29
                    
                    
                    
                    -25.97
                    %
                    
                    $
                    -0.60Frozen
      Pork
                    
                    $
                    1.96
                    
                    
                    $
                    2.11
                    
                    
                    
                    -6.83
                    %
                    
                    $
                    -0.14Processed
      Food Products
                    
                    $
                    2.97
                    
                    
                    $
                    2.39
                    
                    
                    
                    24.66
                    %
                    
                    $
                    0.59




Although
we also sell our products through sales agents, our principal sales channels
consist of Chuming-branded showcase stores, supermarkets and restaurants and
canteens. The following table summarizes the changes in the number of
participants within these sales channels:





Sales ChannelsAs of September 30,
                    
                    Showcase
                      Stores
                    
                    
                    Supermarkets
                    
                    
                    Restaurants
                      and
                      Canteens2008
                    
                    
                    702
                    
                    
                    
                    186
                    
                    
                    
                    3,2262009
                    
                    
                    924
                    
                    
                    
                    572
                    
                    
                    
                    5,013




41





As shown
in the table above, as of September 30, 2009, as compared to September 30, 2008,
we significantly increased the number of participants in all three of these
sales channels. We believe the sales from supermarkets and hypermarkets are
likely to continue to yield higher profit margins. Their orders tend to be large
and stable in quantity, and they usually have better credit. The increase in the
number of these participants has resulted in increased sales
volume.





Cost of Sales. Cost of sales
for the third quarter of 2009 increased by $9,991,575 or approximately 21.14%,
from $47,254,631 for the three months ended September 30, 2008 to $57,246,206
for the three months ended September 30, 2009. The increase was principally
attributable to the concession on the sales price of the products to sales
agents on a condition that sales agent assumes marketing expenses in selling our
products, starting in the third quarter of 2008. Our cost of sales for our
various product categories in the third quarter of each of 2009 and 2008 is
summarized and shown as a percentage of overall cost of sales in the following
chart:





Cost of Sales
                      Third quarter
                    
                    
                    % of
                      Overall
                      Cost of
                    
                    
                    Cost of Sales
                      Third quarter
                    
                    
                    % of
                      Overall
                      Cost of
                    
                    
                    % of
                      Change
                      fromProduct Category
                    
                    2009
                    
                    
                    Sales
                    
                    
                    2008
                    
                    
                    Sales
                    
                    
                    2008 to
                      2009Fresh
      Pork
                    
                    $
                    41,643,459
                    
                    
                    
                    72.74
                    %
                    
                    $
                    38,455,262
                    
                    
                    
                    81.38
                    %
                    
                    
                    8.29
                    %Frozen
      Pork
                    
                    
                    7,093,774
                    
                    
                    
                    12.39
                    %
                    
                    
                    3,925,908
                    
                    
                    
                    8.31
                    %
                    
                    
                    80.69
                    %Processed
      Food Products
                    
                    
                    8,508,973
                    
                    
                    
                    14.86
                    %
                    
                    
                    4,873,461
                    
                    
                    
                    10.31
                    %
                    
                    
                    74.60
                    %Total
      Cost of Sales
                    
                    $
                    57,246,206
                    
                    
                    
                    100
                    %
                    
                    $
                    47,254,631
                    
                    
                    
                    100
                    %
                    
                    
                    21.14
                    %





The
following table shows our cost of sales in the third quarter of each of 2009 and
2008 as a percentage of sales within each product group.





Product Category:
                  
                  Cost of Sales
                    Third quarter
                    2009
                  
                  
                  % of
                    Product
                    Group
                    Sales
                  
                  
                  Cost of Sales
                    Third quarter
                    2008
                  
                  
                  % of
                    Product
                    Group
                    Sales
                  
                  
                  % Change
                    Product
                    Group
                    SalesFresh
      Pork
                  
                  $
                  41,643,459
                  
                  
                  
                  86.57
                  %
                  
                  $
                  38,455,262
                  
                  
                  
                  89.73
                  %
                  
                  
                  -3.15
                  %Frozen
      Pork
                  
                  
                  7,093,774
                  
                  
                  
                  86.04
                  %
                  
                  
                  3,925,908
                  
                  
                  
                  85.00
                  %
                  
                  
                  1.04
                  %Processed
      Food Products
                  
                  
                  8,508,973
                  
                  
                  
                  74.16
                  %
                  
                  
                  4,873,461
                  
                  
                  
                  78.00
                  %
                  
                  
                  -3.84
                  %Total
      Cost of Sales
                  
                  $
                  57,246,206
                  
                  
                  
                  84.41
                  %
                  
                  $
                  47,254,631
                  
                  
                  
                  87.96
                  %
                  
                  
                  -3.55
                  %





Our cost
of sales of fresh pork products increased by 8.29% and decreased by 3.15% as a
percentage of sales of fresh pork products, in each case as compared to the
third quarter of 2008. This change resulted principally from the concession on
the sales price of the products to sales agents on a condition that each such
sales agent assumed marketing expenses in selling our products, starting in the
third quarter of 2008.  Our cost of sales of frozen pork products
increased by 80.69% and by 1.04% as a percentage of sales of frozen pork
products, in each case as compared to the third quarter of 2008, because
production and sales of this product increased over the respective periods.
During the third quarter of 2009, the cost of sales of processed food products
increased by 74.60% and decreased by 3.84% as a percentage of sales of processed
food products, in each case as compared to the same period last year.
Contributing factors to this increase of cost of sales were an increase in sales
volume of processed food products and the higher transportation and delivery
cost associated with an expanded sales range of this product period over
period.


42





The
following table shows the estimated average per-kilogram price we paid for live
pigs in 2009 and 2008:





Average
                    Unit
                    Price Per
                    Kilogram
                    in 2009
                    (in $US)
                  
                  
                  Average
                    Unit
                    Price Per
                    Kilogram
                    in 2008
                    (in $US)
                  
                  
                  Price
                    Increase/(Decrease)
                    (in $US)
                  
                  
                  %
                    Increase/(Descrease)
                    from 2008 to 2009FirstQuarter
                  
                  
                  1.7652
                  
                  
                  
                  2.2936
                  
                  
                  
                  (0.5284)
                  
                  
                  
                  (23.03)
                  %Second
      Quarter
                  
                  
                  1.5032
                  
                  
                  
                  2.2578
                  
                  
                  
                  (0.7546)
                  
                  
                  
                  (33.42)
                  %Third
      Quarter
                  
                  
                  1.7477
                  
                  
                  
                  2.2513
                  
                  
                  
                  (0.5036)
                  
                  
                  
                  (22.37)
                  %Fourth
      Quarter
                  
                  
                  N/A
                  
                  
                  
                  2.105
                  
                  
                  
                  N/A
                  
                  
                  
                  N/A
                  %





The most
rapid increase in live pig prices occurred in the third and fourth quarters of
2007, for the highest grades of live pigs. However, live pig prices dropped from
their highs in the second quarter of 2008 and have been stable since the third
quarter of 2008. We believe that live pig prices will continue to remain stable,
or perhaps trend lower, potentially through the first quarter of 2010. We
believe this trend of lower, stable prices to be temporary.





Gross Profit. Gross profit
was $10,574,874 for the three months ended September 30, 2009 as compared to
$6,470,965 for the same period in 2008, representing an increase of $4,103,909,
or approximately 63.42%. Management attributes the increase in gross profit to
increased sales volume of all three product groups and increased pricing on
processed pork products. Our gross profit as a percentage of sales was 15.59% in
the third quarter of 2009 as compared to 12.04% for the same period in
2008.





The
following table presents our gross profit for the three months ended September
30, 2009 and 2008. The table below also shows the percentage of gross profit for
each of our product groups, as a percentage of sales for that product
group.





Product Group
                  
                  Gross
                    Profit
                    Third
                    quarter
                    of 2009
                  
                  
                  % of
                    Product
                    Group
                    Sales
                  
                  
                  Gross
                    Profit
                    Second
                    quarter
                    of 2008
                  
                  
                  % of
                    Product
                    Group
                    Sales
                  
                  
                  % of
                    increase
                    from Third
                    quarter of
                    2008 to
                    Third
                    Quarter of
                    2009Fresh
      Pork
                  
                  $
                  6,459,010
                  
                  
                  
                  13.43
                  %
                  
                  $
                  4,403,591
                  
                  
                  
                  10.27
                  %
                  
                  
                  46.68
                  %Frozen
      Pork
                  
                  
                  1,151,160
                  
                  
                  
                  13.96
                  %
                  
                  
                  692,808
                  
                  
                  
                  15.00
                  %
                  
                  
                  66.16
                  %Processed
      Food Products
                  
                  
                  2,964,704
                  
                  
                  
                  25.84
                  %
                  
                  
                  1,374,566
                  
                  
                  
                  22.00
                  %
                  
                  
                  115.68
                  %Total
      Gross Profit
                  
                  $
                  10,574,874
                  
                  
                  
                  15.59
                  %
                  
                  $
                  6,470,965
                  
                  
                  
                  12.04
                  %
                  
                  
                  63.42
                  %





In the
third quarter of 2009, the gross profit of the fresh pork segment and frozen
pork segement increased by 46.68% and 66.16%, respectively, as compared to the
same period last year principally due to the increase in sales volume in those
two segments despite a lower per-kilogram unit price to
customers.  The processed food products segment continued to yield
period over period a gross profit amount that was the highest among all the
product groups as a percentage of product group sales.  Because of the
high margins and increased prices to consumers of this product, we were able
to maintain a stable amount of gross profit in dollar terms for this
product period over period.




Selling Expenses. Selling
expenses totaled $706,664 for the three months ended September 30, 2009, as
compared to $878,893 for the same period in 2008, a decrease of $172,229 or
19.60%. This decease is due to a reduction in our advertising expenses. We
continued to increase sales made through sales agents, who assumed certain
marketing expenses in selling our fresh pork products.





General and Administrative
Expenses. General and administrative expenses totaled $614,806 for the
three months ended September 30, 2009 as compared to $734,976 for the same
period in 2008, a decrease of $120,170 or 16.35%.
This change is partially
attributable to decreased
depreciation expense.


43





Other income (Expense).Our
other income (expense) consists of interest income, other expenses, and interest
expense.  In the third quarter of 2009, we had other income totaled
$7,204.  Our total other income in the third quarter of 2009 decreased
by $673,140, or 98.94% as compared to the same period in 2008.  This
decrease in other income is primarily attributable to the decrease of rental
income from our frozen storage facility and the exclusion of the government
subsidy that was part of other income in prior periods.





Net Income. Net income for
the three months ended September 30, 2009 was $3,753,010 as compared to
$4,320,288 for the same period in 2008, a decrease of $567,278 or 13.13%. This
decrease in net income is attributable to a compensatory expense arising from
the expected release of 1,448,864 of our shares from an escrow arrangement
entered into as part of a private equity financing consummated by us in December
2007.  See note 18 of the consolidated financial statements included
in Item 1 of this Quarterly Report on Form 10-Q.





Comparison
of Nine Months Ended September 30, 2009 and September 30, 2008.





The
following table sets forth the results of our operations for the periods
indicated as a percentage of net sales:





Nine
                                          Months
      Ended
                                          September
      30,
                                        
                                        %
      of
                                        
                                        Nine
                                          Months
      Ended
                                          September
      30,
                                        
                                        %
      of2009
                                        
                                        Sales
                                        
                                        2008
                                        
                                        SalesSales
                                        
                                        $
                                        156,852,674
                                        
                                        100.00
                                        %
                                        
                                        $
                                        140,309,218
                                        
                                        100.00
                                        %Cost
      of Sales
                                        
                                        
                                        (133,615,742)
                                        
                                        85.19
                                        %
                                        
                                        
                                        (120,329,483)
                                        
                                        85.76
                                        %Gross
      Profit
                                        
                                        
                                        23,236,932
                                        
                                        14.81
                                        %
                                        
                                        
                                        19,979,735
                                        
                                        14.24
                                        %Selling
      Expenses
                                        
                                        
                                        (2,079,027)
                                        
                                        1.33
                                        %
                                        
                                        
                                        (3,463,947)
                                        
                                        2.47
                                        %General
      & Administrative Expenses
                                        
                                        
                                        (1,885,651)
                                        
                                        1.20
                                        %
                                        
                                        
                                        (1,881,138)
                                        
                                        1.34
                                        %Total
      Operating Expense
                                        
                                        
                                        (3,964,678)
                                        
                                        2.53
                                        %
                                        
                                        
                                        (5,345,085)
                                        
                                        3.81
                                        %Operating
      Income / (Loss)
                                        
                                        
                                        19,272,254
                                        
                                        12.29
                                        %
                                        
                                        
                                        14,634,650
                                        
                                        10.43
                                        %Other
      Income (Expense)
                                        
                                        
                                        (13,110,960)
                                        
                                        8.36
                                        %
                                        
                                        
                                        (9,040)
                                        
                                        0.01
                                        %Earnings
      Before Tax
                                        
                                        
                                        6,161,294
                                        
                                        3.93
                                        %
                                        
                                        
                                        14,625,611
                                        
                                        10.42
                                        %(Income
      Tax Expense) / Deferred Tax Benefit
                                        
                                        
                                        (1,441,418)
                                        
                                        0.92
                                        %
                                        
                                        
                                        (449,138)
                                        
                                        0.32
                                        %Net
      Income
                                        
                                        $
                                        4,719,876
                                        
                                        3.01
                                        %
                                        
                                        $
                                        14,176,473
                                        
                                        10.10
                                        %Earnings
      Per ShareBasic
                                        
                                        $
                                        0.27
                                        
                                        
                                        
                                        
                                        $
                                        0.82Diluted
                                        
                                        
                                        0.22
                                        
                                        
                                        
                                        
                                        
                                        0.67Weighted
      Average Shares OutstandingBasic
                                        
                                        
                                        17,272,756
                                        
                                        
                                        
                                        
                                        
                                        17,272,756Diluted
                                        
                                        
                                        21,136,392
                                        
                                        
                                        
                                        
                                        
                                        21,182,756




Sales. Our sales include
revenues from sales of our fresh pork, frozen pork, and processed food products.
During the nine months ended September 30, 2009, we had sales of $156,852,674 as
compared to sales of $140,309,218 for the same period of 2008, an increase of
approximately 11.79%. Our sales for our various product categories for the nine
months period ended September 30, 2009 are summarized as
follows:


44





Sales by product category, in
                    dollars:
                  
                  Nine Months
                    Ended
                    September 30,
                    2009
                    (amount)
                  
                  
                  % of Total
                    Sales
                  
                  
                  Nine Months
                    Ended
                    September 30,
                    2008
                    (amount)
                  
                  
                  % of
                    Total Sales
                  
                  
                  % of
                    increase
                    from
                    2008 to 2009Fresh
      Pork
                  
                  $
                  115,951,472
                  
                  
                  
                  73.92
                  %
                  
                  $
                  114,605,135
                  
                  
                  
                  81.68
                  %
                  
                  
                  1.17
                  %Frozen
      Pork
                  
                  
                  16,686,335
                  
                  
                  
                  10.64
                  %
                  
                  
                  9,311,039
                  
                  
                  
                  6.64
                  %
                  
                  
                  79.21
                  %Processed
      Food Products
                  
                  
                  24,214,867
                  
                  
                  
                  15.44
                  %
                  
                  
                  16,393,044
                  
                  
                  
                  11.68
                  %
                  
                  
                  47.71
                  %Total
      Sales
                  
                  $
                  156,852,674
                  
                  
                  
                  100
                  %
                  
                  
                  140,309,218
                  
                  
                  
                  100
                  %
                  
                  
                  11.79
                  %





Sales by product category, by
                    weight of product (metric tons):
                  
                  Nine Months
                    Ended
                    September
                    30,2009
                    (Weight in
                    tons)
                  
                  
                  % of
                    Total Sales
                  
                  
                  Nine Months
                    Ended
                    September
                    30,2008
                    (Weight in
                    tons)
                  
                  
                  % of
                    Total Sales
                  
                  
                  % of change
                    from
                    2008 to 2009Fresh
      Pork
                  
                  
                  64,471
                  
                  
                  
                  78.07
                  %
                  
                  
                  48,123
                  
                  
                  
                  80.14
                  %
                  
                  
                  33.97
                  %Frozen
      Pork
                  
                  
                  9,763
                  
                  
                  
                  11.82
                  %
                  
                  
                  4,449
                  
                  
                  
                  7.41
                  %
                  
                  
                  119.44
                  %Processed
      Food Products
                  
                  
                  8,351
                  
                  
                  
                  10.11
                  %
                  
                  
                  7,475
                  
                  
                  
                  12.45
                  %
                  
                  
                  11.72
                  %Total
      Sales
                  
                  
                  82,585
                  
                  
                  
                  100
                  %
                  
                  
                  60,047
                  
                  
                  
                  100
                  %
                  
                  
                  37.53
                  %





In the
nine months ended September 30, 2009, we raised our average per-kilogram sale
price for processed food products and decreased our average per-kilogram sale
prices for fresh pork and frozen pork to our customers. These changes were
inline with changes in the market price for these products. In the nine months
ended September 30, 2009, our sales volume of fresh pork, frozen pork and
processed food products (by weight) increased, with the frozen pork category
experiencing the highest growth in sales volume both by weight and in terms of
sales revenue. Our sales revenue for fresh pork slightly increased due to the
increase of sales volume for this product despite a reduction in the average
per-kilogram price.  For processed food products, our sales by weight
increased by 11.72%, and because of higher per-kilogram prices, our sales
revenue for this product category increased by 47.71% as compared with the same
period in the prior year. Management attributes the increases in sales revenue
in our product categories to the continuing strength in consumer demand for our
products in the periods presented.





The
following table shows the change in the average price per kilogram for our
product to consumers in the nine months ended September 30, 2009, as compared to
the same period last year:





Average Per-Kilogram Price to Customers (in $US)Nine
                    Months
                    Ended
                    September
                    30, 2009
                  
                  
                  Nine
                    Months
                    Ended
                    September
                    30, of 2008
                  
                  % change
                  
                  
                  Change in
                    PriceFresh
      Pork
                  
                  $
                  1.80
                  
                  
                  $
                  2.38
                  
                  
                  
                  -0.24
                  %
                  
                  $
                  -0.58Frozen
      Pork
                  
                  $
                  1.71
                  
                  
                  $
                  2.09
                  
                  
                  
                  -0.18
                  %
                  
                  $
                  -0.38Processed
      Food Products
                  
                  $
                  2.90
                  
                  
                  $
                  2.19
                  
                  
                  
                  0.32
                  %
                  
                  $
                  0.71




Cost of Sales. Cost of sales
for the nine months ended September 30, 2009 increased by $ $13,286,259 or
approximately 11.04%, from $120,329,483 for the nine months ended September 30,
2008 to $133,615,742 for the nine months ended September 30, 2009. The increase
was principally attributable to the concession on the sales price of the
products to sales agents on a condition that sales agent assumes marketing
expenses in selling our products, starting in the third quarter of 2008. Our
cost of sales for our various product categories in the nine months ended
September 30, 2009 and 2008 is summarized and shown as a percentage of overall
cost of sales in the following chart:


45





Cost of Sales
                    Nine Months
                    Ended
                    September 30
                  
                  
                  % of
                    Overall
                    Cost of
                  
                  
                  Cost of Sales
                    Nine Months
                    Ended
                    September 30
                  
                  
                  % of
                    Overall
                    Cost of
                  
                  
                  % of
                    increase
                    fromProduct Category
                  
                  2009
                  
                  
                  Sales
                  
                  
                  2008
                  
                  
                  Sales
                  
                  
                  2008 to 2009Fresh
      Pork
                  
                  $
                  101,328,631
                  
                  
                  
                  75.84
                  %
                  
                  $
                  100,269,410
                  
                  
                  
                  83.33
                  %
                  
                  
                  1.06
                  %Frozen
      Pork
                  
                  
                  14,405,427
                  
                  
                  
                  10.78
                  %
                  
                  
                  7,681,210
                  
                  
                  
                  6.38
                  %
                  
                  
                  87.54
                  %Processed
      Food Products
                  
                  
                  17,881,684
                  
                  
                  
                  13.38
                  %
                  
                  
                  12,378,863
                  
                  
                  
                  10.29
                  %
                  
                  
                  44.45
                  %Total
      Cost of Sales
                  
                  $
                  133,615,742
                  
                  
                  
                  100
                  %
                  
                  $
                  120,329,483
                  
                  
                  
                  100
                  %
                  
                  
                  11.04
                  %





The
following table shows our cost of sales in the nine months ended September 30,
2009 and 2008 as a percentage of sales within each product group.





Product Category:
                  
                  Cost of Sales
                    Nine Months
                    Ended
                    September 30,
                    2009
                  
                  
                  % of
                    Product
                    Group
                    Sales
                  
                  
                  Cost of Sales
                    Nine Months
                    Ended
                    September
                    30, 2008
                  
                  
                  % of
                    Product
                    Group
                    Sales
                  
                  
                  % Change
                    Product
                    Group
                    SalesFresh
      Pork
                  
                  $
                  101,328,631
                  
                  
                  
                  87.73
                  %
                  
                  $
                  100,269,410
                  
                  
                  
                  87.49
                  %
                  
                  
                  0.24
                  %Frozen
      Pork
                  
                  
                  14,405,427
                  
                  
                  
                  83.93
                  %
                  
                  
                  7,681,210
                  
                  
                  
                  82.50
                  %
                  
                  
                  1.44
                  %Processed
      Food Products
                  
                  
                  17,881,684
                  
                  
                  
                  73.85
                  %
                  
                  
                  12,378,863
                  
                  
                  
                  75.51
                  %
                  
                  
                  -1.67
                  %Total
      Cost of Sales
                  
                  $
                  133,615,742
                  
                  
                  
                  85.19
                  %
                  
                  $
                  120,329,483
                  
                  
                  
                  85.76
                  %
                  
                  
                  -0.57
                  %





Our cost
of sales of fresh pork products increased by 1.06% and increased by 0.24% as a
percentage of sales of fresh pork products, in each case as compared to the nine
months ended September 30, 2008. This change resulted principally from the
increase of the sales volume. Our cost of sales of frozen pork products
increased by 87.54% and by 1.44% as a percentage of sales of frozen pork
products, in each case as compared to the nine months ended September 30, 2008,
because production and sales of this product increased over the respective
periods. During the nine months ended September 30, 2009, the cost of sales of
processed food products increased by 44.45% but decreased by 1.67% as a
percentage of sales of processed food products, in each case as compared to the
same period last year. Contributing factors to this increase were an increase in
sales volume of processed food products and the higher transportation and
delivery cost associated with an expanded sales range of this product period
over period.




Gross Profit. Gross profit
was $23,236,932 for the nine months ended September 30, 2009 as compared to
$19,979,735 for the same period in 2008, representing an increase of $3,257,197,
or approximately 16.30%. Management attributes the increase in gross profit to
strong increases in sales revenue, driven by strong demand for our products,
especially our frozen pork products, despite higher input costs and related
price increases to our customers.  Our gross profit as a percentage of
sales was 14.81% in the nine months ended September 30, 2009 as compared to
14.24% for the same period in 2008.





The
following table presents our gross profit for the nine months ended September
30, 2009 and 2008. The table below also shows the percentage of gross profit for
each of our product groups, as a percentage of sales for that product
group.





Product Group
                  
                  Gross
                    Profit
                    Nine
                    Months
                    Ended
                    September
                    30, 2009
                  
                  
                  % of
                    Product
                    Group
                    Sales
                  
                  
                  Gross
                    Profit
                    Nine
                    Months
                    Ended
                    September
                    30, 2008
                  
                  
                  % of
                    Product
                    Group
                    Sales
                  
                  
                  % of
                    Change
                    from 2008
                    to 2009Fresh
      Pork
                  
                  $
                  14,222,841
                  
                  
                  
                  12.27
                  %
                  
                  $
                  14,335,725
                  
                  
                  
                  12.51
                  %
                  
                  
                  -0.79
                  %Frozen
      Pork
                  
                  
                  2,680,908
                  
                  
                  
                  16.07
                  %
                  
                  
                  1,629,829
                  
                  
                  
                  17.50
                  %
                  
                  
                  64.49
                  %Processed
      Food Products
                  
                  
                  6,333,183
                  
                  
                  
                  26.15
                  %
                  
                  
                  4,014,181
                  
                  
                  
                  24.49
                  %
                  
                  
                  57.77
                  %Total
      Gross Profit
                  
                  $
                  23,236,932
                  
                  
                  
                  14.81
                  %
                  
                  $
                  19,979,735
                  
                  
                  
                  14.24
                  %
                  
                  
                  16.30
                  %




46





In the
nine months ended September 30, 2009, the gross profit of the fresh pork segment
fell by 0.79% as compared to the same period last year principally due to lower
average-per-kilogram price to customers which offset sales volume increases in
this segment. The gross profit of the frozen pork products increased by
64.49%  as compared to the same period last year primarily due to the
dramatically increase of sales volume despite the lower average per-kilogram
price to customers.  The processed food products segment continued to
yield period over period a gross profit amount that was the highest among
all the product groups as a percentage of product group sales. Because of
the high margins and increased prices to consumers of this product, we were able
to maintain a stable amount of gross profit in dollar terms for this
product period over period.





Selling Expenses. Selling
expenses totaled $2,079,027 for the nine months ended September 30, 2009, as
compared to $3,463,947 for the same period in 2008, a decrease of $1,384,920 or
39.98%. This decease is due to a reduction in our advertising expenses. We
continued to increase sales made through sales agents, who assumed certain
marketing expenses in selling our fresh pork products.





General and Administrative
Expenses. General and administrative expenses totaled $1,885,651 for the
nine months ended September 30, 2009 as compared to $1,881,138 for the same
period in 2008, an increase of $4,513 or 0.24%. This change is primarily
attributable to increased outside legal fees and audit fees, and increased
staff, which
was partially offset by a decrease in depreciation expense.





Other income (Expense).Our
other income (expense) consists of interest income, other expenses, and interest
expense.  In the nine months ended September 30, 2009, we had totaled
other income of $35,552 and we did have income of $141,834 from a government
subsidy.  Our total other income in the nine months ended September
30, 2009 decreased by $1,384,508, or 97.50% as compared to the same period in
2008.  This decrease in total other income is primarily attributable
to the decrease of rental income from our frozen storage facility and the
exclusion of the government subsidy that was part of other income in prior
periods.





Net Income. Net income for
the nine months ended September 30, 2009 was $4,719,876 as compared to
$14,176,473 for the same period in 2008, a decrease of $9,456,597 or 66.71%.
This decrease in net income is attributable to a compensatory expense arising
from the expected release of 1,448,864 of our shares from an escrow arrangement
entered into as part of a private equity financing consummated by us in December
2007.  See note 18 of the consolidated financial statements included
in Item 1 of this Quarterly Report on Form 10-Q.





LIQUIDITY
AND CAPITAL RESOURCES





Cash
Flows





Nine
Months Ended September 30, 2009





As of
September 30, 2009, we had cash and cash equivalents of $14,670,937, other
current assets of $79,711,836 and current liabilities of $37,673,841. At
September 30, 2008, we had $5,695,798 in cash and cash
equivalents.  We presently finance our operations primarily with cash
flows from our operations, and we anticipate that this will continue to be our
primary source of funds to finance our short-term cash needs.  If we
require additional capital to expand or enhance our existing facilities, we will
consider debt or equity offerings or institutional borrowings as potential means
of financing.





Net cash
sourced in operating activities was $881,330 for the nine months ended September
30, 2009, while net cash flow used in operating activities was $307,586 in the
same period of 2008. This is primarily attributable to the increase in
gross profits of our products.


47





Net cash
used in investing activities was $3,932,762 for the nine months ended September
30, 2009, compared to cash used in investing activities of $1,638,371 in the
same period of 2008. This change is primarily due to amounts used for
improvements for one of our fresh food plants in the nine months ended September
30, 2009.





Net cash
sourced from financing activities was $10,253,095 for the nine months ended
September 30, 2009, as compared to net cash used in financing activities of
$964,516 in the same period of 2008.  This increase resulted
principally from an increase in our borrowings from banks during the nine months
ended September 30, 2009 as compared to the same period of
2008.




Capital
Commitments





In the
first quarter of 2008, we relaxed our credit policy for certain of our major
customers, permitting them up to a two-month grace period for payment for goods,
where previously no such grace period was provided. Management expects that in
the short term, this revised credit policy will result in an increase in
accounts receivable, and a corresponding reduction in our cash position.
Management does not anticipate that this change in our credit policy will result
in any deficiency of working capital.





Uses
of Liquidity





Our cash
requirements through the end of fiscal 2009 will be primarily to fund daily
operations for the growth of our business. Management will consider acquiring
additional manufacturing capacity for processed foods in the future to
strengthen and stabilize our manufacturing base.





Sources
of Liquidity





Our
primary sources of liquidity for our short-term cash needs are expected to be
from cash flows generated from operations and cash and cash equivalents
currently on hand. We believe that we will be able to borrow additional funds if
needed.





We
believe our cash flow from operations together with our cash and cash
equivalents currently on hand will be sufficient to meet our needs for working
capital, capital expenditure and other commitments through the end of 2009. For
our long-term cash needs, we may consider a number of alternative financing
opportunities, which may include debt and equity financing. No assurance can be
made that such financing will be available to us, and adequate funds may not be
available on terms acceptable to us. If additional funds are raised through the
issuance of equity securities, dilution to existing shareholders may result. If
funding is insufficient at any time in the future, we will develop or enhance
our products or services and expand our business through our own cash flows from
operations.





As of
September 30, 2009, we had outstanding $6,435,007 in aggregate borrowings from
the Bank of China under two loans, in the principal amounts of $4,387,504 and
$2,047,503, on which we pay interest at rates of 6.1586% and 7.3260% per annum
respectively.  As of September 30, 2009, we had outstanding $4,387,504
in borrowings from the Bank of Huaxia under one loan, on which we pay interest
at a rate of 6.732% per annum.  As of September 30, 2009, we had
outstanding $5,850,006 in borrowings from Shanghai Pufa Development Bank under
one loan, on which we pay interest at a rate of 5.841% per annum.   As
of September 30, 2009, we did not have any standby letters of credit or standby
repurchase obligations.





Foreign
Currency Translation Risk





Our
operations are, for the most part, located in the PRC, and we earn our revenue
in Chinese RMB. However, we report our financial results in U.S. Dollars using
the closing rate method. As a result, fluctuations in the exchange rates between
Chinese RMB and the U.S. Dollar will affect our reported financial results. The
balance sheet items are translated into U.S. dollars using the exchange rates at
the respective balance sheet dates. The capital and various reserves are
translated at historical exchange rates prevailing at the time of the
transactions while income and expenses items are translated at the average
exchange rate for the period. All exchange differences are recorded within
equity. The foreign currency translation adjustment for the nine months ended
September 30, 2009 was $1,773,476, which was a gain; and for the nine months
ended September 30 of 2008, $550,999 as a gain.


48





During
2003 and 2004 the exchange rate of RMB to the dollar remained constant at 8.26
RMB to the dollar. On July 21, 2005, the Chinese government adjusted the
exchange rate from 8.26 to 8.09 RMB to the dollar. In 2009, the RMB continued to
appreciate against the U.S. dollar. As of September 30, 2009, the market foreign
exchanges rate was increased to 6.8376 RMB to one U.S. dollar. As a result, the
ongoing appreciation of RMB to U.S. dollar negatively impacted our gross margins
for the nine months ended September 30, 2009.




Contractual
Obligations and Off-Balance Sheet Arrangements





Contractual
Obligations





We have
certain fixed contractual obligations and commitments that include future
estimated payments. Changes in our business needs, cancellation provisions,
changing interest rates, and other factors may result in actual payments
differing from the estimates. We cannot provide certainty regarding the timing
and amounts of payments. We have presented below a summary of the most
significant assumptions used in our determination of amounts presented in the
tables in order to assist in the review of this information within the context
of our consolidated financial position, results of operations, and cash
flows.





The
following tables summarize our contractual obligations as of September 30, 2009,
and the effect these obligations are expected to have on our liquidity and cash
flows in future periods.




Payments Due by PeriodLess than 1
                                                                      
                                                                      1-3
                                                                      
                                                                      3-5
                                                                      
                                                                      
                                                                      5Total
                                                                      
                                                                      Year
                                                                      
                                                                      Years
                                                                      
                                                                      Years
                                                                      
                                                                      
                                                                      Years +Contractual Obligations:Bank
      Indebtedness
                                                                      
                                                                      $
                                                                      16,672,517
                                                                      
                                                                      $
                                                                      16,672,517
                                                                      
                                                                      $
                                                                      _
                                                                      
                                                                      $
                                                                      _
                                                                      
                                                                      $
                                                                      _Other
      Indebtedness
                                                                      
                                                                      $
                                                                      _
                                                                      
                                                                      $
                                                                      _
                                                                      
                                                                      $
                                                                      _
                                                                      
                                                                      $
                                                                      _
                                                                      
                                                                      $
                                                                      _Capital
      Lease Obligations
                                                                      
                                                                      $
                                                                      _
                                                                      
                                                                      $
                                                                      _
                                                                      
                                                                      $
                                                                      _
                                                                      
                                                                      $
                                                                      _
                                                                      
                                                                      $
                                                                      _Operating
      Leases
                                                                      
                                                                      $
                                                                      _
                                                                      
                                                                      $
                                                                      _
                                                                      
                                                                      $
                                                                      _
                                                                      
                                                                      $
                                                                      _
                                                                      
                                                                      $
                                                                      _Purchase
      Obligations
                                                                      
                                                                      $
                                                                      188,033,052
                                                                      
                                                                      $
                                                                      156,700,000
                                                                      
                                                                      $
                                                                      31,333,052
                                                                      
                                                                      $
                                                                      _
                                                                      
                                                                      $
                                                                      _Total
      Contractual Obligations:
                                                                      
                                                                      $
                                                                      204,705,569
                                                                      
                                                                      $
                                                                      173,372,517
                                                                      
                                                                      $
                                                                      31,333,052
                                                                      
                                                                      $
                                                                      _
                                                                      
                                                                      $
                                                                      _





As
indicated in the table, as of September 30, 2009 we had $188,033,052 in purchase
obligations, which relates to our agreement for the purchase and sale of
hogs.  On December 19, 2007, the Company entered into a hog purchase
agreement whereby the Dalian Chuming Group Co., Ltd will provide at fair market
price a minimum number of hogs to the Company.  At September
30, 2009, the Company expects minimum quantities of hogs detailed in the
following table:





Year
                    
                    Hogs
                    
                    
                    Price Per Hog
                    
                    
                    Amount2009
      (October to December)
                    
                    
                    124,824
                    
                    
                    $
                    187.13
                    
                    
                    $
                    23,358,3152010
                    
                    
                    800,000
                    
                    
                    $
                    205.84
                    
                    
                    
                    164,674,737$
                    188,033,052





The
Company believes that the fair market price of the hogs will increase by 10%
each year.  The assumption of 10% reflects the Company’s expectations
in regards to inflation, and the rising costs of inputs in breeding
livestock.


49





Off-balance
Sheet Arrangements





We have
not entered into any other financial guarantees or other commitments to
guarantee the payment obligations of any third parties. We have not entered into
any derivative contracts that are indexed to our shares and classified as
shareholder’s equity or that are not reflected in our consolidated financial
statements. Furthermore, we do not have any retained or contingent interest in
assets transferred to an unconsolidated entity that serves as credit, liquidity
or market risk support to such entity. We do not have any variable interest in
any unconsolidated entity that provides financing, liquidity, market risk or
credit support to us or engages in leasing, hedging or research and development
services with us.





ITEM
      3.
              QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK





We do not
use derivative financial instruments in our investment portfolio and have no
foreign exchange contracts. Our financial instruments consist of cash and cash
equivalents, trade accounts receivable, accounts payable and long-term
obligations. We consider investments in highly liquid instruments purchased with
a remaining maturity of 90 days or less at the date of purchase to be cash
equivalents. However, in order to manage the foreign exchange risks, we may
engage in hedging activities to manage our financial exposure related to
currency exchange fluctuation. In these hedging activities, we might use
fixed-price, forward, futures, financial swaps and option contracts traded in
the over-the-counter markets or on exchanges, as well as long-term structured
transactions when feasible.




Interest
Rates. Our exposure to market risk for changes in interest rates relates
primarily to our short-term investments and short-term obligations; thus,
fluctuations in interest rates would not have a material impact on the fair
value of these securities. At September 30, 2009, we had approximately
$14,670,937 in cash and cash equivalents. A hypothetical 10% increase or
decrease in interest rates would not have a material impact on our earnings or
loss, or the fair market value or cash flows of these instruments.





Foreign
Exchange Rates. All of our sales and inputs are transacted in Renminbi (“RMB”).
As a result, changes in the relative values of U.S. dollars and RMB affect our
reported levels of revenues and profitability as the results are translated into
U.S. dollars for reporting purposes. However, since we conduct our sales and
purchase inputs in RMB, fluctuations in exchange rates are not expected to
significantly affect our financial stability or gross and net profit margins. We
do not currently expect to incur significant foreign exchange gains or losses,
or gains or losses associated with any foreign operations.





Our
exposure to foreign exchange risk primarily relates to currency gains or losses
resulting from timing differences between the signing of sales contracts and the
settling of these contracts. Furthermore, we translate monetary assets and
liabilities denominated in other currencies into RMB, the functional currency of
our operating business. Our results of operations and cash flow are translated
at average exchange rates during the period, and assets and liabilities are
translated at the unified exchange rate as quoted by the People’s Bank of China
at the end of the period. Translation adjustments resulting from this process
are included in accumulated other comprehensive income in our statement of
stockholders’ equity. We recorded net foreign currency gains of $1,773,476 and
$550,999 in the nine months ended September of 2009 and 2008, respectively. We
have not used any forward contracts, currency options or borrowings to hedge our
exposure to foreign currency exchange risk. We cannot predict the impact of
future exchange rate fluctuations on our results of operations and may incur net
foreign currency losses in the future. As our sales denominated in foreign
currencies, such as RMB, continue to grow, we may consider using arrangements to
hedge our exposure to foreign currency exchange risk.





Our
financial statements are expressed in U.S. dollars, but the functional currency
of our operating subsidiaries is RMB. The value of an investment in our stock
will be affected by the foreign exchange rate between U.S. dollars and RMB. A
decline in the value of RMB against the U.S. dollar could reduce the U.S. dollar
equivalent amounts of our financial results, the value of an investment in our
company and the dividends we may pay in the future, if any, all of which may
have a material adverse effect on the price of our stock.


50





ITEM 4T.
              CONTROLS
      AND PROCEDURES





We
maintain disclosure controls and procedures that are designed to ensure that
information required to be disclosed in our Exchange Act reports is recorded,
processed, summarized and reported within the time periods specified in the
SEC’s rules and forms, and that such information is accumulated and communicated
to our management, including its chief executive officer and chief financial
officer, as appropriate, to allow timely decisions regarding required
disclosure. In designing and evaluating the disclosure controls and procedures,
management recognizes that any controls and procedures, no matter how well
designed and operated, can provide only reasonable assurance of achieving the
desired control objectives, and management necessarily is required to apply its
judgment in evaluating the cost-benefit relationship of possible controls and
procedures.





As of
September 30, 2009, we carried out an evaluation, under the supervision and with
the participation of our management, including our chief executive officer and
our chief financial officer, of the effectiveness of the design and operation of
our disclosure controls and procedures.  Based on the foregoing, our
chief executive officer and chief financial officer concluded that our
disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)
under the Securities Exchange Act of 1934) were effective at the reasonable
assurance level.





There
were no changes in our internal control over financial reporting (as defined in
Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as
amended) during the quarter ended September 30, 2009 that have materially
affected, or are reasonably likely to materially affect, our internal control
over financial reporting.





PART
II.    OTHER INFORMATION





ITEM
      1.
              LEGAL
      PROCEEDINGS





We are
not aware of any material existing or pending legal proceedings against us, nor
are we involved as a plaintiff in any material proceeding or pending litigation.
There are no proceedings in which any of our current directors, officers or
affiliates, or any registered or beneficial shareholder, is an adverse party or
has a material interest adverse to us.





ITEM 1A.
              RISK
      FACTORS





The risk
factors included in our annual report on Form 10-K for the fiscal year ended
December 31, 2008 have not materially changed as of September 30,
2009.





ITEM
      2.
              UNREGISTERED
      SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS





None.





ITEM
      3.
              DEFAULTS
      UPON SENIOR SECURITIES





None.





ITEM
      4.
              SUBMISSION
      OF MATTERS TO A VOTE OF SECURITY
HOLDERS





None.





ITEM
      5.
              OTHER
      INFORMATION





None.





ITEM
      6.
              EXHIBITS




51





The
following exhibits are included in this report or incorporated by reference into
this report:





Exhibit
                  Number
                
                Description2.1
                
                Share
      Exchange Agreement by and among the Energroup Holdings Corporation, PSI
      and PSI and Energroup Shareholders dated December 31, 2007
    (1)2.2
                
                Articles
      and Plan of Merger (change in domicile from Utah to Nevada)
      (2)3.1
                
                Articles
      of Incorporation of Great Lakes Funding, Inc. (Utah)
(1)3.2
                
                Bylaws
      of Great Lakes Funding, Inc. (1)3.3
                
                Articles
      of Amendment to Articles of Incorporation of Great Lakes Funding, Inc.
      (Name Change) (1)3.4
                
                Articles
      of Amendment to Articles of Incorporation of Energroup Technologies, Inc.
      (Reverse Split) (2)3.5
                
                Articles
      of Incorporation of Energroup Holdings Corporation (Nevada)
      (2)3.6
                
                Bylaws
      of Energroup Holdings Corporation (2)3.7
                
                Certificate
      of Amendment to Articles of Incorporation of Energroup Holdings
      Corporation (3)4.1
                
                Registration
      Rights Agreement dated December 2007 among Energroup and the investors
      signatory thereto (1)4.2
                
                Common
      Stock Purchase Warrant issued to Placement Agent (December 2007)
      (2)31.1
                
                Rule
      13a-14(a) / 15d-14(a)(4) Certification by the Company’s Chief Executive
      Officer.*31.2
                
                Rule
      13a-14(a) / 15d-14(a)(4) Certification by the Company’s Chief Financial
      Officer.*32.1
                
                Section
      1350 Certification by the Company’s Chief Executive
    Officer.*32.2
                
                Section
      1350 Certification by the Company’s Chief Financial
    Officer.**
                
                Filed
      herewith.(1)
                
                Previously
      filed with our Current Report on Form 8-K on January 7, 2008 and
      incorporated herein by reference.(2)
                
                Previously
      filed with our Current Report on Form 8-K on August 22, 2007 and
      incorporated herein by reference.(3)
                
                Previously
      filed with our Current Report on Form 8-K on December 14, 2007 and
      incorporated herein by
reference.





SIGNATURES





Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.





ENERGROUP
      HOLDINGS CORPORATIONDated:  November
      16, 2009
                  By:
                  /s/
      Shi HuashanShi
      HuashanPresident
      and Chief Executive Officer(Principal
      Executive Officer)Dated:  November
      16, 2009
                  By:
                  /s/
      Wang ShuWang
      ShuChief
      Financial Officer(Principal
      Financial and Accounting
Officer)


52